Governor Sean Parnell today proposed a plan to put the state's operating budget on a more sustainable path, while better enabling the state to meet its retirement obligations for earlier retirement system plans. Specifically, in his FY 2015 budget, the governor will recommend transferring $3 billion from a budget savings account into the state's retirement trust funds. This move would effectively pay down the unfunded debt and create a lower fixed annual payment from the state operating budget.
"State pension contributions represent the single largest cost driver in the state's operating budget," Governor Parnell said. "This year's budget contains an unfunded pension liability contribution of more than $600 million, and the payment plan requires an increase to more than $700 million next year. Soon, the operating budget would be required to contribute more than $1 billion annually to this one line-item. If left unaddressed, the annual state pension contribution will increasingly burden the state and hamper our ability to meet the people's constitutional priorities. Paying down the debt now is this generation's responsibility that we will not leave to the children of Alaska to deal with in the future."
The governor's proposal strengthens Alaska's AAA credit rating and keeps the biggest driver of operating budget increases from growing.
"Given the significant and escalating resources required to pay down the unfunded pension liability, it is in Alaska's interest to dedicate some of our budget reserves now to paying down our obligation, and move the state's annual payment to a lower, more sustainable and predictable level," Governor Parnell said. "Leveraging our reserves in this fashion will allow us to meet our obligations, reduce our annual operating budget, address future needs, and maintain flexibility. I look forward to working with the Legislature and the Alaska Retirement Management Board to address the unfunded liability."
Current projections estimate that the Public Employees' Retirement System (PERS) and Teachers' Retirement System (TRS) have a combined unfunded liability of $11.9 billion.
The governor will seek legislative approval for a one-time $3 billion appropriation from the Constitutional Budget Reserve into the retirement trust funds. A savings infusion in the FY 2015 budget will enable the annual state pension contribution to drop to $500 million a year, and will increase the funded status of the PERS and TRS systems by 10 percent almost immediately.