by Rachel Mipro, Kansas Reflector
February 6, 2023
TOPEKA — A new finance bill would buy back bonds used to inject much-needed cash into the Kansas Public Employees Retirement System two years ago, potentially saving the state millions of dollars in future interest payments.
The House Financial Institutions and Pensions Committee had a Monday hearing on House Bill 2102. The bill would allocate $250 million from the State General Fund to repurchase bonds issued two years ago under House Bill 2405.
HB 2405 authorized the Kansas Development Finance Authority to issue bonds to pay off KPERS unfunded pension liabilities. The strategy was to lower the cost over a 30-year period, addressing a $6 billion unfunded liability in the state government worker and teacher portion of KPERS. The system received $500 million in 2021 as a result of the deal.
The Legislature has used bonds as a strategy to shore up KPERS before, most recently in 2015, when then-Gov. Sam Brownback approved legislation that issued $1 billion in bonds, netting $272 million for the pension system.
Under HB 2102, the state treasurer would repurchase the pension obligation bonds at a discount, up to 75% of the principal amount.
State Budget Director Adam Proffitt offered strong support for the bill, saying the state could use the budget surplus to fund the plan, and that buying the bonds would boost Kansas’ credit and stabilize its fiscal health.
“I think this is a very good idea,” Proffitt said. “These are the types of transactions that the governor was looking for when we put together the budget, to try to use our current budget surplus to eliminate debt or pay off one-time expenditures.”
In his fiscal note on the bill, Proffitt estimated that the legislation could help the state pay off debt 20 years faster. In the note, he said KDFA has estimated the bill could result in interest savings of $177,445,984. The remaining amount on the bond would be $199,545,121, and the bond would be paid off in fiscal year 2036, according to the note. The estimate doesn’t factor in fiscal year 2022 or fiscal year 2023 debt service payments.
State Treasurer Steven Johnson encouraged lawmakers to focus on saving money and paying down debt in preparation for the state’s next recession. Johnson said lawmakers should pay attention to KPERS debt.
“The KPERS debt is still absolutely pressing, and I don’t mean to step away from that at all,” Johnson said. “It’s not quite as pressing as it was, as we have made some progress towards it.”
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