March 26, 2013

Kansas proposal for pension bonds advances

The gamble is that the state retirement system would earn more on investments than it would spend to pay off the bonds.

Kansas would issue $1.5 billion in bonds to improve the short-term financial health of its pension system for teachers and government workers under a bill receiving first-round approval on a voice vote Tuesday in the state House.

The measure would let the state inject a big dose of new dollars into the Kansas Public Employees Retirement System so its assets would cover more of its long-term obligations to provide retirement benefits to teachers and other government workers.

Rep. Dan Hawkins, a Wichita Republican, said the pension system is “kind of like a patient going to a doctor.”

“The patient’s just kind of run down, maybe a little sick, needing a little bit of help,” Hawkins said. “And so they give that patient a booster shot to get them going.”

The system’s assets now cover only 53 percent its long-term obligations, and bonds would allow the state to boost that percentage to 61 percent in 2015 and accelerate its rise to 100 percent.

But Kansas also would be gambling that investment earnings would outstrip the interest paid on the bonds, and some House members questioned using debt to bolster the pension system.

“We need to solve the problem with assets, with income,” said Rep. Pete DeGraaf, a Mulvane Republican. “My concern is that if we say yes to bonding, we’re going to go to sleep.”

The bill would follow up on two years’ worth of legislation aimed at eliminating a projected $9.3 billion shortfall between revenues and promised benefits through 2033. The system projects that the gap will be eliminated over two decades even if lawmakers do nothing more.

The earlier legislation committed the state to larger annual contributions to the pension fund and dedicated future casino profits to the retirement system. Supporters believe the bonds would rein in the annual contributions, lessening the squeeze on other parts of the budget.

The state authorized $500 million in pension bonds in 2004. Supporters of this year’s bill noted that Kansas has been paying 5.4 percent interest on those bonds while the pension system has earned 6.4 percent on its investments, even with the Great Recession.


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