Gov. Sam Brownback’s plan to save Kansas money now would eventually increase the state’s long-term pension costs by $6.5 billion, the pension system’s executive director says.
Alan Conroy, the executive director of the Kansas Public Employees Retirement System, briefed the Senate budget committee Thursday on the long-term impact of the governor’s budget proposal.
Brownback wants to slow down the state’s pension payment schedule to save money as the state faces a budget shortfall. Conroy compared that to refinancing the mortgage on your house.
“If you don’t pay it now, you’re going to pay more later and over a longer period of time,” he said.
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KPERS has an $8.5 billion unfunded liability. Under the current payment schedule, the state would pay that off by 2033. Brownback’s proposal would delay that by 10 years, which Conroy said would increase the long-term pension costs by $6.5 billion through 2043.
KPERS provides retirement benefits for state workers, teachers and most other public employees in the state. The city of Wichita manages its own pension system.
The Legislature delayed a $97 million payment to the pension system last year with the promise that the state would pay that money back with 8 percent interest. Brownback’s proposal would eliminate that repayment, costing the system $115 million when the interest is included.
In addition, the governor’s proposal would freeze the state’s contributions at the 2016 level. Conroy said this would amount to a combined $596 million loss to the state’s pension system over three years and would be the equivalent of skipping a full year’s worth of payments.
Sen. Carolyn McGinn, R-Sedgwick, the Senate budget chairwoman, opposed the proposed changes.
“I think we need to leave KPERS alone,” McGinn said after the meeting. “We’ve fixed it twice, and we keep meddling with it.”
Sen. Laura Kelly of Topeka, the committee’s ranking Democrat, said the governor’s plan would unravel all the work done to ensure the financial stability of KPERS. She criticized the governor for short-term thinking.
“Everything is a patch to get him past this disaster,” Kelly said.
Brownback said lawmakers should offer their own alternatives if they dislike his proposal.
“I’m happy to see what they put forward of a budget on this,” Brownback said of lawmakers balking at the KPERS move. “Let’s see what their options are. We’ve not had the (tax) receipts come in that we thought we would have coming in, and so you’re left making serious choices.”
Brownback signed a bill to increase the state’s quarterly payments to the pension system during his first term as a way to shore up the system, which suffered from underfunding for decades. That bill also increased the payment rate for state employees.
He frequently spoke of his efforts to fix the pension system during his 2014 re-election campaign.
Brownback said critics of the proposal should also recognize the changes made to the program, including putting more money into the retirement system than earlier governors had done.
“I hope there was also some recognition of how much we put into this,” Brownback said.
“When I started, we were about 54 percent funded,” Brownback said. “We are at 67 percent today.”
Sen. Rick Billinger, R-Goodland, raised the concern that if the Legislature were to pass the governor’s proposal, it would essentially undo all of the work of the past six years to stabilize KPERS.
“When we’re about to the top of the mountain and ready to start skiing down, why would we want to take that mountain out another 10 years?” Billinger said after the meeting.
Conroy repeatedly noted that the proposed changes to the pension system would not affect benefits for current retirees.
However, Sen. John Doll, R-Garden City, asked what the state should tell people entering the teaching profession today about what their benefits will be when they retire.
Conroy said that would depend on actions from the Legislature over the next few decades.