Ron Estes | Pension360

Video: Kansas Treasurer Talks PERS Funding, Reforms

Here’s Kansas Treasurer Ron Estes talking about the condition of the state’s Public Employees Retirement System, the state’s 2012 reform law and his support for Gov. Brownback’s new proposal to issue $1.5 billion in bonds to go toward pension funding.

Photo credit: “Seal of Kansas” by [[User:Sagredo|Sagredo]][[User talk:Sagredo|⊙☿♀♁♂♃♄]] – http://www.governor.ks.gov/Facts/kansasseal.htm. Licensed under Public Domain via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Seal_of_Kansas.svg#mediaviewer/File:Seal_of_Kansas.svg

Kansas Treasurer Voices Support For Governor’s Pension Bond Plan

Kansas Treasurer Ron Estes is backing Gov. Sam Brownback’s plan to issue $1.5 billion in bonds to go towards funding the state’s Public Employees Retirement System.

Pension officials told Kansas lawmakers last week that such a decision, coupled with Brownback’s plan to delay pension payments, could end up costing the state almost $4 billion.

From the Topeka Capital-Journal:

The gambit put forward by Gov. Sam Brownback carries risk, the state’s treasurer said in an interview, but the state government’s general budget needs infusion of $137 million that would be available over the next two years by adjusting the Kansas Public Employees Retirement System. Kansas’ general operating deficit over the next 18 months has been estimated to be $700 million.

“The changes the governor suggests will help address the state’s budget shortfall while keeping KPERS in line with the pension reform plan passed by the 2012 Legislature,” Estes said.

Three years ago, legislators and Brownback committed the state to higher contributions to KPERS and other system reforms to chip away at a $9.8 billion funding gap on scheduled payouts to retirees through 2033.

Under the governor’s latest plan, the break-even point for the pension system would be pushed to 2043. The cost of delaying resolution of the deficit in KPERS could cost the state as much as $9 billion — nearly double the existing unfunded liability — when carried forward over three decades.

“You can lower your payments now, but if you add 10 years of payments, you’re going to pay more,” said Alan Conroy, executive director of KPERS.

“There are pros and cons to it,” said Estes, who is on the KPERS board of directors. “It’s a reasonable burden.”

Brownback also urged legislators to authorize issuance of $1.5 billion in bonds to infuse the pension system with capital that would be invested in the markets. The bonds might cost the state less than 5 percent, Estes said, while the average rate of return in the KPERS’ portfolio is about 8 percent.

“The bonding is a great idea,” he said. “We can take that $1.5 billion and invest it with other KPERS’ assets and start making money.”

Brownback is planning on delaying state payments to the pension system by $39 million in fiscal year 2015-16 and by $92 million in fiscal year 2016-17.

Kansas Lawmakers React to Governor’s Plan to Cut State Pension Contribution

Earlier this month, Kansas Gov. Sam Brownback announced his plan to cut the state’s annual pension payment by around $60 million and use the money to plug budget shortfalls elsewhere.

Several prominent lawmakers have now given their reactions to the proposal. From Salina.com:

[Steven] Johnson, R-Assaria, who is chairman of the House Pensions and Benefits Committee, was “not happy” with Tuesday’s proposal by Gov. Sam Brownback to cut the state’s pension contribution this year by $40 million as part of a plan to close a $280 million shortfall in the state budget.

And he’s not alone, even among Republicans.

“There’s no easy solution,” Johnson said Wednesday, “but I’m not happy with what they’re doing with KPERS.”

[…]

Late Wednesday afternoon, Kansas Treasurer Ron Estes, who campaigned with Brownback across the state just before the November election, released a statement critical of the planned KPERS cuts.

“While I understand the need to re-balance the budget in light of unexpected shortfalls, the decision to delay state contributions to our underfunded pension system is disappointing,” Estes wrote in the statement. “By delaying action now, we run the risk of KPERS consuming an even larger amount of our state’s budget at the expense of other vital state services to Kansans in the future.”

Senate Vice President Jeff King, R-Independence, who led KPERS reform in the Senate, said, “Over the last four years, Kansas has become the model for responsible pension reform. We inherited a pension system that was going broke and returned it to fiscal health. By raiding the KPERS fund instead of continuing prudent reform, Gov. Brownback is threatening to undo all of the hard-fought gains that we have made.”

The state’s Senate Minority Leader also weighed in. From the Topeka Capital-Journal:

Senate Minority Leader Anthony Hensley, D-Topeka, rejected the idea Brownback is protecting education funding by cutting KPERS instead. The governor has previously counted KPERS contributions when touting a high level of education spending under his administration. During the campaign, Brownback highlighted an overall increase of $270 million in education funding since 2011, a figure that included KPERS contributions.

“I would argue then, using his logic, that he’s actually cutting education,” Hensley said. “It’s so inconsistent, or downright contradictory, to make that kind of argument.”

Kansas PERS manages over $14 billion in assets.

Photo credit: “Seal of Kansas” by [[User:Sagredo| – http://www.governor.ks.gov/Facts/kansasseal.htm. Licensed under Public Domain via Wikimedia Commons

Kansas Treasurer Considers Pension Obligation Bonds Amidst State Plans to Cut Annual Pension Payment

Kansas Gov. Sam Brownback announced plans this week to cut nearly $60 million from the state’s annual pension contribution and use the money to plug budget holes elsewhere.

In light of that news, Kansas Treasurer Ron Estes is considering issuing bonds to help fund the state’s pension system.

From Bloomberg:

Brownback, a Republican who starts his second term in January, last week proposed shortchanging the state’s pension contributions by $58 million to close a $280 million budget hole caused in part by tax cuts the governor championed. Kansas, with the fifth-weakest pension system among U.S. states, had its issuer ratings downgraded by Standard & Poor’s and Moody’s Investors Service this year.

To close a $7.35 billion funding shortfall, the state needs to keep commitments that were part of a 2012 pension overhaul, said Estes, a Republican who also won re-election last month. The plan called for more funding from the state, including revenue from casinos it owns, and raised the amount employees pay.

“We need to keep working on our pension reforms passed two years ago or we’ll fall further behind,” Estes said in an interview from Topeka.

Kansas can take advantage of interest rates close to five-decade lows to raise cash, increase the funding level and create fixed payments, Estes said. The state issued $500 million of pension bonds in 2004; a proposal to sell another round stalled in the legislature last year.

[…]

The [Kansas PERS] system supports issuing bonds or any measure that boosts its funding, said Kristen Basso, a spokeswoman.

“Pension bonds would reduce our unfunded liability and improve our funded ratio,” she said in an e-mail.

But the bonds aren’t a problem-free solution. From Bloomberg:

The debt, which is typically taxable, carries risk. The strategy is to invest the proceeds, usually in stocks, and earn more than it costs to repay bond investors. The approach can backfire if issuers borrow when equities are at historic highs, said Jean-Pierre Aubry, assistant director of state and local research at the Center for Retirement Research at Boston College. The S&P 500 Index this week posted its best two-day gain in more than three years.

“There are instances where they can work, but they can be risky financial tools for cash-strapped borrowers,” Aubry said in a phone interview. “They’re gambling on the market and should be undertaken by those with the appetite for the risk and the ability to absorb the risk.”

Kansas’ state pension systems were collectively 56.4 percent funded as of 2013.

Photo credit: “Seal of Kansas” by [[User:Sagredo|. Licensed under Public Domain via Wikimedia Commons