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Panel proposes more school money, pension option

Posted: April 2, 2014 - 12:46pm

JUNEAU — A House committee’s rewrite of Gov. Sean Parnell’s education bill includes additional money for schools but also a plan for addressing the teachers’ retirement system that has raised concerns with Parnell administration officials.

Revenue Commissioner Angela Rodell said she was very concerned with the direction of the proposed “pay as you go” plan, which could exhaust the retirement trust fund over a period of decades and require contributions, potentially from state general funds, to pay future benefits.

Legislative Finance Division Director David Teal said the plan, included within HB278, was designed to draw down the trust fund, but not prematurely. He said benefits would not be at risk. He said both House Finance Committee’s proposal and one put forth by Parnell would work. “Your choice is which one’s more affordable?” he said.

Parnell in December proposed taking $3 billion from the constitutional budget reserve to address the unfunded pension liability for the teachers’ and public employees’ retirement systems and to help ease pressure on the state’s budget. Currently, the state is on a payment plan that calls for rising payments on pace to exceed $1 billion over the next 15 years before falling.

Parnell has said his proposal, which called for putting about $1.9 billion toward the public employees’ system and the rest to the teachers’ system, would allow for flat, predictable annual payments of $500 million. The teachers’ retirement portion of that would be about $340 million.

The House Finance proposal calls for a $1.5 billion cash infusion, also likely from the budget reserve, with $1.4 billion going toward the retirement trust fund and $100 million into a new pension reserve fund from which transfers could be made if the trust fund got too low, Teal said. Annual payments would start out at about $160 million.

At the start of the current fiscal year, the constitutional budget reserve fund — which requires a three-fourths vote of the House and Senate to tap — had about $11.6 billion.

Neither the House nor the Senate has released a plan to address the public employees’ retirement system, and there has been very little public discussion or analysis during the legislative session on the available options for addressing the pension obligations. The House Finance Committee draft of HB278 was released Tuesday, day 71 of the scheduled 90-day session.

Supporters of the committee’s proposal question how affordable Parnell’s plan is, in light of lower forecasted revenues, ongoing budget obligations and Parnell’s desire to hold the line on state spending. They also pushed back against the Parnell plan’s reliance on trust fund earnings to pay benefits and questioned how reliable the anticipated earnings rate might be.

Rodell said she had confidence in the management of the funds but was concerned about state contributions under the House Finance plan getting caught up in politics. Rodell said an actuary had been asked to run numbers on the House Finance proposal.

Between the public employees’ and teachers’ retirement systems, the state has an unfunded pension obligation of about $12 billion.

John Boucher, a senior economist with Parnell’s Office of Management and Budget, said in an interview that it was hard to gauge the potential budgetary impact of the committee proposal without seeing plans for addressing both pension obligations.

Rodell told the committee its proposal could be viewed by ratings agencies as a backing-away by the state on the commitment it’s made on its pension obligation. She expressed concern the plan could hurt Alaska’s financial standing and come back to haunt the state if, in a few years, the state was at a point where it needed to make funding decisions for a mega-project, like the gas line project currently being pursued. Committee co-chair Bill Stoltze asked if the panel could hear from rating agencies on that issue.

Administration officials on Tuesday also said they did not believe the pension issue should be included as part of a bill that also includes proposed changes to Alaska’s education system, dealing with things like charter schools, teacher tenure and an increase in the per-pupil funding formula.

As part of that bill, the committee proposed a roughly $300 increase in per-pupil funding, known as the base student allocation, over three years. Parnell had proposed an increase of about $200 over three years. Minority Democrats have pushed for a roughly $400 increase for next year, with the amount adjusted for inflation after that.

The Senate Finance Committee, in its version of the state operating budget, proposed a $75 million increase in additional aid to districts outside the base student allocation for next year — on top of the $25 million that had already been proposed in the budget — and a total of $100 million for the following year, to be distributed according to the average daily membership for each district.

Stoltze, R-Chugiak, called the increase proposed in HB278 an “independent action” and what committee members viewed as the best approach.

House Minority Leader Chris Tuck, D-Anchorage, called the proposed funding increase a step in the right direction but not good enough to address concerns about district cuts and layoffs.

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