(Updated to reflect reamortization bill is set for vote Thursday)
State Budget Director Larry Campbell on Wednesday told lawmakers that the governor’s recommended spending plan does not hinge on restructuring payments to the state’s retirement system.
Testifying before the House financial institutions committee, Campbell acknowledged that Gov. Laura Kelly’s plan for lowering and stretching out payments into the pension fund is “crucial” but doesn’t make or break her recommended budget.
“I am not so sure there’s ever been a budget that’s been offered that if you don’t take a piece out it affects it,” Campbell said. “This is a crucial piece to the budget but doesn’t make it or break it.”
Campbell’s comments came during a little more than a 1 1/2-hour hearing on a bill for restructuring the payments into the Kansas Public Employees Retirement System over 30 years. The bill could cost taxpayer an extra $7.4 billion in interest expenses over the life of the payment schedule.
The committee moved the bill out Wednesday, and it’s set for a vote by the full House on Thursday.
Republican state Rep. Jim Kelly, chairman of the committee, directly asked Campbell how heavily the governor’s recommended budget depended on the reamortization plan.
“From what I have looked at and read, it appears that this is a key thing in the governor’s plan to make everything else work,” Kelly said.
“You really need to know if it’s going to get approval or not approval to know how to move forward as soon as possible,” he said. “An answer will kind of direct your course.”
Campbell focused his answer on the governor’s efforts to manage retirement system payments while stabilizing the state budget.
Gov. Kelly’s plan, he said, ensures the state will make its contributions to the pension system going forward. He also stressed that the governor’s plan does not affect retiree benefits.
Campbell noted that a retirement system payment already scheduled for 2020 is $663 million, increasing to $688 million the following year and eventually reaching $923 million in 2035. Kelly’s plan is to bring those payments down so they’re more affordable.
By comparison, the payments would be closer to a little more than $500 million under the governor’s plan in 2020 and 2021. In 2035, the payment would be about $650 million under her plan.
“Instead of a pipe dream, folks, this plan is a fix,” Campbell said. “We reamortize (and) we can better make that payment, and it fixes it.”
Campbell emphasized that a key element of the governor’s budget is setting aside a large nest egg to prepare the state for the next recession.
Kelly’s budget for 2020 leaves an ending balance of $686 million, the most in 20 years. Not reamortizing, Campbell said, would lower those ending balances.
“We’ve always been behind the eight ball. Let’s get ahead of it,” he said. “We could be ready for the next recession.”
Currently, most of the unfunded pension liability in the state/school part of the pension fund would be covered by 2033.
Under Kelly’s plan, the state would stretch out its payments into the pension system so the unfunded liability wouldn’t be covered until sometime between 2048 and 2050.
The plan would free up about $160 million, Campbell said — about $15 million more than originally estimated — that could be redirected into other areas such as public education, corrections, child welfare and Medicaid expansion.
The retirement system’s board of trustees has opposed Kelly’s plan for refinancing the retirement system payments. But its executive director defended the idea of reamortization Wednesday.
“Amortization is not a four-letter word, it’s not a bad thing,” Alan Conroy told lawmakers. “It’s part of public pension plan funding. It’s not a matter of if it will occur but when it will occur. Reamortization is a normal, important event in public pension plan funding.”
The plan was opposed by Republican state Rep. Steven Johnson, chairman of the House tax committee.
He encouraged the committee to follow the lead of the retirement system’s board, which is legally responsible for making those decisions.
Johnson said the state is so close to getting its unfunded liability under control that now is the wrong time to restructure the payments.
He noted in written testimony that the pension fund’s board regularly reviews the payment schedule. At the appropriate time, he said, the board will recommend reviewing the amortization schedule.
“We are so close for the first time since I’ve been watching the pension (system) to tripping that point of reducing the liability,” Johnson said. “Once you start to pull that down, it works for you.”
As the state reduces interest costs stemming from the pension fund, he said, it means more money for government services.
“Those are dollars you not only get to use now,” he said, “but every day into the future once that interest cost is eliminated.”