Giving a glimmer of hope to the dismal public employee pension fund picture, state Sen. Tom Wagoner told Kenai business leaders Wednesday the Legislature must address the situation in the next session.
Wagoner explained how the retirement systems for Alaska public employees and teachers (PERS and TRS) became drastically underfunded and said, in its past session, the Legislature did look into the system’s financial status.
He attributed the system woes to inaccurate actuarial numbers being submitted to the state by its accounting consultant, a 5 percent reduction in contributions allowed by the state in three consecutive years in the late 1990s and skyrocketing health care costs incurred in the retirement medical coverage for state retirees.
“At least we’ve looked at it and we’re going to address it in the next session,” Wagoner said.
The senator also gave members of the Kenai Chamber of Commerce a rundown on efforts by legislators to pass a Petroleum Production Tax (PPT), which eventually failed in the senate.
Wagoner said the state’s tax structure on the oil industry, which subjects production to the economic limitation factor (ELF), was “broken and outdated.”
As an example, he said the industry was paying “absolutely zero severance taxes” on production from the Kuparuk Field.
“The severance tax was about 25 percent of the tax oil companies pay,” Wagoner said.
As an alternative, the PPT would have included several provisions that would have aided the state in calculating the oil companies’ taxable production, but Wagoner said he “could only muster 10 votes on the Senate side.”
“We had the votes on the House side,” he said.
The proposed bill did not take into account the Point Thompson Field, according to Wagoner.
“There’s a big battle on now to get ExxonMobil to produce Point Thompson,” he said. “Exxon is fighting it.”
Wagoner said the field contains an estimated 300 million to 400 million barrels of oil, but the crude is of a high-pressure nature that makes it difficult to produce.
“That’s what’s needed to put more liquids into that (Trans-Alaska Oil) pipeline,” he said. “Some of us feel we gotta force them to produce it.”
In exchange for receiving some certainty on the amounts they would be taxed on oil production, oil companies were willing to give up a lot on a gas pipeline contract, according to Wagoner.
“If the new tax regime raises the money we’re talking about, some portion of that should be dedicated to pay down the PERS/TRS debt,” Wagoner said.
He also said he could like to see changes in the retirement medical provisions of the plan, possibly having major medical and prescription costs factored out, leaving regular medical expenses, which would be shared by plan participants.
Phil Hermanek can be reached at email@example.com.
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