[Thanks to Bob Madigan for his reporting on this week’s forum.]

A packed house of retired APEA/AFT members greeted three prominent Anchorage legislators this week, as Senators Lesil McGuire and Bill Wielechowski were joined by Representative Mike Hawker for a lively discussion of retiree priorities.

Return to a defined benefit pension

A bill before the legislature, SB 121, would allow current employees to choose between:

• a defined contribution pension, whereby they areresponsible for managing their own pension funds, or

• a defined benefit pension similar to the one RPEA members now have in PRS and TRS. New state employees no longer have the second option. 

All three legislators supported SB 121. Senator Wielechowski pointed out that Alaska is the only state where employees have neither a defined benefit pension nor social security.  There is no safety net for these employees if the markets perform as they have in recent years.  Furthermore, the fact that no new employees are being added to the TRS and PRS systems weakens these systems. Senator McGuire explained how a previous bill six years ago created the current mess, and that SB 121 is a thoughtful remedy to the problem. Representative Hawker discussed the job of convincing other legislators to support the bill.  A key disagreement is different estimates on the true costs of the bill.  Representative Hawker is convinced that the cost is zero , that the bill will benefit the pension system, and pledged to work on convincing his colleagues of this.

The unfunded liability problem 

In the 1990s, the state cut back significantly on its contributions to PRS and TRS pension funds.  Because of this, the funds will eventually run out of money.

All three legislators agreed the problem must be addressed. Senator McGuire explained how consultants in the 1990s made errors that she described as criminal. The state has already sued them, received a $500 million settlement, and is increasing its PRS/TRS funding to reduce the liability (last year’s state contribution was $480 Million). McGuire expressed confidence in finding a solution and Hawker, voicing agreement, pointed to his own draft legislation that would allow the pension funds to borrow low interest money and invest it in high return securities to strengthen the funds. Interest rates are currently at record lows and shrewd pension fund managers have been able to achieve investment returns as high as 20%. Representative Hawker sees this as an opportunity to retire some of the liability. Senator Wielechowski emphasized how important the current oil tax debate is to this issue. Under the Governor’s controversial oil tax proposal, our state income would be drastically reduced and the unfunded liability problem would be exacerbated instead of solved.

The Medicare doctor shortage 

RPEA members expressed appreciation for the creation of the Alaska Medicare Clinic—an effort to which Rep. Hawker and Sen. McGuire were instrumental. RPEA members, noting that this is a remedy for Anchorage, asked the lawmakers what can be done for the rest of the state.

One statewide solution is SB 87, a bill allowing the State of Alaska to supplement Medicare payments to doctors to offset the low Medicare reimbursement rates.  Senators Wielechowski and McGuire are co-sponsors of the bill, and Representative Hawker supports it. The bill has passed the Senate and will be taken up by the House in the coming year. 

All three legislators agreed that oil tax policy is critical to this bill, as oil taxes provide its funding. Two very different perspectives then emerged, as Sen. Wielechowski warned that the proposed changes in oil tax rates would cause a dramatic reduction in state revenue that could exhaust all of the state’s ready cash in ten years. He pointed out that oil field employment and exploration are at an all time highs and tax giveaways aren’t needed.  Sen. McGuire and Rep. Hawker argued that oil companies will not invest in production wells unless the tax is lowered.  The companies currently pay a progressive tax that depends on the price of oil —the higher the price, the higher the tax. Some believe that lowering the tax will cause increased production, although oil companies have refused to make a commitment to investment and jobs in Alaska in return for new tax breaks. APEA/AFT has previously addressed this issue, with Wielechowski providing an in-depth factual analysis that separates fact from fiction. This debate will return in the coming legislative session, and current APEA/AFT members as well as retirees have much at stake in it.