Friday, April 25, 2014

#AKbudget Where's PERS/TRS ...

Earlier today, as the legislature headed toward adjournment, the Legislative Finance Division (Leg Fin), which serves somewhat the same purpose for the legislature as the Congressional Budget Office does at the federal level, released a "Draft Short Fiscal Summary" of the FY 2015 budget.  Such fiscal summaries -- which are prepared at various times by both Leg Finance and the Governor's Office of Management and Budget -- are often used by those who work on and think about state budget issues, including me, as the basis for related calculations.

As with others I have been waiting on Leg Fin's fiscal summary, in my case to see how they propose to handle the contributions approved this year toward PERS/TRS, the state's retirement funds.  In sum the Governor proposed and the legislature has approved a transfer of $3 billion from the Constitutional Budget Reserve to PERS/TRS.  But properly understood, some portion of that is effectively in lieu of the annual contribution which otherwise would be required to be made as part of the Operating Budget, and some portion is an extraordinary, one-time contribution which is being made to make up for underfunding which occurred in prior fiscal years ("This year, Gov. Sean Parnell ... proposed $2 billion in addition to the required $1 billion minimum payment, what's being called a "$3 billion cash infusion.")

Surprisingly, the draft appears not to include any of the transfer as part of the annual budget, effectively undermining the usefulness of this year's fiscal summary in developing year-on-year comparisons of spending levels.  The relative treatment shows up on line 23 of the draft:

Click for larger view.
While the summary reflects the $634 million being contributed to PERS/TRS in FY 2014, it reflects only $5 million for FY 2015 (which is largely related to administrative costs), notwithstanding that, in fact, the legislature has approved $3 billion in such funding.

While I do not believe that the failure to include an annual component for this category of spending is the consequence in any respect of ulterior motives, it does make an apples-to-apples comparison of year-to-year spending levels difficult.  It clearly is inappropriate, for example, to compare last year's spending level (line 36) of $7.187 billion to this year's $5.823 billion.  As reflected on the draft fiscal summary, this year's number leaves out a significant component of spending that indeed is occurring this year, but for whatever reason is not included in the number.

More importantly for the purpose that some may have in mind, it is inappropriate to use the number to compare against ISER's "sustainable spending" level that I have talked about extensively in other posts on these pages.  That number -- which for FY 2014 was $5.5 billion and for FY 2015 is $5 billion -- is not tied to any particular categories of spending, but rather reflects total spending levels that the state can afford without degrading its future fiscal position.  Because the PERS/TRS contribution counts as spending for that purpose, the failure to include it as part of the $5.823 billion shown above makes that number non-comparable to ISER's "sustainable spending" levels.

When comparing year on year spending any commentator (and I believe, because it purports to do the same thing, the fiscal summary) should include at a minimum some annualized component of PERS/TRS spending for FY 2015.  In preparing my running totals during the latter days of the session I have included $345 million, which is the amount that will be included in the same location next year (at p. 4).

Adjusting for that amount and taking all of the other numbers from the Leg Fin summary, the properly adjusted level of spending for FY 2015 to be used for comparative purposes is $6.17 billion, and the deficit is $1.65 billion.

While below FY 2014 spending levels, the amount nevertheless is 12% and 23% above ISER's calculated sustainable spending levels for FY 2014 and FY 2015 respectively.