A Democratic lawmaker warned against using money meant for the state’s pension system as a way to fill the state’s budget hole Monday.
The state pension system, known as KPERS, has an unfunded liability of about $7.4 billion.
That figure is projected shrink to zero over the next 20 years if the state maintains the cash balance plan it adopted in 2012, according to a report from KPERS that was presented at a meeting of the Joint Committee on Pensions, Investments and Benefits on Monday.
Sen. Laura Kelly, D-Topeka, a committee member and one of the architects of the bipartisan plan to shore up the pensions system, voiced concern that the state will not meet its obligations to the pensions system as lawmakers struggle with a projected budget deficit.
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Senate Vice President Jeff King, R-Independence, who chairs the joint pensions committee. said the state needs to keep its commitment to the pension plan but could also look at ways to find cost savings.
The state must cut $279 million from its current budget to get through the end of the fiscal year in June. Lawmakers then must cut $715 million – about 11 percent of the general fund budget – or find ways to increase revenue for the 2016 fiscal year to end the year with a zero balance. The state’s nonpartisan Legislative Research Department points to income tax cuts, passed by the Legislature in 2012, as the primary cause of the projected shortfall.
In the past, the state has reduced its obligations to the pensions system as a short-term fix for financial problems, said Kelly, who has served in the Senate since 2005.
“I’m very concerned from a historical view that when the state gets into a cash crunch – and we’re in a cash crunch like we’ve never been in before – that we withhold payments from a variety of places, including KPERS,” Kelly said.
She asked that KPERS provide lawmakers with projections that show what the outlook would be if the state reduced its contributions by 10 percent or 50 percent. She said she wanted lawmakers to understand the long-term ramifications if they reduce KPERS payments.
“It’s like a mortgage on a house,” said Alan Conroy, executive director of KPERS. “If you pay less now, you’re going to have to pay more later.”
“We need to keep those commitments,” King said, while signaling openness to tweaking the pensions plan to find cost savings.
“I am always open to suggestions – what we’ve seen from other states, new proposals to more efficiently keep those commitments that we’ve made … but keeping the commitment to paying down the unfunded liability is something that is vital,” he said. “We need to stay focused on that long-term goal.”
Sen. Ty Masterson, R-Andover, who sits on the pension committee and chairs the Senate budget committee, expressed interest in shifting to a defined contribution plan similar to a 401k.
“I’ve all along been a fan of tweaking our pensions system, because I’ve all along believed that it’s the employee’s money,” Masterson said. “And instead of having a taxpayer insurance program, which KPERS is, actually just contributing more to their match, so they can retire or change jobs any time they want and keep their money.”
Rebecca Proctor, executive director of the Kansas Organization of State Employees, the union for state workers, said that a defined contribution plan would be more expensive for the state because it would still have to pay off its unfunded liability and would also have to pay the startup costs for the new plan.
“It’s so much more expensive on an ongoing basis,” Proctor said.
Speaking more broadly, she said the unfunded liability was created by “this idea that we can push this expense down the road.”
Senate leadership has said that it will look at both revenue and spending and consider all options as it seeks a solution to the state’s budget hole. House Speaker Ray Merrick, R-Stilwell, on the other hand, has said that the state needs to focus on cutting spending.
Proctor and Kelly said that the state cannot solve its problem through spending cuts.