Politics

Facing opposition, Alaska Gov. Walker halts pension bond sales

Facing opposition to his administration's plan to borrow up to $3.5 billion to cover Alaska's pension shortfall, Gov. Bill Walker announced on Tuesday he will not allow a bond offering.

The decision to stop the transaction came after the governor and members of his administration met with members of the Senate Finance Committee about the idea this week. In a statement issued by Walker's office, the meeting occurred at Walker's request, and the response was negative.

"Given their lack of support, I have decided not to proceed with the issuance at this time," Walker said. "Building a collaborative relationship with the Legislature will be necessary to reach our primary goal, which is a long-term fiscal plan for our state."

The finance committee's co-chairwoman, Sen. Anna MacKinnon, R-Eagle River, said she supported Walker's decision to suspend the sale.

"I appreciate the governor listening to the concerns the Senate Finance Committee raised and we look forward to working together on solutions to close the fiscal gap and address the pension shortfall," she said.

MacKinnon said all committee members except Sen. Lyman Hoffman, D-Bethel, attended the Monday meeting, either in person or by phone.

Walker's administration has the ability to issue the pension obligation bonds without approval from lawmakers based on a 2008 bill passed by the Legislature. But the plan to issue the bonds has faced opposition for potentially putting the cash-strapped state, already facing multibillion-dollar deficits for years to come, at increased financial risk.

The bonds would have been used to raise investment money for the state's public employee pension system, which, while solvent now, has more future obligations than its ability to pay. While interest rates to pay off the bonds are projected to be less than the income from investments, an investment market crash could leave pension funds in worse shape than they're in now, having to pay both pensioners and bondholders.

Credit rating agency Standard & Poor's, noting the possibility of a large market correction, also said early this month it would probably drop Alaska's AA+ credit rating a notch for general obligation bonds, used to pay for roads and other capital projects, if the Walker administration went ahead with issuing pension bonds.

Officials with the Walker administration had said they did not see much risk in the proposal.

"While we believe the financial benefits of issuing state pension obligation bonds significantly outweigh the financial risks, we recognize the need for legislative input," Walker said.

Not everyone on the finance committee opposed the idea, but none had a clear picture of the potential risk and rewards, MacKinnon said. The group shared its concerns and the concerns of constituents with Walker, including that the bonds are a risky proposition given the state's drop in revenue and existing debt.

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