Kansas Public Employees Retirement System is on track to close a projected $9.8 billion gap between revenues by 2033.

DALLAS — Kansas could issue its first tranche of pension bonds in less than two months after the Legislature approved $1 billion for the Kansas Public Employees Retirement System.

Gov. Sam Brownback is expected to sign Senate Bill 228, which won narrow approval in the state House of Representatives on April 1 after passage by the Senate as SB 168. After consideration in a conference committee, the House voted 63-57 to merge the bill with another measure involving police and firefighter pensions and send it back to the Senate for a final reading on April 2, where it passed on a 23-16 vote.

Brownback and key members of his administration have urged passage of the measure to help reduce a $600 million revenue shortfall in the fiscal year beginning July 1 while also reducing the state's unfunded pension liability.

Sen. Jeff King, R-Montgomery, said the bonds would probably be issued in tranches of $350 million to $450 million. Once signed by the governor, issuance would require about four to five weeks, he said.

Analysis provided by the Kansas Public Employees Retirement System estimates that the bonds would save $63.6 million from the state general fund compared to current law requirements. The contribution savings would include $5.4 million in FY 2016 and $58.2 million in FY 2017. Debt service is estimated to be approximately $60.2 million annually.

The bill anticipates that proceeds from pension bonds would improve the state's funded ratio to 66% from the current 60.7%. The unfunded actuarial liability is expected to fall to $6.28 billion from $7.26 billion.

Supporters believe investment returns on the proceeds will far exceed interest paid on the bonds. KPERS expects to earn 8% long-term on its investments, and the legislative proposals limit the state to paying 5% interest or less on the bonds.

With muni bond interest rates at record lows, Kansas wants to get into the market as soon as possible.

A negative outlook on Kansas' AA rating from Standard & Poor's could come into play if the state's general obligation bonds get a downgrade. S&P already knocked the credit down a notch from AA-plus on Aug. 6.

Moody's rates Kansas GO's Aa2 with a stable outlook. With about $3.17 billion of tax-supported debt, Kansas's per capita debt load of $1,112 is above the median of $1,074, Moody's says.

Kansas Budget Director Shawn Sullivan, who is part of the Brownback administration, promoted the bonds as a way to relieve the current budget deficit.

"For FY 2015, it is estimated that savings of $52.1 million from the State General Fund and $58.0 million from all funds would result from the budget plan that reduces the employer contribution rate for the last six months of the fiscal year," Sullivan wrote in a note to the legislature.

Brownback in January proposed issuing $1.5 billion of bonds to decrease the state's payments to KPERS, but the Senate version of the bill reduced that to $1 billion.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.