State of Kansas Finances

[WuDrWu]

I have a question for those that know what's going on and/or have a strong opinion of the Gov.


I heard (so I have no idea if it's correct, that's why I'm asking) that the last 3 years the State made lump sum payments to correct the underfunded retirement program KPERS.

Simplistically (if that's possible or I heard right), KPERS, a state retirement fund mostly for education related folks, has been underfunded for years. I have 2 family members that are in this and I'm not surprised. The return on investment would make your average cocaine cartel leader cry.

Much like Social Security, previous elected officials kicked the can down the road. Let it be the next guy's problem.

Gov. Brownback, again as I've heard, decided to make lump sum payments to correct the underfunding. This payment closely mirrors (if not is exactly) the State's revenue shortfall.


Am I close at all?

[im4wsu]

The single largest factor to KPERS deficit is the long-term interest rate having gone down from high points while salaries went up during the period of interest rates being high but continued to increase (albeit not what they should have, perhaps) while the interest rates declined. There may well be aging of the population factors involved, but I'm not aware of that. In times of stable investment rates, defined benefit plans are the gold standard and are relatively easy to predict costs and fund. In cyclical investment environments, such as have existed in the United States since at least the 1790s, required payments to fund the plan vary tremendously and become extremely difficult to maintain at a semblance of stability.

[wufan]

I think the biggest problem with KPERS is that it allows you to retire in your mid-50s with full benefits. That's an extra 10 years of covering the bill that most pensions don't cover.

[shocker3]

I think the biggest problem with KPERS is that it allows you to retire in your mid-50s with full benefits. That's an extra 10 years of covering the bill that most pensions don't cover.

The only people who are allowed to retire as early as 55 are those who have put in 30 years or more of service. Most KPERS retirees can't retire until they are at least 62.

[shocker3]

I have a question for those that know what's going on and/or have a strong opinion of the Gov.


I heard (so I have no idea if it's correct, that's why I'm asking) that the last 3 years the State made lump sum payments to correct the underfunded retirement program KPERS.

Simplistically (if that's possible or I heard right), KPERS, a state retirement fund mostly for education related folks, has been underfunded for years. I have 2 family members that are in this and I'm not surprised. The return on investment would make your average cocaine cartel leader cry.

Much like Social Security, previous elected officials kicked the can down the road. Let it be the next guy's problem.

Gov. Brownback, again as I've heard, decided to make lump sum payments to correct the underfunding. This payment closely mirrors (if not is exactly) the State's revenue shortfall.


Am I close at all?

It is true that KPERs has been underfunded for years. While the State employees and teachers have paid into the fund the amounts they were suppose to pay, most years the state has ignored their statutory obligation and has paid in less than they were suppose to. This has created a large unfunded liabillity. KPERS over it's lifetime has averaged a better than 8% return on its investments. So a few years ago the Governor and the Legislature passed a bill to issue $1 billion in bonds to shore up the KPERS fund. The bonds were issued at just under 5%. The idea is that since KPERS usually earns more than that the State would use the difference between the interest earned on this $1 Billion and the interest paid to the bondholders to make extra payments to KPERs to pay down the long term liablility.

It is the interest being earned from the investment of money raised from these retirement bonds that is creating the money for the extra payments.

That is why there was a lot of angst among many Republicans about the Governor's proposal to delay making the $99 million KPERS payment. The Governor (and now the legislature) is essentially using the interest earned off of these bonds that were suppose to help shore up KPERs to balance the State General Fund. According to a law passed during this legislative session, the State will have to eventually pay this $99 million back with 8% interest. Although a future legislature can just changed that law or choose to ignore it. So who knows if it will ever actually get paid to KPERs and if it does if there will be an 8% interest payment made with it. But it does make current legislators feel better that they can say it is suppose to be eventually paid to the KPERS fund with 8% interest


So the bottom line answer to your question. Yes KPERs is underfunded, Yes the state is now making extra payments to help reduce this unfunded liability, but NO these payments are NOT causing the budget shortfall (because the payments are coming from interest earned from revenue bonds issued just for this purpose). The delaying of these payments, however, is now helping to balance the budget right now.

