The Kenai Peninsula Borough School District’s budget for the 2015 fiscal year has nearly doubled, but residents aren’t footing the bill.
The nearly $108 million increase in “on-behalf” state contributions to the Alaska Public Employees Retirement System (PERS) and Alaska Teachers Retirement System (TRS) brings the school district’s 2015 general fund expenditure budget from $161 million to $270.5 million.
“We’re not all of a sudden spending an extra $107 million dollars that was paid as taxes on the Kenai (Peninsula),” Jones said. “It’s being paid at the state level. We are reflecting what they are spending, not increasing our expenditures here.”
During the 2014 legislative session, SB119 authorized $3 billion be put toward the state’s accrued unfunded liabilities, which it has been paying off in smaller increments since 2008.
The Governmental Accounting Standards Board requires school districts statewide to report their portion of the lump sum in expenditure budgets, Jones said. But the money will never touch the school districts’ bank accounts.
“We as a district never physically see the money,” Jones said. “Because it is being paid to cover the debts that were accrued for our previous employees … we show that payment is being made (by the state) on behalf of the district, and that’s where the term ‘on behalf’ comes from.”
The school district has been waiting to hear from the Department of Administration to see how it would be required to account for the increase this year, Jones said.
“We recently got notice that we were going to need to increase the rates that we were using for fiscal year ‘15 to reflect that $3 billion difference,” Jones said.
Alaska school districts were required to start recording the state’s on-behalf payments in 2008 for transparency purposes, and amounts have varied some from year to year.
To pass the $108 million increase requires Board of Education approval. The revision to the 2015 budget was included as a laydown item during Monday’s regular meeting and was tabled for final action until the July Board Meeting.
Board members expressed concerns about the increase.
“This big on-behalf that was made that’s added to our budget, prior to this happening, our little $167 million budget included a significant portion of on-behalf payments also,” said board member Bill Holt.
Before the state’s $108 million making it into the books, the school district had nearly $33 million recorded for on-behalf PERS and TRS payments.
“Essentially we are looking at half of our budget as on-behalf payments,” Holt said.
The school district does pay an amount to state retirement funds annually, specified by the Alaska Retirement Management Board, for current employees’ retirements, Jones said. The on-behalf payments from the state for PERS and TRS are “catch up money,” he said.
“In 2007, the Legislature realized that the state had historically underfunded state and teacher retirement systems,” Jones said.
Alaska is not the only state with underfunded pension plans.
Nationwide unfunded liabilities hit $4.7 trillion in January of 2014, up from $4.1 trillion in 2013, according to the 2014 Unfunded Pension Liabilities Report by the non-profit State Budget Solutions.
Alaska is addressing its own debt. On June 30, 2013, the unfunded liability for the TRS was $4.6 billion, and the Legislature allocated $2 billion, part of the $3 billion lump sum, in 2015 to address the difference, according to the Teachers’ Retirement System Comprehensive 2014 Annual Financial Report. On June, 30, 2013, the unfunded liability PERS was $7.8 billion, and $1 billion of the lump sum was allocated, according to the Public Employees’ Retirement System financial report.
“It’s going to cause a large anomaly in our audits in years to come,” Jones said. “But it’s a good thing it’s happening.”
The budget change will be open for public comment at the July 6 Board of Education meeting.
Reach Kelly Sullivan at firstname.lastname@example.org.