By ALEX GIMARC
One of the remarkably ugly proposals happily making its way through the Alaska Legislature is a return to defined benefit pensions for state employees. The vehicle for doing this is difficulty in hiring and retaining police, fire, and first responders.
Legislation to make this so is HB 22, spearheaded in the House by Rep. Andy Josephson, who has been pushing it hard. As of this writing, there is no fiscal note, though we are promised one — real soon now.
Before we get into the pointing and yelling portion of this piece, I want to remind everyone why Alaska doesn’t do defined benefits. The reason? We can’t afford it anymore, a problem that became obvious nearly 40 years ago. That is why Tier I PERS / TERS was replaced by Tier II (a partial move to defined contributions) in 1986. Tier III was passed 1996, and Tier IV in 2006.
HB 22 is an attempt to return to Tier I for police / fire / first responders. Think of it as a start.
Problem Definition
The stated problem is poor retention of law enforcement and firefighters following training. The solution proffered in HB 22 is to pump up their retirement benefits, potentially blowing up the currently (and perennially) stressed PERS/TERS retirement system. This solution would seem to be both high risk and premature.
There are several things missing in this discussion, most importantly the cost benefit analysis of the problem. First is to actually scope the problem. How many people are we talking about? How much is it costing us? Are there any other possible approaches other than simply throwing money at it?
Once we have that discussion (which hasn’t happened yet in public that I know of), we can then start talking about solutions. What do we propose spending to fix it? What happens if the solution proposed in HB 22 doesn’t work? Is the benefit of going to defined benefit for pensions greater than the risk of blowing up the entire PERS / TERS system as it exists today? How do we quantify a positive result?
The fact that the fiscal note does not yet exist is telling. The fact that nobody at any level has proposed running a test for a few years tells us even more. Testing is a really smart thing to do, and we ought to do a lot more of it. It would have quickly identified problems that surfaced following passage of SB 91 in 2015, problems that took the legislature multiple pieces of legislation to fix. Testing this proposal for a few years will tell us if it works before we bet the farm with the entire PERS/TERS system, the PFD and the corpus of the Permanent Fund.
Training Costs
If retention of trained police and fire is a problem, we then need to look at training costs (time and money).
The State of Alaska pays a $20,000 hiring bonus to new troopers. Half of it is paid upon hire. The other half after probation and certification (one year). No other bonus is paid. No additional obligation for service is agreed upon receipt of the bonus. And for some reason, the newly trained officers don’t hang around.
Contrast this with how the Department of Defense responds to pilot shortages. Pilots are expensive to manufacture both in time and cost. In response to pilot shortages, DoD came up with substantial bonuses to retain trained people. These range from $15,000 – $35,000 / year. When receiving the bonus, the pilot signs a fixed term of future service, generally five years following their initial obligation with an option to extend. Note that it takes about 52 months to manufacture a new USAF pilot. USAF pilots generally cost $0.84 – 1.60 million to train in basic military flight training. There are additional training costs associated with whatever they end up flying after basic training.
Alaska State Troopers attend a live-in 18-week course in Sitka. Their training costs are $225,000 / new trooper (first year). APD puts its new officers through a 25-week course with 1,063 hours in the syllabus. Their training costs are not available.
From here, it would appear that the legislature and the Governor aren’t even considering increasing signing bonuses or tying receipt to a fixed term of future service. Why would they rather blow up the budget with a return to defined benefit pensions?
Why indeed?
Politics
This is where we get into the pointing and yelling (politics) part of this. Public employee unions have long despised defined contribution, which we can afford, and demanded a return to defined benefit, which we can’t. From here, it appears they have finally elected enough legislators to make it happen. There is no small amount of concern that Gov. Mike Dunleavy will sign the legislation when it passes.
Legislators backing this even think they’ve got the outyear budget increases covered, paid for by the size of the future PFD which will rapidly be driven to zero. Look at public comments by Sen. Matt Claman or Cathy Giessel about right sizing the PFD, and “responsibly” paying for spending (disbursement of a statutory PFD is somehow irresponsible).
Look at every single legislator who voted against the PFD passed last session as a someone who will pay for this with your PFD. Even Gov. Dunleavy has political cover, as he can point to the PFD passed last year as an example of him delivering what he promised to do. For just one year.
Police / fire / first responders are the opening gambit, the camel’s nose under the tent, as a vote against HB 22 will be construed as a vote against first responders. The Alaska Education Association will be next in line, closely followed by Local 71 and the rest of the public employee unions.
All of them marching happily into the land of zero-dollar PFDs, because we must pay our obligations as a state to our employees, mustn’t we? Statutory obligations to our citizens? Not so much.
And the unions will funnel contributions from their members to democrat political campaigns to elect more democrats to put more obligations on the Permanent Fund. When there isn’t enough money in the PFD to pay for this expansion, the supporters will quickly be into the corpus of the Permanent Fund itself to cover their costs.
And the first responders are simply the opening bid, a sympathetic one at that.
We can stop this with simple bonuses coupled with fixed obligations that do not impact PERS / TERS outyear costs. And somewhere along the line, we ought to run a multi-year test to see if it actually works. The fact that these are not even being mentioned — much less debated — speaks volumes.
Alex Gimarc lives in Anchorage since retiring from the military in 1997. His interests include science and technology, environment, energy, economics, military affairs, fishing and disabilities policies. His weekly column “Interesting Items” is a summary of news stories with substantive Alaska-themed topics. He was a small business owner and Information Technology professional.
