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Kan. proposal for $1.5B in pension bonds advances

Published on -3/27/2013, 6:47 AM

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TOPEKA, Kan. (AP) -- Kansas would issue $1.5 billion in bonds to improve the short-term financial health of its pension system for teachers and government workers under a bill approved Tuesday night by the state House.

The measure would allow the state to inject a big dose of new dollars into the Kansas Public Employees Retirement System so that its assets would cover more of its long-term obligations to provide retirement benefits to workers. Also, supporters believe that the state's annual contribution of tax dollars to keep KPERS financially stable wouldn't have to grow as much as it would now, even with the bond payments.

The House's 73-49 vote sends the measure to the Senate.

Rep. Dan Hawkins, a Wichita Republican, said the state pension system is "kind of like a patient going to a doctor."

"The patient's just kind of run down, maybe a little sick, needing a little bit of help," Hawkins said. "And so they give that patient a booster shot to get them going."

The pension system's assets now cover only 53 percent of its long-term obligations, and issuing bonds would allow the state to boost that percentage to 61 percent in 2015 and accelerate its rise to 100 percent.

But the state also would be gambling that KPERS investment earnings would outstrip the interest it would pay on the bonds, and some House members questioned using debt to bolster the pension system.

"We need to solve the problem with assets, with income. We need to be paying down our liabilities," said Rep. Pete DeGraaf, a Mulvane Republican. "My concern is that if we say yes to bonding, we're going to go to sleep."

The bill would follow up on two years' worth of legislation overhauling KPERS to eliminate a projected $9.3 billion shortfall between anticipated revenues and benefits promised to teachers and government workers through 2033. The pension system projects that the gap will be eliminated over two decades even if lawmakers do nothing more.

The two years' worth of legislation committed the state to larger annual contributions to KPERS and dedicated future profits from state-owned casinos to the retirement system. Reining in the annual contribution of tax dollars to the pension system would lessen the squeeze on other parts of the budget.

The state authorized $500 million in pension bonds in 2004 to help lessen the long-term KPERS funding gap. Supporters of this year's bill noted that the state is paying 5.4 percent interest on those bonds while KPERS has earned 6.4 percent on its investments since they were issued, even with the Great Recession.

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