TOPEKA, Kan. – Kansas is considering $1 billion or more in pension bonds because it has a chance to improve the state retirement system's financial health, not because officials want to back off short-term funding commitments, the Legislature's pension committee chairmen said Monday.
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Republican Sen. Jeff King, of Independence, and GOP Rep. Steve Johnson, of Assaria, sought to lessen concerns that issuing bonds would be risky and delay efforts to erase a long-term funding gap facing the pension system for teachers and government workers. King and Johnson are lead negotiators for their chambers on the final version of a bonding bill.
Negotiations began Monday, and legislative leaders hope lawmakers can pass a bill before beginning their annual spring break Saturday. The measure is important to finishing a budget for the fiscal year beginning July 1, because Republican Gov. Sam Brownback outlined proposals — including $1.5 billion in bonds — to decrease the state's payments to the Kansas Public Employees Retirement System.
"You always wonder if it's going to work," said Dennis Phillips, chairman of the Kansas Coalition of Public Retirees.
KPERS is on track to close a projected $9.8 billion gap between revenues and benefit costs from now until 2033, thanks to laws enacted in recent years. But those laws require increasing contributions to KPERS by the state, and Brownback has argued that the payments will strain the budget.
Supporters of issuing bonds face skepticism of the idea outside Kansas.
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A report last year from the Center for Retirement Research at Boston College said issuing bonds decreases financial flexibility, turning pension payments that can be modified into firm bond payments. The report also said pension bonds can benefit well-funded pension systems but under-funded plans and financially stressed governments typically issue them.
Alicia Munnell, the center's director, said officials can seek to use bonds to avoid "the hard job" of adequately funding pension systems.
"It's sort of like a Hail Mary pass," she said.
Brownback's proposals would reduce the state's contribution to KPERS by $40 million during the next fiscal year, when the state is trying to close a budget shortfall.
The House passed a bill last week to authorize $1.5 billion in bonds, and the Senate last month approved $1 billion in bonds, but the legislative plans would reduce pension costs during the next fiscal year only between $7 million and $10 million, according to KPERS. That is only about a quarter of the reduction Brownback projects.
Issuing bonds would give the retirement system an infusion of cash, narrowing its long-term funding gap. KPERS expects to earn 8 percent long-term on its investments, and the legislative proposals limit the state to paying investors 5 percent interest or less on the bonds.
"This is a wonderful pension tool if you are ready to keep your commitments to properly fund a system," King said.
Johnson said lawmakers are pursuing bonds only to realize financial gains for KPERS.
But, he acknowledged, "Any time you look at numbers with that many commas, it's a cause for pause."
House pensions plan: http://bit.ly/1BOHQAu
Senate pensions plan: http://bit.ly/1yeE0QI
Follow John Hanna on Twitter at https://twitter.com/apjdhanna .