Anchorage should think twice about pension-debt deal

The Anchorage Meeting lately authorised Ordinance No. AO 2017-133, authorizing Mayor Ethan Berkowitz’s plan to incur $sixty eight million in pension-associated debt, leveraging municipal property within the course of. The minor and myopic benefits of this are eclipsed by vital danger, new and pointless lengthy-time period debt, and liabilities. Residents could also be dealing with new and/or larger taxes in coming years.

Beneath Berkowitz’s plan, $sixty eight million, collateralized by municipal property, shall be transferred in lump sum to the Police and Hearth Retirement System. At present, the municipality is required to make an annual $10.three million cost to the PFRS for the subsequent six years, funds required underneath a settlement settlement that resolved PFRS litigation in the course of the Nineteen Nineties. These funds have been a recognized amount, persistently budgeted for and terminated in six years.

Berkowitz’s plan includes “Certificates of Participation,” comparable in idea to the $three.5 billion in pension obligation bonds that the Walker administration tried, and failed, to promote in 2016. The memorandum accompanying the ordinance defines certificates of participation as a secured curiosity in municipal property; the municipality primarily repays its debt by making lease funds by itself property. Till then, the property is held by a trustee for the collectors. The properties in danger haven’t been disclosed to the Meeting. That listing is compiled solely by the Anchorage chief fiscal officer.

Based on the Ordinance Abstract of Financial Results, the present $10.three million annual obligation, which terminates in six years, vanishes from the municipality’s price range. However, earlier than anybody will get too excited, the debt service of the brand new mortgage begins in FY2019 at an annual price of $6.four million and lasts till 2033. The web annual financial savings to the municipality for the subsequent six years is simply $three.9 million.

Additional, the lump-sum cost to the PFRS raises funding ranges from eighty % funded to roughly 88 % funded (based mostly on numbers from a current PFRS publication; the memorandum claims ninety %). Berkowitz gambles that the remaining funding hole could be closed by the PFRS investing the lump-sum cost. For this gamble to work, the present excessive-yield setting in fairness markets must proceed properly into the longer term.

Berkowitz’s plan has main flaws that expose Anchorage taxpayers to vital danger and lengthy-time period liabilities. First, the municipality should pay again not solely the $sixty eight million…

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