Alaska's cities, boroughs and school districts could wind up footing more of the bill for the state's underfunded retirement plans under options now being considered by the legislature.
Gov. Sean Parnell and legislators are looking intently at plans for dealing with the $12 billion in looming retirement costs, but local leaders are getting worried about the impact of additional expense being shifted to them.
"It doesn't shift cost to the municipal governments, it shifts costs to the taxpayer," said Kathie Wasserman, executive director of the Alaska Municipal League.
Much of the $12 billion in unfunded liability was incurred by pension and retiree health care obligations incurred by cities, boroughs and school districts.
Each year, a portion of that must be paid off, and each government entity is billed a percentage of each employee's salary for current and past retirement costs to the Public Employees' Retirement System.
Some legislators want municipalities to pay more
That amount now adds 39 percent to each public employee's salary, but for municipalities, the state has capped the amount at 22 percent. That provides crucial budgeting stability and financial relief to local governments. PERS provides retirement to state workers, city workers and some school district employees.
Some legislators are questioning whether the state can afford to continue doing that, and local governments are trying to fend off a legislative proposal to boost local share from 22 to 24 percent, thereby reducing the state's share.
To Wasserman, that would be a huge change -- and a mistake.
"It doesn't really help pay down the liability very quickly, however that 2 percent relative to municipal budgets is huge," she said.
One thing is clear, many in the legislature want municipal governments to pay more.
After state leaders ignored years of warnings from the Alaska Retirement Management Board, Gov. Parnell this session proposed adding an extra $2 billion to the retirement trust funds, in addition to the $1 billion already required. All $3 billion should come out of the state's Constitutional Budget Reserve, instead of the state's general fund, he said.
That plan had another provision -- capping those extra annual payments at $500 million a year, or approximately half what some analysts say is needed. That would make budgets easier to balance, but would extend the time needed to pay off the debt.
"It will extend it for at least five years, and I think five years is a conservative estimate," she said.
That itself would increase the share of the unfunded liability paid by municipalities, Wasserman said, but her group's members were willing to do that in an effort to finally address the problem.
"When the legislature says to me, 'What are you guys willing to give?' I say 'We're going to go ahead and know we're going to be paying 22 percent for a lot more years that we'd originally been told,'" she said.
Legislative leaders are also looking at plans in which extra retirement payments would be would be placed in a special account, earnings on those funds would be devoted to paying down the unfunded liability, but that account would still be available to legislators in a crisis.
'Playing the chess game'
While the state's $12 billion unfunded liability looks large, it is not due immediately and the state has $16 billion in savings accounts, other than the $50 billion permanent fund.
That special account idea began to gain traction last year, but Sen. Anna Fairclough, R-Anchorage, said options that don't put money directly into the trust fund aren't likely to provide assurances to the public, Wall Street, and credit rating agencies that the retirement plans are adequately funded.
"I've been convinced by the Alaska Retirement Management Board that that's not the way to go, that the money needs to go into the retirement trust funds," Fairclough said.
Parnell started the unfunded liability discussion with his $3 billion proposal, but legislators have yet to engage the debate publicly.
Rep. Bill Stoltze, R-Chugiak, said earlier that he was not going take a public position yet on if or how the unfunded liability should be addressed.
"I'm not going to start playing the chess game too early," he said.
Many legislators have been reluctant to use state savings to pay down the unfunded liability now, when they may want to spend the money later on natural gas pipelines, capital projects in their districts, preventing school budget cuts, or unanticipated crises.
To Wasserman, the crisis is already here, but she said the Municipal League would consider a counter offer to legislators.
"We certainly don't want to look like we're not working with then," she said.