• 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

  • On-Air

    Reality Check w/ John Tracy: The legitimacy of Donald Trump

    by John Tracy on Jan 19, 16:38

    America will swear in a new commander in chief Friday. The ceremony in Washington, D.C. is intended to demonstrate, once again, that a peaceful transition of power is central to our democracy. However, many members of Congress now say they will boycott the inauguration. When Georgia Rep., and civil rights icon, John Lewis said he […]

  • News

    Alaska gasline corporation opens office in Japan

    by Liz Raines on Jan 19, 16:28

    The Alaska Gasline Development Corporation (AGDC) is opening an office in Tokyo, according to a Jan. 12 notice from the agency and Gov. Bill Walker. The notice specifies Masatoshi Nick Shiratori as director of the office. Aside from the notice, the decision has not been publicly announced. Grace Jang, a spokesperson for Walker, called use […]

  • New Anchorage nonprofit promotes positive police interactions

    by Daybreak Staff on Jan 19, 15:22

    Newly formed nonprofit Anchorage Cops for Community is looking to help foster positive relations between police and the community they serve. It’s an outreach program sponsored through Anchorage Police Department Employee Association (APDEA), but chair Angelina Fraize says they hope to do more, like their popular monthly Coffee with a Cop events. The APDEA felt that […]

  • News

    EPA proposes OK of Fairbanks air plan, but more steps needed

    by Associated Press on Jan 19, 14:04

    The U.S. Environmental Protection Agency is proposing to accept a state of Alaska plan for cleaning up the air in Fairbanks. EPA region 10 air office director Tim Hamlin says the agency is recommending approval of the plan even as it works to reclassify pollution violations in Fairbanks as serious rather than moderate. Reclassification would […]

  • DayBreak

    Mic Check in the Morning: Simply Three

    by Daybreak Staff on Jan 19, 12:55

    Simply Three is a classically trained trio bringing a modern sound to their stringed instruments. According to their biography on their website, they are known for their high-energy shows and covers of pop hits, but they also play the old masters like Gershwin. The band has an online following based on their creative music videos with […]

  • Lifestyle

    Nordic skiing for newbies: What you need to get started

    by Rachael Penton on Jan 19, 12:52

    Anchorage has received more than 30 inches of snow so far this winter, and with temperatures staying below freezing this year, the snow has stuck around. This means great conditions for nordic skiers — also known as cross-country skiers — both experts and novices. If you’re a newbie who wants to get out on Anchorage’s trails […]

  • Politics

    Anchorage municipal attorney rejects initiative to change equal rights ordinance

    by Daniella Rivera on Jan 19, 12:10

    The battle between religious freedom and LGBT rights in Anchorage is at a standstill, with one side trying to figure out their next move. Wednesday, the Anchorage Municipal Attorney’s office rejected a ballot initiative from a group that wants to make changes to the equal rights ordinance the Anchorage Assembly passed in 2015. The ordinance protects […]

  • News

    Bethel homeless shelter dealing with drunk residents

    by Associated Press on Jan 19, 9:23

    Operators of a homeless shelter in Bethel say they’re struggling to deal with intoxicated residents. KYUK-AM reported Wednesday that Bethel Winter House Director Eva Malvich says she may be forced to shut down the facility if problems continue. Malvich described an incident that took place earlier this month in which staff had to call police. She […]