Municipalities facing overwhelming employee retirement contribution costs may soon be able to finance those obligations with bonds, if a bill now before the Alaska House is adopted.
House Bill 278, introduced last session by Anchorage Republican Mike Hawker, would authorize the Alaska Municipal Bond Bank Authority or a designated subsidiary to issue pension obligation bonds allowing government employers to finance the payment of all or part of their existing pension liabilities.
According to Alaska Department of Administration data, the combined total unfunded liability of the Public Employees’ Retirement System (PERS) and the Teachers’ Retirement System (TRS), including unfunded pension and post-employment health care benefits, is approaching $6 billion.
As of June 2004, the latest data currently used in the calculations, the Kenai Peninsula Borough’s PERS program is underfunded to the tune of just under $30 million, according to Finance Director Craig Chapman. The Kenai Peninsula Borough School District’s unfunded PERS amounts to $31.9 million.
The TRS liability is lumped together statewide and amounts to more than $2.78 billion in unfunded liability. Separating out the TRS portion, the statewide PERS liability is around $3.4 billion.
Fiscal year 2005 figures, when ready and used, are expected to push the unfunded liability beyond $5.9 billion, according to state sources.
Hawker said in a sponsor statement that pension obligation bonds, or POBs, are a proven method of managing pre-existing pension liabilities. Bond market participants are receptive to POBs, including bond insurers, ratings agencies and investors, he said.
According to Hawker, properly planned and executed POBs could lower existing obligations, saving perhaps $1.5 billion across the state. HB 278 does not specifically authorize bonds to be issued, but allow financially strapped municipalities to determine individually if POBs were appropriate tools for relieving pension debt.
Through POBs, municipalities could minimize pension obligations by borrowing money at a rate lower than the bond proceeds earn after being deposited in a pension fund.
Rep. Paul Seaton, R-Homer, chair of the House State Affairs Committee, which recently looked at HB 278, said there are unanswered questions regarding the applicability of POBs.
Monday, Seaton said he wonders whether municipalities should require a vote before incurring POB debt, in the same way a vote is required for General Obligation Bonds, which typically finance capital projects.
“An additional concern with HB 278 is that many small communities do not have a steady stream of income such as property tax, so a pooling mechanism may be added, which would increase their ability to issue bonds,” he said.
On the Kenai Peninsula, borough Mayor John Williams met Tuesday in Soldotna with the mayors of borough cities, except Seldovia, to discuss a variety of issues prior to Williams heading to Juneau along with a delegation of assembly members.
Tim Navarre, Williams’ chief of staff, said rising PERS/TRS costs were a central topic. He also said the mayors are expected to sign a position paper on the retirement issue shortly.
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