Recently, Gov. Sean Parnell signed HB 385 into law. That bill directs the deposit of $3 billion from the state’s Constitutional Budget Reserve savings account (NOT the Permanent Fund) into the Public Employees' Retirement fund and the Teachers' Retirement fund. Regardless of one’s opinion on government employees' pension funds, the state has a constitutionally protected contractual obligation to these employees to fund their pension benefits.
Through a series of unfortunate events, the retirement funds have found themselves underfunded by about $12 billion. Escalating annual payments from the general fund had become a major cost driver of the state operating budget and posed a concern for the state’s bond rating if ignored. This past session, Gov. Parnell, with the unanimous agreement from the Alaska State Legislature, saw fit to approve HB 385 and deposit $3 billion into the retirement trust funds.
Municipalities have been partners in helping to pay on this past liability. However, the payments made by the state on behalf of municipalities were increasing year by year. The state had been picking up the increase in payments, but the projected increase in those payments was unsustainable. Municipalities, on the other hand, have no way to pick up extra costs without considering higher tax rates.
HB 385 was a compromise that accomplished several objectives. The large deposit front-loads the payment of this debt and helps keeps the recurring annual state, municipal and school district contribution payments manageable. Most importantly, the plan addresses the unfunded liability by continuing to target fully funding the pension system trust funds. The large deposit toward the debt also helps protect the state’s bond rating and local governments’ fiscal health in many ways.
Is there future work to be done on this issue? Yes. Are there some areas of this bill that could be debated? Yes. But, for those of us who worked with the governor and the Legislature on this important legislation, HB 385 is a major accomplishment addressing one of the most important fiscal challenges confronting Alaska.
Thank you to the governor and the Legislature for and making this difficult but wise decision.
Kathie Wasserman is executive director of the Alaska Municipal League.
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