Committee hears KPERS options in light of tight budgetScott Rothschild
The House Appropriations Committee received information on extending the target date to pay off the Kansas Public Employees Retirement System’s $9 billion unfunded liability on Tuesday morning.
Just like refinancing a mortgage or credit card debt to pay over a longer period, the option would save money in the short term but cost the state much more in the long term.
Extending the KPERS payment period is being discussed as a way to get through a tight budget picture in the next several years, especially if the Legislature adds more state aid for K-12 education to comply with the Kansas Supreme Court. Gov. Sam Brownback has proposed adding $100 million each of the next five years, on top of $100 million already appropriated for next year, Fiscal Year 2019.
However, profiles of the Kansas state general fund show the governor’s proposal would create a deficit beginning in FY 2020. A big reason is that KPERS contributions for the state and school district employee group are scheduled to jump from $420 million in FY 2019 to $703 million in FY 2020. Another reason is that revenue forecasts assume continued low growth in the state economy and tax collections.
To get through budget shortfalls in FY 2017 through 2019, the Legislature deferred over $250 million in payments that will be repaid as added contributions over the next 20 years, and simply moved $115 million that had been deferred from FY 2017 into the unfunded lability of the system.
In fact, the state’s contributions to the state and school group have been below the actuarial required contribution for 24 years.
If the pay-off date to eliminate the unfunded liability of system was moved from 2033 to 2044, the state would save $306 million from FY 2018 to 2020, and continue to have lower annual payments through 2036. But the total additional payments through the new date would be $6.4 billion more than the current schedule.
The KPERS “funded ratio,” or the percent of investment assets compared to future liabilities, remained at 67 percent in both 2015 and 2016. KPERS executive director Alan Conroy told the committee an 80 percent or higher funded ratio is consider healthy.
Conroy also cautioned the committee that all projections are based on assumptions that can, and likely will, change. Recently, the KPERS Board of Trustees changed the assumed annual report of return on investments from 8 percent to 7.75 percent, which means the board believes future investment earnings will be slightly lower than in past decades. That change, along with other factors, slightly increased the unfunded liability of the system.