Senate approves $750 million in pension bonds

Supporters say issuing bonds will strengthen retirement fund and help state in budget crisis

Topeka ? Hoping to avoid a future tax increase, the Senate on Wednesday approved a proposal to sell $750 million in bonds to strengthen the state pension fund for teachers and government workers.

The 29-9 vote sent the measure to the House, where Speaker Doug Mays said it would receive a serious look.

Officials say the Kansas Public Employees Retirement System has enough money to pay pensions in the short term but is not collecting enough annually to cover benefits during the next 40 years. The projected gap over that span is $1.5 billion.

The state is putting $179 million into KPERS in the current fiscal year. Officials of the pension fund say it needs $280 million a year to remain solvent in the long term.

“If we don’t get this taken care of, in the next three or four years, there’ll be a big tax increase,” said Mays, R-Topeka. “If we can get this taken care of, we might be able to avoid a tax increase.”

Supporters said issuing the bonds would allow the state to avoid raising its contribution to KPERS for an additional two years while dealing with its budget problems.

Gov. Kathleen Sebelius has not taken a position on the bond strategy.

Some senators believe the approach is risky. KPERS would invest the bond proceeds and, the senators said, would have to earn a higher return than the rate of interest paid on the bonds.

“You’re saying, ‘Trust us with $750 million, and we’ll see if we can’t play this market,”‘ said Sen. Ed Pugh, R-Wamego. “I’m not sure I would inflict that on the retirees, widows and orphans and the taxpayers of the state of Kansas.”

Pugh noted that KPERS’ investments have declined in value in the past two years.

But others urged a longer-term view. KPERS’ earnings have averaged 9.4 percent a year during the past decade, said Senate Ways and Means Committee Chairman Steve Morris, R-Hugoton, who supports a bond sale.

And with interest rates low, KPERS would not have difficulty earning more on investments than it would have to pay on the bonds, said Sen. Dave Corbin.

“There’s a degree of risk in it, but it’s pretty low,” said Corbin, R-Towanda.