An Senate version of an education spending bill tying more than half the proposed $70 million increase for schools to adoption of reforms to public employee retirement programs headed back to the House on Monday, where those Senate changes could meet significant opposition, Senate Majority Leader Gary Stevens, R-Kodiak, predicted Tuesday.
"I have a suspicion that the House will not approve (of Senate changes) and this will wind up in conference committee to try to find compromise," Stevens said. "But where the Senate is, is that both these things are tied together."
In a lengthy debate Monday, Senate Republicans and Democrats sparred over ramifications of provisions offered by the Republican majority that linked $38 million of the $70 million increase to adoption of a retirement reform package.
Such reform measures are expressed in Senate Bill 141 currently in the Senate Finance Committee. That bill would, among other things, create a new tier of public employees, the state's fourth, whose members would get lower benefits at less cost to the state.
It would replace the current "defined benefits plan" with a "defined contribution plan." The former pays each retiree a specified amount after a set number of years of service. The latter fixes the level of contributions (by employer, employee or both) and pays benefits that vary depending on the return on investments.
Such plans are considered more risky for that dependence but may afford employees more options.
According to the finance committee, the $16.4 billion state retirement system covering public employees and teachers Public Employee Retirement System and the Teachers Retirement System, commonly called PERS and TRS is underfunded by $5 billion.
"The retirement issue is the most crucial issue the Legislature has to deal with this session," Stevens said. "Yes, it could be pushed off to next year, and many prefer to pretend it's not important, but every year we put it off the situation gets worse."
If lawmakers were to cover the shortfall, the system would be sound, he said, but interest, inflation and other factors would continue to combine to create another underfunded situation, he said.
"In 20 years, it would be a $20 billion shortfall," he said.
Sen. Tom Wagoner, R-Kenai, said there would be no guarantee delaying action until next year would result in reform. Next year is an election year, he said.
"Nobody will be willing then," he said. "I think it is proper to do this now."
Wagoner agreed the Senate's substitute for HB 1 likely is to end up in a conference committee in an effort to reach a compromise, but he said he was "not prepared for the possibility" that the House might reject the linkage language.
Sen. Kim Elton, D-Juneau, also agreed the measure would end up in conference committee hands, but he predicted the two issues funding the base student allocation and retirement would be handled separately.
"At the end, they will probably decouple the $38 million (from retirement reform) and we will end up back at $70 million," he said.
However, $70 million is nowhere near enough, Elton said, despite it being more than requested by Gov. Frank Murkowski. Further, simply getting back to $70 million could then be viewed as a success, rather than an inadequacy.
"We have set the bar far too low," Elton said. "Districts will be talking about how to cut" rather than protecting core programs and adding back what has been eliminated by past cuts.
Elton said the context would make the $70 million look better, which might have been the Republican intent all along.
Wagoner said he believed tying the $38 million destined to pay for teacher benefits to the success of a reform bill was "the only way to get the attention" of those who would put the issue off.
Republicans defended their position Monday as being in the best interest of the state as a whole and that retirement reform was long overdue. There was strong reaction to Elton's use of the word "blackmail" in referring to the linking tactic.
Tuesday, Elton didn't back off.
"Tying them together is like saying, 'Do the retirement system (reform) my way or I'm going to hurt your kids" by not allowing expenditure of the $38 million. "That's not the way we should be debating school financing."
Senate Democrats made several attempts Monday to raise issues about SB 141 on the floor. However, Senate President Ben Stevens, R-Anchorage, cut off reference to that bill because it was still in committee and by rule could not be discussed.
Democrats argued the two issues should be discussed together or the linking proposal should be dropped. An attempt to remove the linking provision and increase the per-student funding to $111 million failed by an 8-12 vote along party lines.
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