House strips retirement plan from education bill

  • By Becky Bohrer
  • Monday, April 7, 2014 10:28pm
  • News

JUNEAU — The Alaska House voted to remove a plan to address the teachers’ retirement system from a broad-ranging education bill it began debating late Monday afternoon.

The House, on a 27-13 vote, also added $30 million in one-time funding for school districts on top of a proposed increase in the per-pupil funding formula known as the base student allocation.

HB278, which had been introduced by Gov. Sean Parnell as a way to bring changes to Alaska’s education system, retained provisions he had called for, such as allowing students to test out of and earn credit for courses they have mastered and providing an appeals process for charter schools as a way to improve access to those schools. It also included an increase in the base student allocation of about $300 over three years, including $100 over what Parnell proposed for next year, but critics have said that’s not enough to help some districts avoid cuts.

Lawmakers added other provisions during the committee process, including a jury-duty exemption during the school year for teachers from low-performing schools and having the Department of Administration propose a salary and benefits schedule for districts, which minority Democrats objected to as encroachment on local control. Lawmakers in committee also added a grant program for startup charter schools and increased from three years to five years the amount of time for a teacher to make tenure. Tenure would be at three years for teachers in rural schools. A floor amendment to remove the tenure provisions failed.

The House, in floor amendments, stripped a proposed change in calculation in the average daily membership to determine state aid for larger schools. Supporters of the calculation change said it was meant to address an inequity in how students in larger schools are counted, allowing larger schools to receive more funding under the formula. But critics worried about smaller schools missing out.

In its place, the House approved an amendment, offered by Rep. Bryce Edgmon, D-Dillingham, adding $30 million in one-time funding to be distributed according to the average daily membership to all districts.

The pension issue had been one of the most contentious provisions but generated little debate on the floor. Thirty-seven of 40 representatives voted to separate the issue from the education bill, which is what Parnell had urged them to do.

Parnell, as a budget item, had proposed moving $3 billion from the constitutional budget reserve toward addressing Alaska’s nearly $12 billion unfunded pension obligation, with $1.9 billion going toward the public employees’ retirement system and the rest to the teachers’ retirement system. The House Finance Committee, in its rewrite of the education bill, incorporated a plan to put $1.4 billion toward the teachers’ system and another $100 million toward a reserve fund.

An administration analysis of the two approaches showed Parnell’s plan costing about $8.1 billion and getting rid of the unfunded liability by 2038. It showed the committee proposal costing $20.7 billion and getting rid of the liability by 2073.

David Teal, the director of the Legislative Finance Division who laid out the plan included in the committee bill, has called it a difference in philosophy, with risks associated with each approach. One thing he has stressed keeping in mind is what the state will be able to afford in the next few years.

The state’s current payment plan calls for escalating pension payments over the next 15 years, on pace to top $1 billion a year before declining. Parnell’s plan calls for flat annual payments of $500 million over 20 years, with a $131 million payment in 2036, according to information from his budget office. The teachers’ retirement share of the $500 million would be about $340 million. The plan in the House Finance bill would start with smaller annual payments and payments stretched over a longer period.

Lawmakers have yet to publicly propose an approach to the public employees’ system. Rep. Cathy Munoz, R-Juneau, said the two pension issues should be looked at as a package.

Rep. Mike Hawker, R-Anchorage, said he wants to ensure the approach the state ultimately goes with is actuarially sound. An actuarial review of the House Finance plan said it “adds risk to the pension systems and is counter to actuarial standards regarding the funding of the pension plans.”

Rep. Tammie Wilson, R-North Pole, said she wants to make sure the state can make the payments it will need to make. She said she never received satisfactory answers from the administration as to where the money for its plan would come from.

The issue also received attention on the Senate floor Monday, when Sen. Johnny Ellis, D-Anchorage, proposed taking $3 billion from the statutory budget reserve toward addressing the pension obligation as part of the operating budget. The statutory budget reserve is easier to tap into than the constitutional reserve.

The amendment failed.

Ellis, who has long supported a cash infusion, said he didn’t want to be the “I-told-you-so guy,” but he said he and others advocated for that as a smart move a few years ago.

Sen. Anna Fairclough, R-Eagle River, said she thought a higher infusion of perhaps $4 billion was better. She said lawmakers also should review what debt the state has to see if any of it should be paid off, too.

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