• Forecast
  • News Tip
  • Categories
Temperature Precipitation
Estimated read time
4m 15s

House addresses pension fund debt

By Rhonda McBride 8:06 AM April 18, 2014
JUNEAU –

It’s not every day that you dip into savings to the tune of $3 billion.

But late Thursday night, state lawmakers voted to do just that on behalf of about 130,000 teachers, police, firefighters, troopers and other public employees who are either still working or retired.

“They have a constitutionally guaranteed right to their benefits,” Rep. Mike Hawker said to lawmakers before the vote.

The pension funds for the Public Employees Retirement System and the Teachers’ Retirement System, known as PERS and TRS, have been in trouble for a long time, through no fault of the employees.

A perfect storm of conditions has created a $12 billion debt to these pension funds — bad advice from the state’s financial advisors, a stock market crash, chronic underpayments to the funds as well as a change in the retirement system in 2005 which created another tier of employees who no longer pay into the existing fund. Money from new employees would have helped to replenish the pension trust.

The bottom line:  The state has had to budget hefty payments to the fund every year.

The plan the House voted on Thursday night will pay down $3 billion of the debt and cap annual payments at $500 million a year.

While $500 million set aside in the state budget every year sounds like a lot, the annual payments were expected to grow as to as $2 billion in the next few years, if nothing were done to pay down the debt.

“There’s no easy way to do it,” said Rep. Cathy Munoz, a Juneau Republican. “We can do it today or tomorrow. It’s like paying off a mortgage or a credit card.”

“Do we take a big bite now and pay less later? Or take a smaller bite now and pay more later?” she asked.

Before the vote, lawmakers considered changing House Bill 385, which was introduced by Gov. Sean Parnell, who has said addressing the state’s rising tide of debt to the pension fund was a top priority this session.

Other lawmakers have been pushing for a “pay as you go” plan with smaller payments to the fund spread out over a longer period of time. They’ve also looked at asking local governments to kick in more money, a move that was opposed by municipalities already strapped for cash.

The governor called the “pay as you go” plan “immoral,” because he said it would saddle future generations with debt. Parnell later personally apologized to lawmakers for calling the approach immoral.

On Thursday night, some lawmakers still wanted to tinker with the governor’s plan. For a time, an amendment was under consideration to eliminate the $500 million annual payment and leave the amount up to future legislatures.

“Putting a specific number in statute scares me,” said Rep. Charisse Millett.

Millett said she’s worried about declining state revenues. This year, the state is facing a $2 billion shortfall.

“The expectations that our budget is going to be able to absorb $500 million over the next 26 years is probably not realistic,” said Millett, an Anchorage Republican.

Others, like Rep. Pete Higgins, (R) Fairbanks, told lawmakers discussion on the proposal only began in earnest during the final days of session. He said it would be better to take more time to weigh the decision, especially one which involves so much money.

“Once you put $3 billion into this, it’s gone. It’s gone forever,” Higgins said.

“I’d rather put $3 billion into infrastructure, which would not be gone,” Higgins said. “You can actually drive on it. You can feel it. This unfunded liability is sucking us dry.”

Hawker said unless the Legislature takes action now, the problem will only get worse. He said lawmakers have been kicking the can down the road for years.

“What happens when that can gets kicked down the road until there’s no place further to kick it? You get in a position where you have to make decisions that aren’t easy,” said Hawker, who told lawmakers they will have fewer choices if they postpone dealing with the pension fund obligation.

“That’s why we are so fortunate tonight to be standing here with a choice,” Hawker said.

One of those choices is to draw from state budget reserves, which stand at around $17 billion.

Rep. Sam Kito III, a Juneau Democrat, said the state should use some of its savings now.

“It’s going to be even harder to find those monies in the future,” Kito said.

Rep. Cathy Munoz said if lawmakers do not address the debt soon, it could affect the state’s ability to borrow money, which it might need to fund its share of a partnership in a liquefied natural gas project.

“This puts our fiscal house in order in a significant way,” Munoz said.

The House voted 38-2 to approve HB 385, which would erase the debt completely in about two decades.

Democrats have been longtime advocates of paying down the pension debt, and said they’re glad the governor finally sees it their way.

Parnell commended the House for taking action Thursday night.

The bill now moves on to the Senate.

Latest Stories

  • Sports

    UAA volleyball setter receives GNAC Player of the Week honors

    by KTVA Sports on Oct 21, 10:22

    No surprise … another honor for the UAA volleyball team. Sophomore setter Morgan Hooe is the GNAC Volleyball Offensive Player of the Week.

  • On-Air

    Travel Tuesday: Airfare 9-1-1

    by KTVA CBS 11 News on Oct 21, 10:07

    Airfare 9-1-1 alert: feuding airlines means airfare drops for you! Get those carry-ons ready, Daybreak’s travel guru Scott McMurren is back on the couch with some deals you just can’t refuse. McMurren says if the first snowfall of the year has you thinking about getting away, there’s no better time than now. Anchorage to Houston […]

  • Sports

    UAA hockey heads east

    by KTVA Sports on Oct 21, 8:55

    On Monday, the UAA hockey team’s long week was just beginning.

  • Sports

    West and South football prepare for battle

    by KTVA Sports on Oct 21, 8:48

    A pair of familiar rivals will duke it out for high school football’s biggest prize this weekend.

  • News

    Autopsy being performed on Sitka downing victim

    by Associated Press on Oct 21, 8:40

    An autopsy is being conducted on a man who drowned in the ANB Harbor in Sitka. The Daily Sitka Sentinel reports (http://is.gd/r7uhKh) 41-year-old Richard T. Hatten was unresponsive when he was pulled from the water last Thursday. Friends found him in the water near the dock and pulled him out. Efforts to revive him were […]

  • Weather

    Daybreak weather, Oct. 21

    by KTVA Weather on Oct 21, 8:28

     

  • News

    Complaint filed against teacher who supports Ballot Measure 2

    by KTVA CBS 11 News on Oct 21, 8:13

    A retired teacher has filed a complaint against an educator for unethical behavior after she threw her support behind the ballot measure to regulate marijuana like alcohol in Alaska. Last month, Kimberly Kole, a science teacher in the Anchorage School District, spoke at a press conference where she encouraged people to vote yes on Ballot […]

  • News

    State, refinery reach agreement on cleanup

    by Associated Press on Oct 21, 7:17

    Owners of the shuttered North Pole refinery and the state of Alaska have agreed on cleanup methods for a leak of an industrial chemical at the site. The Fairbanks Daily News-Miner (http://bit.ly/1rpKyHN) reports the agreement for the cleanup of sulfolane was worked out between Flint Hills Resources Alaska, the Alaska Department of Law and the […]