Newly signed Kansas law transfers $1 billion to cover KPERS outstanding debt

TOPEKA — Gov. Laura Kelly signed Thursday legislation transferring more than $1 billion from state coffers to cover historical underfunding of the Kansas Public Employees Retirement System.

Of the $1.125 billion drawn from the state general fund under Senate Bill 421, nearly $254 million will go toward paying off outstanding money owed for KPERS school employer contributions withheld in 2017 and 2019. The remaining $871 million is to be applied to the KPERS school unfunded liability.

These transfers will take place over two installments, totaling $853.9 million in 2022 and two additional payments subject to State Finance Council approval in 2023 of remaining funds.

Kelly said the payments would provide immediate and long-term value by reducing debt owed and improving upon historically strong financial footing in the state.

“Balancing the budget, paying off debt, and providing financial relief for Kansans has always been my top priority – and today we delivered on that promise,” Kelly said. “We’re fixing the damage done to KPERS because our public service employees and retirees deserve their retirement fund to be replenished after the previous administration skipped payments to cover reckless tax policy.”

The measure passed 26 to 10 in the Senate, with only a few senators breaking party lines, and 106 to 10 in the House. 

In signing the law, Kelly touted her history of reducing debt obligations while chastising past administrations for their lack of action on this front. But Republican Party leaders were quick to argue Kelly was taking credit for a Republican-led initiative.

Attorney General Derek Schmidt, the presumptive GOP nominee for governor in January, noted that in January he called on the Legislature to prepay a minimum of $1 billion of the pension debt.

“This bold initiative … is transformative – for Kansans who rely on state services, for taxpayers who can benefit from future tax relief, and for all the law enforcement officers, firefighters, teachers, and other public retirees who rely on KPERS pensions,” Schmidt said. “Kansas needs more of this kind of common-sense conservative leadership that prioritizes the fundamentals of good government, including paying our debts, running the government efficiently and minimizing the burden on taxpayers.”

Schmidt credited Senate President Ty Masterson and House Speaker Ron Ryckman for helping push the measure across the line when it was not included in the governor’s budget. In a statement after Kelly signed the law, Ryckman also criticized the Democratic governor’s efforts to refinance KPERS.

“The Legislature has three times stopped the governor’s efforts to ‘reamortize’ KPERS and add over $6 billion in new debt for taxpayers,” Ryckman said. “The governor vetoed a good KPERS policy in 2019 that we overrode. Thankfully for Kansas taxpayers, today she has reversed course.”

The bill Kelly vetoed in 2019 promised an unscheduled state contribution of $51 million to KPERS. The first bill Kelly signed during the 2019 session appropriated $115 million to cover a KPERS payment skipped several years before when the state was strapped for cash.

At the time, Republican legislators argued the governor should have allowed the supplemental contribution because the system had been plagued by missed payments.

The law comes as the KPERS board of trustees weighs whether to reduce the estimated profit generated by investments, or the assumed rate of return. The current assumed rate is 7.75% each year, down from 8% before 2016. 

Still, Kansas has the highest assumed rate of return in the country, according to the National Association of State Retirement Administrators.

Alan Conroy, executive director of KPERS, praised Kelly for continued support toward improving the “financial resilience” of the state’s public employee retirement system.

“SB 421 not only makes significant progress in reducing our long-term unfunded actuarial liability, it also takes long-term KPERS debt completely off the books,” Conroy said. “Taken together, this infusion of one-time funding will provide immediate savings to the state, it will lead to a significant reduction in long-term KPERS payments, and it will further affirm for our retirees that they will receive the full pension benefit they have earned from their public service within Kansas to the state, cities and counties, and local school districts.”