Kansas Gov. Laura Kelly recently released a budget plan that includes a proposal to cut the state’s annual contribution to its pension system by 24%. Kelly, a Democrat, says the move would free up $159 million during the next budget year for other programs, according to published reports.
State leaders in 2012 committed to a plan to raise the annual contribution to the pension system every year in an effort to reduce its unfunded pension liabilities, which sits at about $9 billion.
The budget proposed by Kansas’ governor is actually thinking about state pension costs backwards. The Kansas Public Employees Retirement System (KPERS) currently assumes it will make a 7.5% return on its investments. This is well above both the national average and consensus expectations for future investment performance. As a result, Kansas is most likely underestimating the costs of funding KPERS and should be looking to increase contributions into the system.
Naturally, many states are dealing with reduced tax revenues due to the pandemic, so this might be a hard time to add more funds. But the economic reality of the need for increased KPERS funding remains.
One option for Kansas would be to follow the example of states like Texas or South Carolina, which in the past have adopted more reasonable assumptions about their retirement systems and ramped up costs over time. Kansas could even design such a ramp to create some budgetary breathing room this year in exchange for larger, more accurate payments in the future.
The Republican-controlled Kansas legislature has opposed similar moves by Kelly in the past, and it’s likely they would block such a measure again.
This article republishes selections from “Kansas Governor’s Budget Includes Proposals GOP Has Rejected,” by the Associated Press in kmuw.org on Jan. 14.