Should Kansas use the budget surplus to pay off $ 1 billion in KPERS public debt?
Attorney General Derek Schmidt wants lawmakers to use much of the projected $ 2.9 billion surplus to repay the national debt while seeking tax breaks for Kansans.
Schmidt is urging lawmakers to transfer $ 1 billion in cash – or more – to the Kansas public sector pension system.
“The bottom line is that we have a rare and unprecedented opportunity to resolve this long-term pension debt problem that has accumulated over a generation in Kansas to prop up the system for current and future retirees and to eradicate a large portion of the expensive national debt.” the books, “Schmidt said in a telephone interview with The Capital-Journal.
Schmidt’s plan comes before the start of the 2022 legislative period on Monday. He is the Republican front runner to challenge Democratic Governor Laura Kelly in this year’s election.
Kelly is expected to release the details of her budget proposal on Wednesday after making a personal state address on Tuesday evening. In the past, Kelly’s households demanded refinancing of the state’s pension liabilities – a move Republicans have chosen to avoid.
The Kansas legislature is in a somewhat unusual position this year as it debates what to do with a budget surplus rather than correcting a deficit.
Economists raised projections for tax revenue for the fiscal year in November, forecasting a surplus of $ 2.9 billion. The amount could go up as revenue continues to beat projections.
More:With a $ 2.9 billion surplus, how will Kansas lawmakers spend or cut taxes this year?
“The KPERS investment obviously helps retirees now and in the future by improving their security. It helps the taxpayers in the long term, because then no further general tax money has to be fed into the KPERS system, it reduces the amount that has to flow in to settle past obligations, “said Schmidt.
“But it also helps, and that is the additional point, it also helps everyone who will depend on government services in the future, whether it is public schools, whether it is traffic, whether it is social services whether they are corrections because it releases a considerable amount. ” of cash flow each year for the general sovereign wealth fund. “
An assessment by KPERS, provided by Schmidt’s campaign, found that adding $ 1 billion by the end of the fiscal year “means better funding immediately and a reduction in employer contributions in years to come.”
The proposal would save $ 75 million in state and school fees over the next fiscal year, with $ 403 million in taxpayers savings over five years.
More:Kansas lawmakers should prioritize these 7 issues during the 2022 legislature
The system’s unfunded liability would decrease from about $ 5 billion to about $ 4 billion, improving the funded ratio from about 77% to about 82%. The key figure measures the assets of a pension plan as a percentage of liabilities.
KPERS officials said 80% is the short-term goal and 100% is the ultimate goal. While 80% is a commonly used funding goal to determine the health of a retirement plan, the American Academy of Actuaries has called it a myth.
For much of the 21st century, the ratio was in the 1940s and 50s, according to the Federal Reserve.
“There is no reason to be concerned with weird bookkeeping,” said Schmidt. “Just be honest and honest, write the check, put it in the investment portfolio, pay off the debt, support the system.”
Fund for rainy days
Schmidt urged caution with economic forecasts, recalled projected surpluses in 2008 before the Great Recession and imminent budget cuts and tax increases.
In addition to transferring money to KPERS, Schmidt calls on the legislature to invest money in a budget stabilization fund. He said he didn’t have a specific dollar amount in mind, but suggested that $ 500 million would be enough.
“The idea would be, while there is cash in the bank, to put it aside so that in the event of the inevitable downturn, it would be possible to cushion the blow and continue to honor our commitments,” he said.
His experience as leading GOP lawmaker during the recession fueled the recommendation to put money away for a rainy day.
“When the bottom broke through,” said Schmidt, “suddenly there were no cash reserves left to cushion the blow against really critical state services such as public school funding, such as transport investments or social costs.”
More:COVID Disaster Spurs Governor Laura Kelly to declare an emergency as Kansas hospitals struggle
KPERS before tax cuts
When lawmakers start the 2022 legislature on Monday, they will inevitably have competing ideas on how to spend the surplus or cut taxes.
“In times when there is a lot of money, it is in some ways more difficult to budget than in times when there is little money because it is more difficult to say no to any good idea,” said Schmidt. “And there are always more good ideas out there than there is cash.”
However, he felt that all other proposals should take a back seat to KPERS and the Rainy Day Fund.
“You should be at the top of the list,” he said. “I think they should try to do those two things first before they get into the natural discussion of all of the other competing priorities.”
Both Schmidt and Kelly have called for the state’s grocery sales tax to be cut. Kelly’s plan would completely abolish the state’s 6.5 percent food tax, which would cost the state about $ 450 million a year. Schmidt supported the concept without giving details of the policy.
The issue has long had bipartisan support but was doomed when it was pooled with less popular proposals.
Governor Kelly has spoken out in favor of paying off debts
For her part, Kelly has also shown an interest in paying off public debts. In November, its administration repaid a $ 300 million loan from the Money Investment Board two years ahead of schedule. The bridging loan was used by the Legislature in 2017 to fill budget holes during former Governor Sam Brownback’s administration.
In a December interview, Kelly said she would use part of the current surplus to pay off debt.
“You turn to things like paying off debts,” she said. “Get rid of debt as much as possible from the books because that will freeze general government funds in the years to come.
However, the KPERS repayment plan she has proposed in recent years would add to long-term debt. The governor is expected to present her budget proposals this week, and it is unclear whether they will be readmitted.
“Amortization,” said Schmidt, “is one of those numbing words that lull people to sleep so they don’t realize what the real suggestion is. It’s just borrowing more money so we can keep the bills until someone else’s on the clock. And I find that irresponsible, but also incredibly expensive. “