It appears that the State of Alaska — once again — is quietly attempting to shift many more hundreds of millions of dollars of pension liabilities onto the shoulders of Alaska municipalities and their local taxpayers.
The big question is: Will the municipalities let the state do it again?
We hope not. The stakes are huge, estimated at about $77 million combined for the Ketchikan Gateway Borough and Ketchikan School District alone. The borough is raising the alarm, and makes a convincing case that the state’s latest machinations to shift liabilities onto municipalities are neither justified, nor required by state statute.
The liabilities in question are related to the Public Employees Retirement System and Teachers Retirement System.
Now, PERS/TRS is an excruciatingly dull topic for most people. Mention it at the next holiday party and see how fast you’re left standing alone by the salmon dip.
However, the key points, much abbreviated, are as follows.
The PERS/TRS system is managed and controlled by the State of Alaska. In 2006, alarmed by rising costs and “unfunded liabilities,” the Alaska Legislature switched the state’s retirement systems from “defined benefits” to “defined contribution.” Employees who started their careers under the defined benefits system would remain in that defined benefits system.
In 2008, the Legislature required public employers (municipalities and others) to pay fixed amounts — 22 percent of payroll for PERS and 12.56 percent for TRS — to offset the unfunded liabilities related to the defined benefits pension system. The statutes put the state on the hook for the rest of the unfunded liabilities.
At first, the goal was to have the unfunded liabilities taken care of by 2030, a goal supported by the Alaska Retirement Management Board. Under that scenario, the municipalities’ requirement to pay the 22 percent and 12.56 percent would have ended by 2030.
That changed in 2014. The Parnell administration and state Legislature highlighted their lump-sum appropriation of $3 billion toward the unfunded liabilities — mostly toward TRS — but were very quiet about other changes, which included extending the amortization period from 2030 to 2039. The net effect was less cost for the state, but municipalities would end up paying many millions of dollars more than they would have otherwise.
Kris Erchinger of Seward, who was a member of the Alaska Retirement Management Board — which wasn’t pleased with the changes — expressed the situation well at the time.
“Any way you look at it, we’ve pushed those costs onto our kids and grandkids,” Erchinger told the Alaska Dispatch in June 2014. “I ran the numbers for Seward, and just to extend the amortization period was $2,000 for every man, woman and child living in Seward.”
Ketchikan’s Martin Pihl, who’s also a member of the ARM Board, was equally clear.
“I do have deep regret over what I feel is the unnecessary extension of the amortization period, bringing huge additional cost — like more than $2.5 billion to the people across Alaska — and forcing even greater numbers into state budgets down the line,” he told the Alaska Dispatch in 2014.
Having successfully shifted some of the unfunded liability to the municipalities in 2014, it now looks like the state is attempting to shift even more of its burden onto local taxpayers.
In August, the state attorney general issued an opinion that the state isn’t legally responsible for specific types of pension liabilities and thus isn’t required to carry those liabilities on its books. The state’s opinion is that those liabilities should be carried on the books of municipalities and other public employers.
The Ketchikan Gateway Borough cried “foul.” In October, Borough Attorney Scott Brandt-Erichsen drafted a 19-page deconstruction of the state’s position, concluding that those liabilities rightfully belong on the state’s balance sheets, not the borough’s.
We don’t know how this will play out yet. Should the attorney general’s view prevail, municipalities statewide could see millions of dollars of new liabilities sprouting on their accounting ledgers. An early potential result is lower municipal bond ratings and higher borrowing costs. From there, it’s a slippery slope toward having the Legislature say, hey, this debt’s on the municipalities’ books now, let’s go ahead and make the municipalities actually pay for it.
Given the state’s financial situation, its interest in shedding costly responsibilities is understandable. But the state has been the sole party responsible for the pension liabilities in question, and, as the borough points out, there appears to be no justification or requirement for unloading that responsibility onto municipalities now.
— Ketchikan Daily News,