Issuing $1 billion in bonds to help shore up the state retirement fund puts Kansas in less peril than issuing $1.5 billion in bonds, but this strategy still represents an uncomfortable risk for the state.

On Wednesday, the Kansas House approved a bill authorizing the sale of $1 billion in bonds. The money will be invested, and the presumed return on that investment will go to the Kansas Public Employees Retirement System to help put the struggling fund on a firmer financial footing.

Laws enacted in recent years have KPERS on track to close a projected $9.8 billion gap between revenues and benefit costs by 2033, but that plan requires increasing state contributions to a point that Gov. Brownback contends will put too great a strain on the also-stressed state budget.

To relieve that stress, Brownback recommended issuing $1.5 billion in bonds, but Senate and House negotiators came up with a compromise plan for $1 billion that is expected to gain approval.

Under the legislation, the state will pay a maximum of 5 percent interest on the bonds, which will only be issued if that goal can be met. State officials then plan to invest that bond money, earn an average of 8 percent a year and invest the difference between the earnings and the interest payments in KPERS. Based on that expectation, the state should be able to close the KPERS funding gap by 2043.

It might work, and it might not. The state’s credit rating has been lowered by two rating agencies within the past year, which may make it more difficult for the state to sell the pension bonds at a favorably low interest rate. The bonds also will add to the state’s overall debt, which may further erode the confidence of rating agencies as well as potential buyers for bonds to fund highways and other state projects.

The bonds also represent a gamble that the stock market won’t experience any significant downturns in the next 20 or 30 years. The 8 percent return is slightly higher than the 7.7 percent the state has earned on $500 million in pension bonds issued in 2004. That return was negatively affected by the Great Recession in 2009. Who knows what the next 30 years will hold?

Brownback has criticized past administrations that have underfunded KPERS for decades. If past governors and legislators had properly supported the fund, he says, the state wouldn’t be in its current situation. That’s true, but the current pension bond plan still seems like just another way for the state to avoid actually budgeting and paying for its KPERS obligation.

As noted above, the bond plan may work. State taxpayers should hope it does, because if it doesn’t, it could be a significant setback for the state’s already uncertain financial situation.