Editorial: Increasing pressure on our pension system

KPERS still has $9 billion in liabilities, and lawmakers need to bring this number down

A logo of the Kansas Public Employee Retirement System, or KPERS. (KPERS.org)

Although Kansas is in a much stronger fiscal position than it was at this time last year, there are still major challenges that lawmakers and the governor will have to address in 2018. From the Supreme Court’s ruling that the Legislature’s most recent school finance formula remains unconstitutional to the structural gap between recurring revenue and expenses that still exists in the state budget, lawmakers will have plenty of work to do next year. And one of their most important responsibilities will be the responsible stewardship of the state’s pension system.

 

Two days after Gov. Sam Brownback’s 2012 tax cuts were finally repealed, Moody’s revised the state’s financial outlook from negative to stable: “The tax increase enacted this week was a major step forward in the state’s willingness to utilize its resources to balance its budget and service its long-term liabilities.” However, Moody’s also cautioned that Kansas “is likely to be a below-average performer for the next few years,” citing its “pension funding challenges” as one of the main reasons.

It isn’t difficult to see why. Kansas has $9 billion in unfunded pension liabilities, which means the system is only 67 percent funded. While this has improved from 52 percent in 2012, the Legislature still has to spend $623.5 million on KPERS in the next fiscal year just to maintain the current level of debt.

Sen. Laura Kelly, D-Topeka, says she doesn’t think the Legislature will be able to cover that cost. It’s possible that the state will have to spend hundreds of millions of dollars on school finance next session, and we’re still in the process of clearing the debris from the Brownback tax cuts. Our reserves have been completely depleted, lawmakers continue to pay the bills with short-term cash from KDOT and other nonrecurring sources of revenue, and stressed state agencies like the Department for Children and Families are coping with personnel problems, high turnover rates, etc.

Kansas also has an aging population. According to the U.S. Census Bureau, almost a quarter of the state will be over the age of 60 by 2030. Rep. Steven Johnson, R-Assaria, chairs the Joint Committee on Pensions, Investments and Benefits, and he points out that lawmakers need to “make sure we pay our share and don’t make the next generation pay our share.” But the Legislature has repeatedly deferred this responsibility, including a $100 million delayed payment in 2016 (which was supposed to be paid back by June 2018 with 8 percent interest).

Not only will more Kansans soon be withdrawing pension funds, but the state also needs to be prepared for economic volatility. KPERS executive director Alan Conroy explains that difficult economic years are inevitable: “Eventually, they will come, so you want a strong base to be able to absorb those kinds of reductions.” This is why Kelly says she didn’t support the decision to issue a $1 billion pension bond in 2015, despite the fact that the return has been higher than the interest so far: “We just know historically that things can’t keep going up. They’re going to come back down.”

The state’s pension bond gamble has worked out so far, but there’s no telling how the market will perform in the future. Meanwhile, KPERS will be under more and more pressure over the next decade. Last year, Kelly was candid about the temptation to ignore KPERS payments: “It’s so easy to defer. We just don’t pay it.” This is a habit lawmakers need to break.

Members of The Capital-Journal’s editorial advisory board are Zach Ahrens, Matt Johnson, Ray Beers Jr., Laura Burton, Garry Cushinberry, Mike Hall, Jessica Lucas, Veronica Padilla and John Stauffer.

 

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