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Failed Sullivan Lawsuit Puts Permanent Fund at Risk

In Short:

The most recent independent fact check from the Alaska Dispatch News shows the Mercer settlement Dan Sullivan is now bragging he “personally negotiated” for $.20 on the dollar could have led the State of Alaska to tap into the Alaska Permanent Fund to fulfill the pension fund requirements.

By rushing into a settlement with a New York financial firm, Sullivan left $2 billion on the table that could have helped shore up Alaska’s pension fund. Instead, he made the situation worse. Republican lawmakers have already mentioned the tapping the Permanent Fund to help pay down the $10 billion unfunded liability.

The Facts:

Pension Shortfall Threatened Alaska Budget Reserves, Permanent Fund, & Credit Ratings

Alaska’s Pension Shortfall Could “Threaten Future Budgets.” “Alaska’s public pension gap grew by nearly $1.4 billion last year, bringing the public employee and teacher plans’ ‘unfunded liability’ to more than $11 billion, according to new numbers made public last week. […] That number is getting so high that the state has capped it for school districts and local governments, and picks up a big share of the cost itself. That extra annual cost to state government is expected to continue to rise, and Buck told the ARM Board that it will soon be more than $1 billion a year, which legislators say could threaten future budgets.” [Juneau Empire, 4/30/11]

Pension Shortfall Could Mean Tapping Into Alaska Permanent Fund. “In Alaska, public employee pensions, such as those for teachers, are contractual obligations protected under the Alaska Constitution. If the retirement trust funds don’t have enough money available to make pension payments, other state assets, such as budget reserves or the Alaska Permanent Fund, may be tapped for that purpose.” [Alaska Dispatch News, 9/6/14]

State Of Alaska Spent $3 Billion In Budget Reserves To Shore Up Underfunded Pension Plans. “The money goes into the trust funds for the Public Employees’ and Teachers’ Retirement Systems, and is the first installment of $3 billion sought by Gov. Sean Parnell and approved by the Alaska Legislature to shore up the underfunded pension plans. […] The cash infusion comes from the most conservatively managed part of the $12 billion Constitutional Budget Reserve, a portion expected to earn between 2 percent and 3 percent per year, compared to 8 percent in the more aggressively invested retirement trust funds.” [Alaska Dispatch News, 7/15/14]

Under The Alaska Constitution, Permanent Funds Could Eventually Be Required To Pay For Pension Shortfall. “That would help pay down what’s grown into a $12 billion unfunded liability for retiree pensions and health care, the annual costs of which threaten to overwhelm the state budget. […] State funds eventually will have to be used to pay them, even if the only state funds available are from the Alaska Permanent Fund, state officials say. ‘Our constitution is pretty unambiguous,’ said Rep. Bill Stoltze, R-Chugiak. ‘Retirement benefits are a contractual obligation. It couldn’t be any more clear.’” [Alaska Dispatch News, 4/18/14]

State Sen. Johnny Ellis: Parnell May Try To Use Pension Shortfall To Pit Retired Teachers & Public Employees Against Alaska’s Permanent Fund. “Sen. Johnny Ellis, D-Anchorage, said he hopes the Legislature and governor will finally act on the retirement debt, but he also fears that they may not. Some may not want the problem solved, he said, if they find it a useful ‘bogeyman’ with which to attack public employees. ‘They almost look forward to the day when they could pit public employees and retirees against Alaska’s Permanent Fund, and say ‘Hey Alaskans, look at these greedy union members and retired teachers and employees who are demanding the pensions they were promised,’ Ellis said.” [Alaska Dispatch News, 4/18/14]

If Alaska’s Pension Shortfall Is Not Addressed, Credit Agencies Said The State Risked Its AAA Bond Rating. “The cash infusion cuts the long-term projected deficit for the Alaska Public Employee Retirement System and Teachers’ Retirement System to an estimated $9 billion. It also reduces the amount of future annual payments into the systems, which Parnell said is the single biggest cost driver of the state’s operating budget. ‘But beyond both of those worthy goals of this legislation,’ he said. ‘It takes the burden off of our kids and grandkids to pay this debt that is owed. It’s a debt that we will make good on, but it takes that obligation off of future generations of Alaskans.’ Parnell says credit rating agencies recommended the state address the shortfall, or risk losing its AAA bond rating.” [KTOO, 6/23/14]

Parnell Budget Director: Pension Shortfall Poses “The Greatest Risk To Our AAA Bond Rating.” “Gov. Sean Parnell is proposing putting $3 billion from a state savings account toward paying down Alaska’s roughly $12 billion pension shortfall. […] Parnell’s budget director, Karen Rehfeld, presented the plan at the Alaska Retirement Management Board meeting in Anchorage on Thursday. The board itself has been advocating a cash infusion and payment changes as a way to better address the issue. Rehfeld told the board the unfunded liability ‘is the single largest driver of our operating budget cost. It poses the greatest risk to our AAA bond rating and if we do not address it, it will negatively affect future Alaskans.’” [Associated Press, 12/5/13]

Parnell Revenue Commissioner: Pension Issue Is “Number One” Credit Concern. “Revenue Commissioner Angela Rodell said the pension issue is the ‘number one’ credit concern raised by ratings agencies.” [Associated Press, 4/14/14]