Kansas governor turns to pensions for budget breathing room
Democratic Gov. Laura Kelly proposed Monday that Kansas give itself more breathing room in its budget by slashing annual payments to its pension system for teachers and government workers, offering a new version of a plan that the Republican-controlled Legislature spiked last year.
Kelly’s proposal would give the state an extra 10 years longer to close a long-term gap in funding for the state pension system. The move would free up tens of millions of dollars each year for more than a decade, money that could be used for schools and social services.
But it’s not clear if her new plan will fare any better than last year’s proposal — which was dead from almost the moment she presented it to lawmakers. The Kansas Public Employee Retirement System projects Kelly’s proposal would increase the cost of closing the gap by a total of $4.4 billion — comparing it to extending the length of a home mortgage.
“It is kind of like refinancing the mortgage on your house — you know, lower payments, but you’ve got to pay them longer,” said Alan Conroy, the pension system’s executive director.
Kelly contends giving the state more time to close the funding gap stabilizes the pension system by making the state’s annual payments more affordable. The state skipped payments when it faced budget shortfalls in recent years and still is trying to make up $268 million in missed payments, plus interest.
The governor’s office provided few details in announcing her proposal. Its statement emphasized that current retirees’ benefits are not in danger and said the plan would “restore fiscal responsibility.”
“I look forward to working across the aisle in pursuit of our common goal to get Kansas’ fiscal house in order,” Kelly said in her statement.
Conroy said Kelly’s plan would lower the regular annual payments to KPERS by nearly 27% during the 2021 budget year that begins July 1, saving $187 million. The annual dollar savings would grow after that.
Legislators have wrestled with public pension costs for decades, and the KPERS system remains 68% funded, with a long-term gap between its funding and promised benefits still projected at $9.2 billion. A 2012 law committed the state to aggressive increases in annual payments to close the gap by July 2033, allowing payments to drop steeply after that.
But Kelly’s Republican predecessors struggled to keep up with the promises during tough budget times. Kelly proposes to allow the state to close the gap by July 2043, Conroy said.
Conroy said Kelly’s plan includes a one-time payment to KPERS to catch up on the $268 million in missed payments at once, rather than repaying that amount over two decades with interest.
Kansas finished its 2019 budget year on June 30 with $1.1 billion in cash reserves — money that could tapped for a big, one-time pension payment.
Legislators expected the state to tap its cash reserves over the next five years to sustain spending, and they are projected to dwindle to nearly zero by mid-2024. While Kelly’s plan taps those reserves more aggressively this year, it would also lower the state’s regular annual pension payments each of the next 15 years.
But lawmakers and pension system trustees balked last year at extra long-term costs.
They’ve also long treated 80% funding as a key marker of the system’s financial health and don’t want to take longer to get there. The pension system now expects to be 80% funded in 2029, while Kelly’s new plan would delay the milestone for seven years, until 2036.
The pension system’s trustees expect to review Kelly’s plan at the end of next week, but Conroy said they believe the system will be better able to whether an economic downturn the he more quickly the system is fully funded.