BORROWS $60 MILLION FOR PENSION OBLIGATIONS
The budget proposed by Anchorage Mayor Ethan Berkowitz has a sleeping giant in it — a plan to incur over $68 million in debt in order to pay another debt. The details were revealed at the Tuesday night Municipal Assembly meeting.
As the municipality heads into 2018, Berkowitz has proposed an overall budget of $519 million — the largest in Anchorage history, and the second year in a row the municpality will have pierced the $500 million mark.
Instead of trimming spending, Berkowitz plans to borrow more than $68 million to pay back an amount that is owed by the municipality to the Police and Fire Retirement System. He plans to put city properties up as collateral.
The city is obligated by settlement to pay $10.3 million a year until the pension fund is made whole. The obligation totals $68.6 million.
The budget avoids the $10 million annual obligation to the pension system by borrowing $68 million and paying it in one lump sum, and then paying back the loan over a longer period of time. In the past years, the $10.3 million minimum payment was included in the operating budget.
Think of refinancing your home loan from a 10-year to a 30-year mortgage. Or paying off one credit card with another one. It’s a similar concept.
The lump payment must be agreed to by the pension board that oversees the fund.
“This ordinance would essentially allow the Municipality to forward-fund several years of contributions by making a lump-sum payment into the System of approximately $68.1 million. That amount would be treated as a ‘credit’ against the Municipality’s annual payment obligation. Following the financing, the Municipality’s payments to the System for at least the next six years would be eliminated,” the proposed ordinance reads.
The financial effect is that borrowing the money and paying off the obligation would reduce the city’s payment flow from $10 million a year for six years, but would require paying $6.4 million for decades into the future — all the way to 2033, long after Berkowitz is out of office. And, it would result in millions of dollars in interest costs that are not currently incurred by simply making the minimum annual payment.
The budget trick makes sense for a mayor going into an election cycle. Berkowitz, up for reelection in April, has had a tough year with soaring crime, unkept promises regarding public safety, and excess property taxes that were promised to be returned to taxpayers but were spent instead. And then, his administration and the liberal Anchorage Assembly raised property taxes by another 5.4 percent.
Now comes more borrowing.
“Did you look at the title?” asked Assembly member Amy Demboski of Eagle River. “It looks like a land lease. But it’s really putting city property up for collateral instead of trimming the budget. This allows them to hide $10 million in pension obligation debt that is normally included in the budget. It’s what we call cooking the books.”
Whatever you call it, it’s a way to push off payments into the future so that Berkowitz can have the size of government he wants going into the April 3 election.
Candidate for mayor Rebecca Logan raised an eyebrow when she learned of the Berkowitz borrowing plan: “In the explanation of the ordinance it says it ‘may be of benefit’ in the long run. It really downplays the risk. This is why the Senate would not go along with the governor’s obligation bond last year.
“But the underlying problem is we’re taking on debt to pay down debt. And we’re growing government.” – Rebecca Logan
Last October, Gov. Bill Walker attempted to borrow up to $3.5 billion to cover Alaska’s pension shortfall, but after running into opposition from the Republican Senate, he dropped the plan. The state was already sinking rapidly in its standing with major credit ratings agencies such as Moody’s and Standard and Poor.