Remember the law of unintended consequences

One law our lawmakers should keep in mind is the Law of Unintended Consequences. While unintended consequences can be positive or negative, they will almost certainly occur whenever we intervene in complex economic domains such as tax or payroll/retirement systems. And so it is with legislative pay.

On January 19, 2010, annual pay for Alaska legislators increased by $26,388, from $24,012 to $50,400. Long term per diem, equal to $13,000 to $15,000, was simultaneously eliminated. The announced net increase in compensation, about $12,000 per year, seems reasonable until one discovers the "real" numbers -- i.e. the increase in total compensation including pension increases.

Pension benefits for public employees in Alaska vary by individual based on when they first held a public sector job, years of service, and the 3 or 5 highest paid years of service. Increasing base pay by $26,388 created financial windfalls for some legislators in the form of a significant increase in future pension payments.

This table estimates the increased pension benefits some of our legislators will enjoy simply by remaining in the Legislature through 2012 and then collecting pension benefits for 20 years at some future time.Increases in cash pension payments of $100,000 to $200,000 are in store for some legislators as a result of receiving a "$12,000 per year increase in net compensation for 3 years." The data is anonymous and cannot be tied to individuals.

New public employees enrolled in Tier IV of the Public Employees Retirement System, including new legislators, do not receive any pension benefits (this includes new teachers and other employees whose return to a defined benefit retirement plan needs to be looked at). This unequal compensation means windfalls from the public purse for some, and merely reasonable compensation for others.

To keep the quest for legislative service a public trust and prevent unintended financial windfalls, the legislature should make all future elected public service Tier IV, regardless of past or future participation in Tiers I through III. In the meantime, please, always remember to ask this question when considering changes to various programs or services: What are the "real" numbers, including the additional pension payouts associated with this program or service?

If we don't ask the right questions, we will never get the right answers.

Steve Pratt is a father, husband, teacher, learner, fisherman, small businessman and economist who is running for State House in District 31 in South Anchorage. E-mail him at voteforpratt(at)acsalaska.net.

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