Should Kansas use the budget surplus to pay off $ 1 billion in KPERS public debt?

Attorney General Derek Schmidt wants lawmakers to use much of the projected $ 2.9 billion surplus to pay down public debt while also targeting tax breaks for the Kansans.

Schmidt calls on lawmakers to send $ 1 billion in cash – or more – to the Kansas public employee retirement system.

“At the end of the day, we have a rare and unprecedented opportunity to solve this long-term retirement debt problem that has built up over a generation in Kansas, to solidify the system for current and future retirees,” to wipe out a huge chunk of costly public debt – the books, “Schmidt said in a telephone interview with The Capital-Journal.

Schmidt’s plan precedes the start of the 2022 legislative session on Monday. He is the Republican frontrunner to challenge Democratic Governor Laura Kelly in this year’s election.

Kelly is expected to release details of her budget proposal on Wednesday after delivering an in-person state of the state speech on Tuesday night. In the past, Kelly’s budgets have called for the refinancing of state pension liabilities – a move Republicans have strongly opposed.

Kansas lawmakers are in a somewhat unusual position this year as they debate what to do with a budget surplus instead of how to close a deficit.

In November, economists increased their forecast for fiscal revenue for the fiscal year, forecasting a surplus of $ 2.9 billion. The amount could increase as revenue continues to exceed expectations.

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“The KPERS investment obviously helps present and future retirees by improving their security. It helps taxpayers in the long run because then there is no need to put more future general tax money into the KPERS system, it reduces the amount that has to go into it. to pay off past obligations, ”Schmidt said.

“But that too, and this is the additional point, it also helps all those who depend on a state service in the future, whether it is public schools, whether it is transport, whether it is social services, be it corrections, as this frees up a significant amount of cash each year for the general state fund.

A KPERS assessment, provided by Schmidt’s campaign, determined that the addition of $ 1 billion by year-end “translates into an immediate improvement in funding and a reduction in employer contributions in years to come”.

The proposal would save $ 75 million in state and school contributions next year, with $ 403 million in savings to taxpayers over five years.

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The system’s unfunded liability would drop from around $ 5 billion to around $ 4 billion, improving the funding ratio from around 77% to around 82%. The ratio measures the assets of a pension plan as a percentage of the liabilities.

KPERS officials said 80% was the short-term goal and 100% as the ultimate goal. Although 80% is a funding goal often used to determine the health of a pension plan, the American Academy of Actuaries has called it a myth.

For much of the 21st century, the ratio has been in the 1940s and 1950s, according to Federal Reserve data.

“There’s no reason to deal with funny bookkeeping,” Schmidt said. “Be honest and honest, write the check, put it in the investment wallet, pay off the debt, strengthen the system.”

Rainy Day Fund

Schmidt urged caution with the economic forecast, recalling projected surpluses in 2008 before the Great Recession and impending budget cuts and tax hikes.

In addition to sending money to KPERS, Schmidt is urging lawmakers to put money into a budget stabilization fund. He said he didn’t have a specific amount in mind, but suggested $ 500 million would be enough.

“The idea would be, as long as there is money in the bank, to put it aside so that, when the inevitable downturn occurs, it is possible to cushion the blow and continue to meet our obligations” , did he declare.

His experience as a leading GOP lawmaker during the recession fuels the recommendation to put money aside for rainy days.

“When the fund fell,” Schmidt said, “suddenly there was no more cash reserves that could be used to cushion the blow to really critical public services like funding for public schools, like investments in transport, such as the costs of social services. “

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KPERS before tax cuts

When lawmakers enter the 2022 legislative session on Monday, they are bound to have competing ideas on how to spend the surplus or cut taxes.

“It is in some ways more difficult to budget in an age when there is a lot of money than in an age when there is meager money, because it is harder to say no to every good idea that comes up. present, “said Schmidt. “And there are always more good ideas than there is money available.”

But he said he believes all other proposals should take precedence over KPERS and the Rainy Day Fund.

“They should be at the top of the list,” he said. “I think they should try to do those two things first, before getting into the natural discussion of all the other competing priorities.”

Schmidt and Kelly have both called for cuts in the state’s food sales tax. Kelly’s plan would eliminate the state’s 6.5% tax on groceries entirely, costing the state about $ 450 million per year. Schmidt supported the concept without specifying the details of the policy.

The issue has long enjoyed bipartisan support, but has been doomed to failure when paired with less popular proposals.

Governor Kelly called for debt repayment

For her part, Kelly has also shown interest in repaying public debts. In November, his administration repaid a $ 300 million loan from the Money Investment Board two years ahead of schedule. The bridge loan was used by the Legislature in 2017 to fill budget gaps during the administration of former Governor Sam Brownback.

In an interview in December, Kelly indicated that she wanted to use some of the current surplus to pay off debt.

“You turn to things like paying down debt,” she said. “Take the debt off the books as much as possible, as that will then free up general state funds for years to come. So look for it.”

However, the KPERS amortization plan that it has proposed in recent years would increase long-term debt. The governor is expected to unveil his budget proposals this week, and it is unclear whether they will be included again.

“Re-amortization,” Schmidt said, “is one of those mind-numbing words that put people to sleep so they won’t notice what the real proposition is. It’s just a matter of borrowing more money for us. let’s not pay the bills until it’s someone else’s watch. And I think that’s both irresponsible, but also unbelievably expensive. “

Jason Tidd is a state reporter for the Topeka Capital-Journal. He can be contacted by email at [email protected]. Follow him on twitter @Jason_Tidd.