TOPEKA – The governor could delay payments to the state pensions system and then pay them with interest over two years under a budget bill that seeks to deal with a shortfall.
The Senate Ways and Means Committee approved the bill 9-2 Monday with the panel’s two Democrats voting no.
HB 2365 includes a provision that would enable the governor to delay contributions to the state’s pension system. It would require that he pay the withheld payments at an 8 percent interest rate over 24 months.
“It’s not a loan,” said Sen. Jim Denning, R-Overland Park, the lawmaker who offered the amendment. “… It smells like one, but it’s not.”
It’s not a loan. … It smells like one, but it’s not.
Sen. Jim Denning, R-Overland Park, talking about a budget amendment that would allow the governor to delay payments to the state’s pension fund
Denning said the provision was meant to free up capital for the state in the short term, but also ensure that the pensions system would be on stronger financial footing over time through the interest rate.
The provision does not limit the amount of money the governor can withhold.
The move was condemned by both the Kansas Organization of State Employees and the Kansas chapter of the American Federation of Teachers.
Both unions took to social media to express doubt that the delayed payments would be fully repaid and to voice concern that allowing the governor to use the pension system as a source of extra cash would endanger its stability.
Sen. Laura Kelly, D-Topeka, asked whether the repayment would be guaranteed. Sen. Ty Masterson, R-Andover, replied that it would be, “to the extent that anything in statute is guaranteed.”
KOSE representatives pointed out that increased state payments to the pension system were supposed to be guaranteed by statute.
The state’s pension system has an unfunded liability of about $9.5 billion after years of underfunding. The state began a more aggressive payment plan in 2012 in an effort to pay that down and shore up the system.
The House version of the budget also empowers the governor to delay contributions to the pension system, but does not include an interest rate and requires that the delayed payment be paid the following year.
The committee also adopted an amendment offered by Denning to cap the state’s annual debt spending at 4 percent of the general fund. Denning said the state’s debt spending, paying off bonds and other forms of debt service, has trended upward in recent years and is on pace to be 2.85 percent next fiscal year.
Masterson compared the proposed cap to the federal debt ceiling.
The amendment, which gained bipartisan support, was a response to a recent deal Gov. Sam Brownback’s administration struck with Bank of America to finance construction of a new power plant for state office buildings in Topeka. The lease-to-own agreement, which some lawmakers have criticized, will require the state to pay the bank $19.9 million over 15 years.
Spending limits for KU
Lawmakers also sought to place spending limits on the University of Kansas in response to the university’s out-of-state bond issue.
A nonprofit organization associated with the university used a Wisconsin agency to issue $326.9 million in bonds last month to finance a campus revitalization project. That allowed the university to avoid the need for legislative approval but sparked a negative reaction from lawmakers. The agreement was approved by the Board of Regents.
KU was expected to spend about $22 million a year on the deal, using a combination of tuition dollars, money from student fees and operational savings.
Sen. Tom Arpke, R-Salina, introduced an amendment that would prevent the university from using any state or tuition dollars to pay off the bonds for fiscal years 2017 and 2018.
“Now if they want to expend endowment funds, they’re welcome to do that,” Arpke said. If they want to go raise additional private funds, they’re more than welcome to do that. If they want to solicit me and ask me for a donation to help pay for this, they’re welcome to do that.”
The committee is scheduled to hold a hearing on the bond issue Tuesday.
“We just really need to know what’s going on,” Arpke said. “And I really refuse to allow state dollars, taxpayer dollars, student dollars to be spent without the details of how it’s going to happen.”
‘Continued attack on our flagship university’
Democrats on the committee strongly objected to the measure.
“I think we just need to call this for what it is, which is just a continued attack on our flagship university,” Kelly said. “And it doesn’t do our state any good in terms of our reputation and our ability to recruit and retain high quality folks.”
SB 161, the House’s version of the budget, also includes a provision restricting KU’s spending. It would require the university to seek approval from the Legislature before it could spend beyond its approved budget.
Tim Caboni, KU’s vice chancellor for public affairs, criticized lawmakers last week for what he called a “targeted attack on the University of Kansas” and “hamstringing KU’s ability to make basic budgeting and financial transactions.”
He struck a more conciliatory tone Monday in response to the Senate bill.
“We know that legislators have questions about the central district project and we look forward to answering them tomorrow morning at the meetings of the House Appropriations Committee and the Senate Ways and Means Committee,” he said.
Funds for state hospitals
Both the House and the Senate added provisions to the budget to provide more dollars for state hospitals.
The Senate committee approved an additional $2.4 million for Osawatomie State Hospital, which recently lost its federal Medicare certification and stands to lose $1 million, to go toward staff raises and recruitment. Last week, the House Appropriations Committee had approved an extra $3 million to go toward state hospitals in Larned and Osawatomie.
The House budget also includes $2.4 million for pay raises for corrections officers, a proposal not included in the Senate version.
Both committees also blocked the governor’s proposed $50.6 million sweep of the Children’s Initiatives Fund, a pot of money earmarked for children’s programs, into the state’s general fund.
The state has a projected shortfall of $190 million through the end of the 2017 fiscal year.
The Senate’s budget bill would leave the state with about $6 million in its general fund at the end of the 2016 fiscal year in June and about $89 million the following year. The House bill has a $6 million ending balance for fiscal 2016 and $87 million for fiscal 2017.
The House is expected to vote on its version of the budget this week. The Senate’s vote on its version will come after that.