Gov. Sam Brownback’s plan to save Kansas money now would eventually increase the state’s long-term pension costs by $6.5 billion, the pension system’s executive director says.
Alan Conroy, the executive director of the Kansas Public Employees Retirement System, on Thursday briefed the Senate budget committee on the long-term impact of the governor’s budget proposal.
Brownback wants to slow down the state’s pension payment schedule to save money as the state faces a budget shortfall. Conroy compared that to refinancing the mortgage on your house.
“If you don’t pay it now, you’re going to pay more later and over a longer period of time,” he said.
KPERS has an $8.5 billion unfunded liability. If the state keeps its current payment schedule, it would pay that off by 2033. Brownback’s budget proposal would delay that by 10 years, which Conroy said would increase the long-term pension costs by $6.5 billion through 2043.
The KPERS system provides retirement benefits for state workers, teachers and most other public employees in the state. The city of Wichita manages its own pension system.
The Legislature delayed a $97 million payment to the state’s pension system last year with the promise that the state would pay that money back with 8 percent interest. Brownback’s budget proposal would eliminate that repayment, costing the system $115 million when the interest is included.
In addition, the governor’s proposal would freeze the state’s contributions at the 2016 level. Conroy said this would amount to a combined $596 million loss to the state’s pension system over three years and would be the equivalent of skipping a full year’s worth of payments.
Sen. Carolyn McGinn, a Sedgwick Republican and the Senate budget chairwoman, voiced opposition to the proposed changes.
“I think we need to leave KPERS alone,” McGinn said after the meeting. “We’ve fixed it twice and we keep meddling with it.”
Sen. Laura Kelly of Topeka, the committee’s ranking Democrat, said the governor’s plan would unravel all the work done to ensure the financial stability of KPERS. She criticized the governor for short-term thinking.
“Everything is a patch to get him past this disaster,” Kelly said.
Brownback said lawmakers should offer their own alternatives if they dislike his proposal.
“Let’s see what their options are,” Brownback said of lawmakers balking at the KPERS move. “We’ve not had the (tax) receipts come in that we thought we would have coming in and so you’re left making serious choices.”
Brownback signed a bill to increase the state’s quarterly payments to the pension system during his first term as a way to shore up the system, which suffered from underfunding for decades. That bill also increased the payment rate for state employees.
Brownback frequently spoke of his efforts to fix the pension system during his 2014 re-election campaign.
Brownback said critics of the proposal should also recognize the changes made to the program, which included putting more money into the retirement system than earlier governors had.
“I hope there was also some recognition of how much we put into this,” Brownback said.
“When I started, we were about 54 percent funded. We are at 67 percent today.”
Sen. Rick Billinger, a Goodland Republican, raised concern that if the Legislature passed the governor’s proposal it would essentially undo all of the work of the past six years to stabilize KPERS.
“When we’re about to the top of the mountain and ready to start skiing down, why would we want to take that mountain out another 10 years?” Billinger said after the meeting.
Conroy repeatedly noted that the proposed changes to the pension system would not affect benefits for current retirees.
However, Sen. John Doll, a Garden City Republican, asked what the state should tell people entering the teaching profession today about what their benefits will be when they retire.
Conroy said that would depend on actions from the Legislature over the next few decades.