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Kansas close to using up to $1B to shore up pension system

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Stephen Koranda
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KPR/File photo

A few conservative Republicans worry that the move would limit options for cutting taxes.

TOPEKA, Kansas — Republican legislators are close to committing up to $1 billion in surplus state funds to shore up Kansas' pension fund for teachers and government workers despite bipartisan misgivings about that move ruling out some tax cuts.

The Senate approved a bill Wednesday, 28-12, that would put $600 million into the state pension system before the end of June and allow the governor and leaders of the Republican-controlled Legislature to commit an additional $400 million by Jan. 1.

The House voted 113-5 for its own measure to put the full $1 billion into the pension system this spring. Negotiators for the two versions will draft the final version.

The issue is tied into this year's race for governor. Both measures are in line with a proposal from Attorney General Derek Schmidt, the presumed GOP nominee against Democratic Gov. Laura Kelly. Her proposals include a $250 rebate for Kansas residents who filed state income tax returns last year, something GOP lawmakers deride as an attempted bribe for voters.

Even though most conservative Republicans voted to use surplus funds to shore up the pension system, a few worried that it would limit options for cutting taxes. Democrats feared that the move would doom Kelly's proposed income tax rebate as well as her plan to eliminate the state's 6.5% sales tax on groceries.

“I'd rather give it back to the taxpayers,” Sen. Virgil Peck, a conservative Havana Republican, told a meeting of GOP senators before the chamber's debate. He voted no.

The Legislature opened its session in January with the state projecting that it would end June 2023 with record high cash reserves of nearly $3.8 billion. The state pension fund has a $4.4 billion gap between its projected funding and its long-term commitments for benefits to retirees, the result of decades of lawmakers and governors shorting the state's annual contributions.

Retirees' immediate benefits aren't in danger, but many lawmakers see the gap as a debt, and the state is trying to close it by 2033. Dumping $1 billion into the pension system this year would close the gap two years faster.

The move also would create annual budget savings, just as people who use work bonuses or tax refunds to pay down credit card debt see their required monthly payments drop.

The state's yearly contributions are based on how much of the pension system's long-term commitments are covered. The system is now 77% funded, and as the figure goes higher, Kansas law allows the state to ease off on its annual contributions.

The pension system projects that a $1 billion infusion of surplus funds this year would save the state an average of roughly $80 million on its annual contributions each of the next five years.

While Democrats worried about how the measure's passage would affect Kelly's already endangered tax-cutting proposals, they also wanted to use some of the $1 billion in surplus revenues to help retirees immediately with either a one-time bonus or a cost of living increase. Republicans rejected their proposals.