KPERS cuts are costly

January 27, 2015

Gov. Sam Brownback’s plan to reduce payments to the state’s pension system undercuts the reforms he helped champion and would cost taxpayers billions of dollars.

Surely there is a better way to pay for his tax cuts.

In 2012, after decades of underfunding the Kansas Public Employees Retirement System, the Legislature passed reforms to increase state and employee contributions to KPERS and to create a hybrid “cash-balance plan” for employees hired after Jan. 1, 2015. Brownback bragged about these reforms when he was running for re-election, and he continues to boast about them.

“We have enacted reform and succeeded in devoting considerably more resources to what was a badly underfunded system,” Brownback said in his State of the State address last week.

But the funding cuts Brownback ordered for this fiscal year and those he proposes for the future undermine this progress.

In order to help close this year’s budget shortfall, Brownback is withholding $58 million in state payments to KPERS. The loss of that money and its investment earnings will cost the state $76.7 million over 20 years, said Alan Conroy, executive director of KPERS.

Much more significantly, Brownback wants to extend the date for the state eliminating KPERS’ unfunded liability from 2033 to 2043. Doing so would enable the state to lower its annual contributions but would cost an additional $9.1 billion (non-inflation adjusted) – nearly doubling the current unfunded liability.

To help cover these costs, Brownback proposed borrowing $1.5 billion. These bond proceeds and their investment income would result in a net cost to KPERS of Brownback’s proposals of about $3.7 billion.

However, the state general fund would be responsible for the debt service on the bonds, which likely would cost more than $90 million per year for 30 years – or more than $2.7 billion. There is also the risk that another stock-market downturn could cause the state to pay more in interest on the bonds than what KPERS earns in investment income.

Kansas teachers and state employees feel betrayed by Brownback’s proposal. They supported the 2012 reform, which increased their employee contributions to KPERS, because they saw it as a shared sacrifice to shore up the pension system. But now the state is already trying to wiggle out of its funding commitment.

Several state lawmakers, including Senate Vice President Jeff King, R-Independence, also have been critical of Brownback’s backtracking on the 2012 reforms.

Brownback said in his State of the State address that “all of those truly interested in fiscal prudence should support putting our state retirement system on a sound long-term footing.”

The 2012 reforms put the state on that path. Brownback’s cuts send the state on a costly detour.

For the editorial board, Phillip Brownlee

 

http://www.kansas.com/opinion/editorials/article7889001.html

Previous post:

Next post: