Alaska’s mayors and other local officials are worried their governments may be asked to pay more toward public employees’ retirement.
The Alaska Municipal League is backing Gov. Sean Parnell’s proposal to use $3 billion in savings to reduce an estimated $12 billion shortfall in state pension funds. AML lobbies the state and federal governments on behalf of cities and boroughs.
Alaska communities and the state share the costs of the Public Employees’ Retirement System. Municipalities pay 22 percent of their payroll into PERS each year. Some also pay 12.5 percent into the Teachers’ Retirement System.
The state pays the rest of what’s needed to cover pensions in a particular year. That amount is determined by actuaries and set annually by the Alaska Retirement Management Board.
“Certainly it’s a good enough chunk that municipalities cannot afford for that to go up,” said Alaska Municipal League Executive Director Kathie Wasserman.
If nothing is done to address the PERS shortfall, Wasserman fears the local contribution could increase to 40 percent of payroll. She says the governor’s plan to transfer $3 billion from the Constitutional Budget Reserve to the retirement system would maintain the rate at 22 percent until the funds are solvent, whenever that might be.
“We really can’t define how many years, because it’s based on interest rates, it’s based on the market, it’s based on the baby boomers, when people die. There’s a lot of variability in that,” Wasserman said. “But, 22 percent, right now we can plan for.”
Kodiak Mayor Pat Branson says local communities need predictability.
“If we keep it at those percentages, we’re now going to be able to do business and keep our infrastructure in place, keep police and fire operating, schools open,” Branson said.
The Parnell administration estimates its proposal would reduce the state’s annual payment to PERS and TRS. Without the cash infusion, the governor’s office says the state would soon pay more than $1 billion a year toward the pension shortfall.
Deputy Administration Commissioner Mike Barnhill told municipal league members that doing nothing is not appealing.
“If the governor’s approach doesn’t pass, the status quo will persist,” Barnhill said. “We will continue to make actuarially required contributions, however they are calculated.”
The governor’s plan is part of his proposed operating budget.
Many states and communities in the Lower 48 have faced even bigger pension problems, leading to bankruptcies and cuts to retirement payments.