That portion of the Alaska Permanent Fund’s annual earnings now used to protect the fund against inflation should be applied instead to paying off the enormous and growing public employee and teacher retirement debt, a Republican Party primary candidate challenging House District 33’s incumbent said in Soldotna this week.
Dave Carey, Soldotna’s mayor, who hopes to replace Rep. Kurt Olson, R-Soldotna, as his party’s candidate after the Aug. 22 primary election, told a Soldotna Chamber of Commerce candidate forum audience Aug. 8 that his plan to divert inflation-proofing dollars could retire the accumulating debt to the Public Employees Retirement System (PERS) and the Teachers Retirement System (TRS) in perhaps as little as eight years.
That’s better, he said, than recent proposals to spread that debt over the next 20 years by selling bonds, a method Carey believes would unfairly put the PERS/TRS debt on the backs of future generations.
The PERS/TRS debt has been estimated to be between $5.7 billion and $7.1 billion. About 45 percent of that total is the state government’s direct responsibility, while the rest sits saddled on the backs of municipal governments and school districts, Carey said in an interview Thursday.
“It’s a huge liability,” Carey said.
The permanent fund would survive quite well without the annual inflation proofing, at least as long as it might take to retire the PERS/TRS debt, Carey said. Nothing in his idea, he added, would affect the main body of the fund or the Alaska Permanent Fund dividend program.
“Outside of the money Senator Ted Stevens brings to the state, the largest source of income to Alaska are the earnings of the permanent fund,” Carey said, adding that the dividends are vitally important to the economies of small communities. He said he would oppose any measure that slowed down the dividends or touched the body of the fund itself.
Carey blamed the state for creating the PERS/TRS dilemma and said the Alaska Legislature’s Band-Aid approach of annual appropriations meant to help municipalities meet at least some of their local retirement debts amounted to “crisis management,” not a long-term solution like dedicating the inflation-proofing dollars.
“I can absolutely see discussion being valid to do that,” he said.
Two other candidates at the Soldotna chamber forum were Rep. Kurt Olson, R-Soldotna, and Democrat Pete Sprague, of Soldotna.
Two main income streams feed the fund the 25 percent from royalties and inflation proofing appropriated by the Legislature, Olson said Thursday in responding to Carey’s idea.
It was “splitting hairs,” he said, not to consider inflation proofing part of the overall fund.
“Once we start cracking into the corpus of the fund, we’ll have problems. It’s the first bite of the apple.”
Olson said that current actuarial accounting of the PERS/TRS debt puts it at about $7.1 billion spread out over the next 25 years. He agreed that the Legislature has not created a long-term solution to the problem, yet, but noted that lawmakers have appropriated funds to municipalities on an annual basis to help cover some of the costs.
He also said the Legislature looked at appropriating some of the recent surplus of oil dollars toward the PERS/TRS debt but was unable because of other demands on that money, such as deferred maintenance projects.
Sprague, currently a Kenai Peninsula Borough Assembly member from Soldotna, is running unopposed in the Democratic Party primary. He said Thursday that he has some reservations about Carey’s idea and thinks the percent-of-market-value (POMV) approach that has gotten a lot of attention over the past couple of years might be a better approach.
“That would have to go to a vote of the people before anything was done,” he said. “The whole concept could provide a sustainable source of revenue.”
A portion of POMV-generated revenues might be applied to the PERS/TRS debt, he said. Other ideas for that money are funding education and municipal revenue sharing, he added.
While Carey’s idea might have merit enough to warrant discussion, Sprague said that the “tremendous excess of revenues” the state has seen in the past year due to elevated oil prices ought to be looked at first.
“We should use some of those earnings before we ever think about touching the permanent fund earnings,” he said.
Last year, permanent fund earnings reached $2.7 billion, increasing the total fund value to almost $33 billion. Part of those earnings helped pay dividends, a part was made available to the Legislature and somewhat less than a third was used for inflation proofing.
According to Laura Achee, director of communications for the Alaska Permanent Fund Corp., the Legislature appropriated $856 million to inflation proofing for fiscal year 2006.
Realized net income over the life of the fund, she said, has been about $31.2 billion, of which about $14.3 billion has been used to pay dividends and $9.9 billion has inflation-proofed the principal. Over time, the rest has resided in the earnings reserves and been added to the overall fund.
The amount appropriated to inflation proofing varies over time, but essentially is calculated by multiplying the value of the fund principal by the inflation rate of the previous year, Achee said.
© 2018. All Rights Reserved. | Contact Us