A bill that would reinstate a pension system for state and local government employees in Alaska is on the verge of a state Senate vote, which would bring it closer than ever to Gov. Mike Dunleavy’s desk.
It’s a major priority for leaders of the bipartisan coalitions controlling the House and Senate. But the Senate’s version of the bill requires local governments to pitch in more, and some local governments say they can’t afford to.
The benefits of reinstating a pension system for state and local government employees are clear to Rep. Chuck Kopp, an Anchorage Republican and former police officer who’s led the most recent push to do so.,. Look no further, he said, than the recently released statewide audit. For the second year in a row, it identified more than 80 issues with state officials’ compliance with federal and state laws and regulations, in part because Alaska just can’t hang on to knowledgeable staff.
“We're getting, you know, tens of millions of dollars in fines, or we’re not submitting requests for reimbursement,” Kopp said in an interview. “One grant we had, we were owed over $290 million. That's a lot of money in our operating budget today.”
The auditor found the Department of Military and Veterans Affairs initially understated $297 million worth of federally reimbursable disaster expenses “due to staff being unaware of the federal requirements that expenditures should be recorded when incurred for an approved project.” Staff corrected the error after the auditor raised the issue, according to the audit.
Kopp also pointed to overtime and other types of so-called “premium pay” that have come in tens of millions of dollars over budget as the state struggles, like many Alaska employers, to attract and retain qualified staff.
There’s some evidence a pension system could help. Economists have told legislators that a pension system is especially valuable for retaining the mid- and late-career government employees who hold invaluable institutional knowledge, like how to properly ask the federal government for reimbursement.
Efforts to reinstate a pension system have come in fits and starts since the state closed its pension system to new employees in 2006. The biggest roadblock has always been the cost. And fundamentally, that’s a hard thing to project, because it depends on a variety of hard-to-predict variables.
The most recent official estimate from the state’s actuary, Gallagher, shows the new pension system would cost an average of nearly $90 million per year for the first 13 years.
Given the errors and overtime expenses, Kopp argued the plan would essentially pay for itself.
“Right now, the state of Alaska is paying in excess of $200 million a year in overtime and premium pay,” he said.
But budgeters in the Senate Finance Committee say they’re concerned the plan could wind up underfunded. The state actuary’s analysis shows costs ramping up as time goes on. And Alaska is still paying off billions in unfunded liabilities created when the state got bad actuarial advice back in the early 2000s, which led it to close the pension program.
So, before shipping the pension bill off to the floor on Friday, senators added a few tweaks, including one that increases the amount non-state employers, like local governments and housing authorities, would have to contribute to the plan.
“There are increased costs. If you want more benefits, it costs more. You want less, it costs less,” Sitka Republican Sen. Bert Stedman said at a hearing Friday. “Somebody has to pay the costs, and the state of Alaska is responsible for the state employees, but we're not responsible for the non-state employees.”
Many local governments, though, say they can’t afford to pay more. A bevy of local officials told senators the increased contribution rate wasn’t workable.
The city administrator for Stedman’s home community of Sitka, John Leach, said that the higher contributions for non-state employers turned the bill into “an unfunded mandate dressed up as a workforce benefit.”
“Sitka cannot absorb it,” Leach said. “I suspect many of my colleagues across the state cannot either.”
Alaska Municipal League Executive Director Nils Andreassen, asked senators to consider making the pension plan optional for local governments who couldn’t afford the higher costs. The advocacy group represents local governments.
Andreassen referred to the pension plan as a defined benefits plan, or “DB.”
“There are some employers in Alaska for whom the value of DB is worth the cost. There are others who simply can't bear the cost,” he said. “And that's really at the heart of our remarks. Let there be choice.”
And senators agreed. The bill that advanced from the committee on a 5-2 vote, with the two minority caucus Republicans opposed, gives cities and other non-state employers the choice to join the new pension system or stick with the existing defined contribution system, which is akin to a 401(k) system.
Juneau Democratic Sen. Jesse Kiehl said giving municipalities that choice could create complications of its own.
“For a state trooper who is being recruited by their local municipality, but that municipality has opted out … what would their retirement look like?” he asked.
Kopp and other pension advocates, like Anchorage Republican Sen. Cathy Giessel, say there’s no reason to push more costs onto local governments.
The newly reformulated pension plan included in House Bill 78 begins fully funded, has mechanisms to adjust contributions up and down to keep it funded, and there’s little risk of underfunding, Giessel said.
“The actuary has identified that it would take a significant black swan event of three years of no returns for this particular pension to fall below 90% funding,” she said.
The bill is expected to hit the Senate floor in the coming days.
If it passes, it will go back to the House for a concurrence vote, which would send the bill to the governor.
Gov. Mike Dunleavy has not said publicly whether he’ll sign or veto it. His press office on Friday said the governor would evaluate the bill when it reached his desk.
