Kansas Gov. Laura Kelly and Republicans are in a battle over hundreds of millions of dollars this year – and billions in future decades – that has only intensified since Kelly took office less than a month ago.
Far from settling into a honeymoon period, the new Democratic governor and Republican lawmakers almost immediately began butting heads over ideas with big price tags. This week may prove pivotal in that conflict.
A refinancing of the state’s pension system, more money for schools and a tax code rewrite – disputes over all of it are playing out this week, with potentially large financial consequences for Kansas.
On Monday, Kelly and Republicans sparred over her plan to refinance the state’s pension system, KPERS. The move would save Kansas about $145 million a year over the next few years, but over 30 years would require an additional $7 billion for KPERS.
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Kelly took her case for refinancing to a coalition of Kansas public retirees at a Statehouse rally. Republicans pushed back in interviews, making clear that Kelly’s refinancing plan continues to face an uphill climb in the Legislature.
Speaking to the Kansas Coalition of Public Retirees, Kelly promised that retirement benefits would be unaffected and that refinancing is a sound fiscal option. By about 2035, Kansas will face annual payments to KPERS of more than $900 million – payments that would be unaffordable, Kelly contends.
“There is no way we can do that,” Kelly said.
Refinancing – technically called reamortization – gives Kansas a “leveling of the KPERS payments so that the state can meet its obligation and keep the plan solvent for decades out,” she said.
Kelly’s plan would lower annual state contributions to KPERS now, but ultimately require Kansas to pay more money over the next three decades to the pension system than it would have under the current payment plan.
Republicans contend Kansas should avoid the long-term debt that would accumulate. Under Kelly’s plan, it will take KPERS an additional 12 years until it has funded 80 percent of its total obligations. The 80 percent mark is considered the threshold of a well-funded pension system, according to some pension experts.
Ernie Claudel, co-chair of the Kansas Coalition of Public Retirees and a member of the board that governs KPERS, said the coalition had been pressing over the past several years to fully fund the pension system.
Less than a decade ago, KPERS was far less financially healthy than it is today amid the Great Recession. In 2012, Kansas set a new payment schedule for KPERS that put the state on track to have funding to pay all of its future obligations by the mid-2030s. But lawmakers have also approved some delayed or canceled payments in the years since.
Kansas moved its funded ratio from 59 percent in 2012 to 68 percent in 2018. In short, that means KPERS has enough assets to cover 68 percent of all of its future obligations to retirees.
“We finally educated enough people to understand that you can’t continue to do this and now it looks to me like they want to restart refunding all over again,” Claudel said after the rally.
Hours later, the Senate advanced a bill to make a $115 million payment to KPERS to make up for payments that had been previously delayed. Senators gave first-round approval to the bill on a voice vote; a final vote is expected Tuesday.
Kelly told reporters “we owe that to KPERS and there’s money in the budget to take care of that.”
In the Senate, lawmakers appeared in wide agreement over the need to payback the delayed payment. Sen. Carolyn McGinn, a Sedgwick Republican who chairs the chamber’s budget committee, said “the whole KPERS idea is we need to pay off our sins from the past. And it’s always a good thing to pay off some debt.”
Although the Senate advanced the KPERS payment, some Democratic senators voiced concerns with the timing of the bill. Senate Minority Leader Anthony Hensley, D-Topeka, noted that the bill, the first to be debated by the Senate this year, would take $115 million off the state’s ending balance amid hopes of pursuing additional funding for schools, Medicaid expansion and transportation.
But Hensley said he plans to reluctantly vote for the bill, saying that lawmakers promised in 2016 to repay the delayed KPERS payment with interest.
“We need to keep the promise,” Hensley said.
Senate Majority Leader Jim Denning, R-Overland Park, said the Senate should have first debated Kelly’s KPERS refinancing proposal.
“We can’t do our budget work until we get that issue resolved,” Denning said.
The Senate this week is also expected to debate tax legislation that official estimates predict will cost Kansas $191 million next year, but many lawmakers say they really have no firm grasp of the impact. Unless lawmakers act, Kansas is expected to collect additional revenue – and some taxpayers will pay more — this year because of differences between the state and federal tax code caused by the federal tax cuts passed by Congress and signed into law by President Donald Trump in 2017.
A committee created and chaired by Senate President Susan Wagle, R-Wichita, for the sole purpose of crafting a bill, sent its proposal to the Senate floor late last week. The plan is designed to stop Kansas from collecting what some are calling a tax “windfall” caused by the federal tax overhaul.
Wagle signaled last week that she expects a debate on the bill this week.
“When we find money on a wallet on the ground, it’s not ours, we return it,” said House Speaker Ron Ryckman, R-Olathe. “This money was not planned on, it was not legislated, so we are going to have a chance to keep Gov. Kelly’s commitment not to raise taxes and that’s what we’re looking for when the Senate sends us a bill.”
Kansas won’t collect about $54 million in individual income tax next year under the bill, according to estimates from the Kansas Department of Revenue. The bulk of the bill’s estimated costs – some $137 million — come from business tax provisions.
Kelly has condemned the proposal and all but promised to veto it, comparing it to a redo of Gov. Sam Brownback’s signature tax cuts that resulted in years of unstable budgets. Republicans say the revenue belongs in Kansans’ wallets, not state coffers.
“I can’t imagine why anyone who was here in 2012 and lived through the Brownback tax cuts and the experiment would even consider voting for that bill,” Kelly told reporters.
On Wednesday, lawmakers will open hearings into Kelly’s plan to increase school funding by approximately $90 million a year to account for inflation in the current funding formula. Several years into a lawsuit over funding levels, supporters of the plan say it will allow Kansas to finally get out from under litigation.
But others are skeptical and want to push back on the state Supreme Court, which has ruled multiple times that funding is inadequate. Wagle said in January that Kelly would have lawmakers “surrender” to the Supreme Court.
Mark Desetti, a lobbyist for the Kansas National Education Association, urged lawmakers to approve a bill that includes the additional funding without other policy changes. Making other changes may create new problems with the funding formula.
“Right now, we’re this close to being out of court and the only issue is this inflation coverage,” Desetti said.