Compass: Governor's pension plan makes the best sense

Unfunded pension liabilities are impacting the finances of state and local governments all around the country. Alaska is no exception, and we need to bring the funding back up to a sustainable level to pay benefits and prevent credit rating downgrades.

Alaska taxpayers are facing a $12 billion unfunded liability in the Public Employees' Retirement System (PERS) and the Teachers' Retirement System (TRS). Anchorage taxpayers are on the hook for $650 million of the PERS liability, a per capita liability of $2,166.

There have been many ideas floating around this legislative session on how best to address the current $12 billion unfunded liability of the Alaska pension fund. The governor has proposed House Bill 385 and Senate Bill 220. Both of these bills would move $3 billion from the Constitutional Budget Reserve Fund (a savings account) and invest $1.9 billion in the PERS fund and $1.1 billion in the TRS fund.

The governor's plan makes good financial sense. It invests funds in the pension trust so that earnings can be used to pay the benefits. The more money in the trust, the more earnings are available to pay benefits. Additionally, this plan will reduce the annual state payment from the operating budget to the pension trust from a high of over $1 billion to $500 million, freeing up budget capacity for important state and local programs.

Another benefit of the governor's plan is that it will positively impact the finances of the city of Anchorage. New accounting rules will require states and local governments to record their share of the unfunded liability. For Anchorage this is about $650 million. This could have a huge impact on not only the municipality's bond rating, but also on our utilities, such as the Anchorage Water and Wastewater Utility bond rating. This will increase taxes and rates to the consumers due to lower bond ratings and higher interest expenses. The governor's plan will reduce the Anchorage portion of the unfunded liability by approximately $162 million, which will really help.

Our legislators are also looking at other ways to address the unfunded liability. One method is to increase Anchorage's payroll contribution to the plan by approximately $6 million annually. Another is to reduce the amount of revenue sharing between the state and local governments. The combination of both of these methods could potentially impact Anchorage taxpayers by $25 million per year. Due to the budget reductions already addressed in Anchorage over the past five years, the impact to Anchorage is significant and would result in reduced services and/or increased property taxes.

We believe the governor has proposed a viable solution that will soften the financial impact over the next 10 years for both the state of Alaska as well as municipalities. It also is a responsible plan that will not put a huge burden on future generations.

Lucinda Mahoney is the chief financial officer for the Municipality of Anchorage. Jennifer Johnston is a member of the Anchorage Assembly.