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Steady drip a call for rainy day PERS/TRS funding

Voices of the State

Posted: Thursday, February 15, 2007

There are a number of public policy and funding issues that continue to grow unchecked, and which the Legislature must sooner or later resolve. These include such items as the state operating budget, the need for a workable fiscal plan, and the unfunded liability of the public retirement systems.

The retirement liabilities include the Public Employees Retirement System (PERS) and the Teachers Retirement System (TRS). At this point in time, the combined PERS and TRS unfunded liabilities total nearly $10 billion. That is, projected over the lifetimes of the public employees and teachers who will be drawing a retirement under the systems, the actuaries project a shortfall of about $10 billion.

It would be my intention to put as much funding toward this obligation as possible this year, and every year when the general fund has a surplus.

It is in Alaska’s best interest to do as much as we can to eliminate the unfunded liability, for several reasons.

First, having an unsecured “debt” hanging over us could be detrimental to our credit-worthiness. The $10 billion obligation cannot be allowed to impact our credit rating, or be used to increase the cost of borrowing or bonding for other public projects.

Second, Alaska’s public employees and educators have provided decades of quality service to the people of Alaska. An adequate retirement package was an important part of the contract implied or otherwise through which those services were rendered.

Third, the state’s constitution provides that public employees will have a retirement system, a clause that was included in the original document by the constitutional convention. The members of the convention recognized that Alaska’s state and local governmental entities would have to compete for competent workers with the private sector, the federal government, and government agencies in warmer climates. They knew that a quality retirement system would have to be a significant benefit to attract and keep quality workers. And they were right. Alaska’s retirement systems have served to build a good public work force.

With this constitutional mandate, it would be foolish for the Legislature to ignore the unfunded liability of the systems, or try to pretend that it is not as big as it is. Rather, the responsible course of action is to begin whittling away at it.

Even with the price of oil hovering in the low $50s, we expect a surplus of revenue for FY07 of more than $2.3 billion above what is required for the operating budget. While Governor Palin has proposed to place $1.8 billion of the surplus into the Constitutional Budget Reserve Fund, I believe it would be more responsible to address the unfunded liability of PERS and TRS.

The CBR is the state’s “rainy day” fund, created in 1990 to receive the billions of dollars Gov. Wally Hickel negotiated to settle lawsuits with the oil companies over back taxes. The use of this fund requires a 2/3 vote in the Legislature, and has historically led to pumping up the capital budget in order to get the 2/3 majority. Under the constitution, any money used from the CBR is “borrowed,” and is supposed to be paid back.

However, I think it is safe to say that the steady drip, drip, drip of the PERS/TRS unfunded liability is a “rainy day.” Taking remedial action today, to prevent this problem from becoming a raging torrent later, is the prudent thing to do.

Rep. John Harris is a Republican from Valdez. He is the Speaker of the House.



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