Kenai council makes good call on PERS

Posted: Sunday, December 03, 2006

Kenai City Council members proved they can put what’s best for the city ahead of themselves in voting to exclude themselves from the Public Employee Retirement System.

On Nov. 21 the council voted 4 to 3 to remove elected city officials from the PERS system. According to the city’s administration, this means that as of Nov. 21 all future elected officials and current ones who aren’t yet vested in PERS will not be eligible for the program, even on a defined contribution basis. Elected officials already vested in the PERS system will keep what benefits they have already accrued and will be able to draw those benefits upon retirement, but their benefits will no longer grow along with their length of service.

The decision was difficult for the council to make, passing on a second try and on the slimmest of margins, but it was a good one.

The Public Employees and Teacher Retirement Systems (PERS-TRS) has become a financial nightmare for the state and all its municipalities. Due to changes in the stock market, rising health care costs, more people retiring earlier and living longer and incorrect estimates on investment returns, the program is broke. And it’s breaking the bank for municipal governments.

In a meeting last month in Kenai, Alaska Department of Administration Commissioner Scott Nordstrand estimated the plans’ unfunded liability at $6.9 billion in 2005, and closer to $10 billion now.

The city of Kenai’s unfunded liability in PERS was pegged at $16.9 million in August. To put that in perspective, the city’s entire budget for fiscal year 2006 is $15.1 million. Obviously the city can’t simply write a check or dip into savings to cover that debt. It’ll take years of scrimping, rearranging priorities, holding off on capital projects and overall conservative budgeting to cover that shortfall.

Adding to the headache is the fact that the numbers aren’t solid. Liability estimates fluctuate as much as completion estimates for the Kenai River bridge in Soldotna. In June Kenai’s liability was estimated at $11.5 million. Two months later it was up to $16.9 million.

Municipalities are left with two options: hope that the state comes up with a solution and aids municipalities in paying off the debt, or doing what they can, when they can to chip away at the shortfall.

Option one is ludicrous. There are too many variables affecting the state’s financial health to bank on it bailing out municipalities. Governors change, legislators change, oil prices change and who knows if or when the natural gas pipeline will be built, much less start carrying money into state coffers.

That means municipalities need to be proactive in paying off the debt and limiting their liability as much as possible.

That’s what the council has done by excluding elected officials from PERS. Granted, elected officials who’ve served long enough to draw PERS benefits in retirement are a small minority compared to hired employees, but every little bit counts. As a worst-case cost scenario it’s been estimated that a council member who’s served for 10 years then draws pension and medical benefits for the estimated 22 years left of their life would constitute a total liability of $434,545.

The common thread running through the PERS-TRS debate for years now is that limiting benefits — whether by going to a defined contribution program (like at 401(K) plan) or excluding people altogether —will make talented people disinclined to serve.

Municipalities benefit from talented employees who seek government jobs because of the financial rewards. But with elected officials, that argument doesn’t fly.

Paychecks and pension plans should not be what draws elected officials into service. Residents are better off without someone who’s more interested in rewards than in being a good representative.

Council members get a small stipend for their efforts (which doesn’t come remotely close to what their time would be worth to an employer), and it was nice of Kenai to offer to help foot the bill for their retirement, as well. But with today’s financial realities, Kenai must put its priority on the essential services it provides its residents — like road maintenance and police and fire service — over being nice.

Offering financial rewards to elected officials, while laudable, doesn’t trump paving roads or buying ambulances. If a council member thinks it does, then they don’t belong in public office.

That’s not to say elected officials aren’t deserving of gratitude. Being an elected official is a difficult job, and all too often a thankless one. Elected officials at all levels of government deserve our respect and thanks for the work they do on our behalf — but they aren’t entitled to our tax dollars.

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