Remember the law of unintended consequences
| Feb 20, 2010One 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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Bill Allen might have been the richest man in Alaska, for all I know, but he was chronically and deliberately violating all kinds of laws.
Bernie Madoff must have skimmed hundreds of million for himself, from his Ponzi scheme.
R. Allen Stanford also had a big time Ponzi scheme, ripping off billions himself. Ironically, he wound up in a for-profit prison in Texs where he damn near was beaten to death.
So having more money obviously doesn't make anyone more honest, or even less inclined to take shady risks.
Why should legislators be different than the rest of us? Of all the legislators who got busted in the Polar Pen scam, the only one I can think of who got corrupted because he took a bad financial hit was Bruce Weyhrauch. I think before he got in money trouble, he was a pretty straight shooter.
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Do the board members of the oil and mining companies get pay, benefits and bonuses that make Alaska’s legislators pay pale in comparison? Some of these guys and their CEO’s could probably cover the entire state legislature cost and still operate their yachts & jets. Maybe Alaskans should considering paying our leaders more incommensurate with their duties and responsibilities. Maybe elections should include a component of “Who gets to become our millionaire”. It is a touch harder to buy a rich guy off than a poor one, bet Vic can attest to that. Our legislators and Governors do a good job, but we might watch their actions more closely if we paid them like the important people the office the hold makes them. TRW
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His colleagues allowed Vic Kohring to collect per diem payments while he was missing the start of a session and working on his Russian bride's house in Oregon.
I went to a meeting about ten or twelve years ago when the legislature wasn't in session. A number of legislators showed up, but all but Randy Phillips, who stayed there all day, disappeared after 15-20 minutes. I expect they all put in for per diem.
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In a story about OCS this week, the state admits that a third of all its line workers left in a year. Tier IV compensation could certainly have a negative effect on recruitment and retention.
I've also personally benefited by legislative inclusion in the PERS/TRS system because in the past, a majority of legislators have looked out for themselves and boosted their benefits which was not always in the interest of Alaskans. I got more than I expected, since I shared the tier hey were and wish it had been otherwise. We are being progressively less fair to state employees who do not have the luxury of being able to set their own compensation.
The question should be, I think, is whether legislators should be able to benefit by legislation they pass that will substantially affect their own pensions and other benefits?
Five of our former legislators were convicted in the Polar Pen scandal and one's trial remains in limbo waiting for a decision from the Supreme Court. I can think of at least four more who most likely should have been prosecuted if DOJ attorneys in DC hadn't made some boneheaded mistakes in the Ted Stevens case. It's no secret that Senators Ward and Ben Stevens should have been on the list of those indicted.
That's a minimum ot ten legislators, one sixth of all those in the House and Senate six years ago, who betrayed the trust of the Alaskans who they were elected to represent. One wonders how many more may have also been corrupted but whose iniquity never came to public knowledge?
Steve Pratt is making noise about this, but how do we know if he's any better than what we've got? His race for the school board was dismal, so I expect his chances of displacing Bob Lynn are minimal.
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There was nothing unintended about these consequences. They were fully and cynically intentional.
Joe LaRocca