13 September 2006


Some significant news today over the AP wire:

Starting next year, Alaska school districts and municipalities will see huge spikes in what they have to pay into the state's retirement systems.

The Alaska Retirement Management Board approved the increases in employer contributions to the Public Employees Retirement System and the Teachers Retirement System this week. The increases are meant to whittle away at the systems' $6.9 billion shortfall over the next 25 years.

For example, the city of Fairbanks' obligation to the public employees' system will rise from $2.4 million this year to $13 million for the next fiscal year starting in July, according to the Alaska Division of Retirement and Benefits.

This might seem like boring budget minutiae but it is overwhelmingly important. In Nome this year, there was quite a bit of public attention to the school district's tight budget. The budget was tight and couldn't add any of a number of new programs people wanted because of increased retirement system contributions. What's it going to be like next spring when the budget is even tighter and the district needs to start making some cuts? (I've got calls out to the city and the school district to try to get a dollar value on this hit. No news yet, though.)

This reveals, I think, the problem with the defined contribution retirement plan the legislature passed in 2005. A defined contribution plan might make sense to help reduce the amount the state pays out in benefits. But what about the transition? That huge unfunded liability still exists (and is getting bigger) and no plans were made to cover it. The only plan appears to be to appropriate huge sums of money to cover a part of the hole. But that huge opportunity cost was never part of the defined contribution plan debate. The state is being forced to throw its oil surprise into this instead of say, education, public safety, health care, or any of a number of other things.

The House Ways and Means committee talked about this issue this past session but nothing got done on either side of the legislature. Now, we've reached a point where the funding hole is being passed on to the municipalities and schools, though it's not their fault. And no one - absolutely no one - is talking about how the retirement system was allowed to get into such a huge hole in the first place.

To our lawmakers now campaigning around the state, I say, with as much irony as I can muster, thanks for doing such a good job.

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