KC’s dilemma: Fund pensions now, pay off Power & Light District debt later
01/20/2014 5:50 PM
01/20/2014 5:50 PM
Kansas City’s public pensions are about to collide with the Power Light District.
And it’s quite possible your children will have to live with the results.
It isn’t a secret that today’s taxpayers have had to shell out serious cash to repay borrowing for the underperforming downtown entertainment district. This year, the taxpayer outlay is expected to be just short of $14 million. Next year, it’s supposed to jump to more than $15 million.
We could rehash the reasons for the shortfall, but that could take years and cost millions of lives. For our purposes, let’s just accept the fact that everyone has to pay off the P District bonds.
At the same time, though, the city’s public pension needs are escalating. For years, elected city officials paid less into those retirement funds than needed — leaving seriously underfunded pensions, a problem familiar to other states and cities across the country.
Those days apparently are coming to an end. City Manager Troy Schulte wants to increase the pension contribution in next year’s budget by about $15 million, a huge chunk of cash in a city with slumping revenue from fines, grants and other sources.
Where to get that kind of money?
Some of it, city officials believe, could come from refinancing the Power Light District bonds. By restructuring the deal, City Hall might save about $6 million next year, money it could then plow into the pension programs.
But as anyone who has ever refinanced a house or a car knows, restructured debt doesn’t disappear. And in this case, officials think, the $6 million the city saves now and over the next couple of years will turn into an additionalseven
years of payments on the district bonds, totaling $36 million, between 2033 and 2040.
A baby born this year will be 26 when the final check is written.
Now, this financial sleight of hand might make some sense. Sometimes, refinancing the house is a good way to free up cash for today’s expenses.
But the City Council should evaluate the plan with clear eyes. They would, in essence, be borrowing money from the next generation, in part, to pay for current pension responsibilities.
Anyone who has studied the federal budget will recognize the strategy.
Kansas City’s tangled relationship with debt, economic development, incentives, pension obligations and operating expenses is growing more complicated — and potentially dangerous.
So watch this discussion carefully. Then try to explain it to your kids as we slip them the tab.