Jan 16, 2020

Kansas governor seeks to use cash reserves to pay off debt

Posted Jan 16, 2020 10:00 PM
Image courtesy office of Gov. Laura Kelly
Image courtesy office of Gov. Laura Kelly

The Governor's full budget recommendation can be viewed here.

Topeka, Kan. (AP) —Democratic Gov. Laura Kelly proposed Thursday that Kansas burn through more than half of its cash reserves to pay off some debt early while taking longer to close a long-term funding gap for the state pension system for teachers and government workers.

Kelly's budget director, Larry Campbell, outlined her proposals during joint meeting of the House and Senate budget committees. He called it a “plan to restore fiscal responsibility,” though the Republican-controlled Legislature already is skeptical of her pension proposal.

Her spending plan for the budget year that begins July 1 includes additional funding for public schools and anticipates that a bipartisan plan to expand Medicaid health coverage to as many as 150,000 additional people would cost the state an extra $35 million a year.

The state expects to begin the next budget year with more than $1.1 billion in cash reserves, thanks to a solid economy, low unemployment and months of better-than-expected tax collections. Kansas also is seeing some businesses and individuals are paying more to the state in income taxes because of changes in federal tax laws at the end of 2017.

Kansas Gov. Laura Kelly give the State of the State address Wednesday-image courtesy office of Kansas governor
Kansas Gov. Laura Kelly give the State of the State address Wednesday-image courtesy office of Kansas governor

Many Republicans want to cut state income taxes to lessen or eliminate what they consider the state's undeserved revenue “windfall.” Kelly instead wants to pay off $532 million in internal debts that the state used to patch budget holes in recent years and pay off $70 million in bonds early.

But her plan to retire the about $602 million in debt early also is tied to her plan to slash the state's annual payments to the Kansas Public Employees Retirement System. Her plan, to save $131 million during the next budget year and $584 million over four years, is similar to one lawmakers rejected last year.

Kelly's administration projects that the mix of policy changes still would leave the state with cash reserves of more than $628 million or more each of the next four years.

A 2012 law ramps up the state's annual payments over time to close a projected $9.2 billion gap in the pension system's long-term funding by 2033. Kelly is proposing to give the state an extra 10 years, until 2033, something that would add $4.4 billion to the long-term cost, just as refinancing a home mortgage to lower monthly payments can.

Campbell told lawmakers in his presentation that the benefits of the move include budget stability and “outweigh the costs.” Top Republicans already have called the idea irresponsible.

The debts Kelly wants to pay off early include $268 million in payments to the pension system that the state skipped during past budget woes and agreed to pay back over two decades. The rest is an internal loan used to patch budget holes.

Kelly and Senate Majority Leader Jim Denning, an Overland Park Republican, reached agreement last week on a bipartisan Medicaid expansion plan. But some GOP lawmakers are likely to question Kelly's estimates of the annual costs to the state.