DALLAS - Kansas is seeking underwriters for its first issue of pension bonds from $1 billion authorized by lawmakers.
Gov. Sam Brownback signed Senate Bill 228 on April 15, allowing the state to begin preparing for the first issue. State officials want to get to market as soon as possible to take advantage of the historically low rates on municipal bonds. The first issue is expected to be only a portion of the $1 billion authorized.
Kansas issued $500 million in bonds in 2004 and paid about 5.4% in interest. The Kansas Public Employee Retirement System's annual investments since then have returned about 7.7%.
Under SB 228, the 30-year bonds cannot be sold unless the interest rate is less than 5%. Returns on the invested proceeds could be as high as 8%, according to testimony on the bill.
The state Development Finance Authority has set a May 1 deadline for underwriters to return a request for qualifications for the deal.
The authority said no decision has been made on the timing or the structure for the bond sale.
The Kansas Public Employee Retirement System expects its funded ratio to rise to 66% from 60.7%, when all the bonds are issued, lowering its unfunded liability to $6.28 billion from $7.26 billion.
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.
States and local governments have sold about $105 billion of taxable pension bonds since 1986, according to a July 2014 report by the Center for Retirement Research at Boston College.