[wsushox1]

I guess my biggest questions is why the tax revenue estimates were so god awful?

With serious tax cuts, revenue was bound to decrease, but the actual revenue has consistently fallen wayyyyy below the estimated. I'm so confused as to how professionals could be so terrible at their job.

[shocker3]

I guess my biggest questions is why the tax revenue estimates were so god awful?

With serious tax cuts, revenue was bound to decrease, but the actual revenue has consistently fallen wayyyyy below the estimated. I'm so confused as to how professionals could be so terrible at their job.

The estimates are made by the "consensus revenue estimating group". This group is made up of the Dept. of Revenue, the Legislative research analysts and economists from KU, WSU, and Kstate. They are largely influenced by the information given to them by the Dept. of Revenue. It is my opinion, that the Dept. of Revenue has been overly optimistic from the start that the 2012 tax plan would produce lots of economic growth. The sun is always shining over there, even when it isn't.

[shockmonster]

The estimates are made by the "consensus revenue estimating group". This group is made up of the Dept. of Revenue, the Legislative research analysts and economists from KU, WSU, and Kstate. They are largely influenced by the information given to them by the Dept. of Revenue. It is my opinion, that the Dept. of Revenue has been overly optimistic from the start that the 2012 tax plan would produce lots of economic growth. The sun is always shining over there, even when it isn't.

You left off Brownback's chief finance man (I think his name is Sullivan). Maybe he is considered part of the Dept. of Revenue but he is the key finance man in the Brownback Administration.

[wu_shizzle]

I guess my biggest questions is why the tax revenue estimates were so god awful?

With serious tax cuts, revenue was bound to decrease, but the actual revenue has consistently fallen wayyyyy below the estimated. I'm so confused as to how professionals could be so terrible at their job.

You won't find this in the Eagle, but there was a very large tax increase last year, and still the revenue projections were high.

To have struggling Ag, Oil&Gas, and Manufacturing markets all at the same time is rare and therefore would be tough to predict the length of their cycle.

We live in a global marketplace and much of what happens economically in Kansas is due to outside pressures. The Federal government can manipulate currency and run up deficits to try an appease different groups.

The state of Kansas thankfully has a balanced budget amendment, which prevents politicians from giving in to pressure groups to the detriment of the financial health of the state. Unless you're Kathleen Sebelius and you illegally steal from KPRS to spend more money.

[wufan]

The only people who are allowed to retire as early as 55 are those who have put in 30 years or more of service. Most KPERS retirees can't retire until they are at least 62.

I think those things, while very nice benefits, can hurt the ability to fund the program.

[Aargh]

Dept. of Rev was expecting there would be 190,000 taxpayers exempted under the pass-through exemption. That number has steadily grown to 330,000 as investors (who formerly had no corporate structure) became LLC's. more and more "employees" became "independent contractors", and accountants and lawyers found ways for taxpayers who weren't expected to be exempt to become exempt. There's also the moronic position I've heard from some legislators that they thought only profits, and not wages, of owners of small businesses would be exempt.

When you miss an estimate of the number of taxpayers exempted by something like 70%, estimates are going to be off.

Then the sales tax and cigarette tax increases cause those living close to borders to cross the state line to make purchases. There appears to have been a significant underestimate of how the increased sales tax rates would affect where purchases were made.

I know of people in Wichita who drive to Indian reservations in Oklahoma to buy cigarettes. They only buy something like 5 cartons at a time. Gas is cheaper there too, so they fill up. They say they save enough doing that to more than pay for the trip. While they're on the Reservation, they visit the Casino, eat some meals, do some shoppoing.

[shocker3]

You left off Brownback's chief finance man (I think his name is Sullivan). Maybe he is considered part of the Dept. of Revenue but he is the key finance man in the Brownback Administration.

No you are right, Shawn Sullivan, is also included. He is the Director of the Budget and technically he would be separate from the Dept. of Revenue, but both are part of the administration. So I just kind of threw them in together as Brownback's representatives in the group. But he like the other members of the Consensus Estimating Group have to rely a lot on the numbers coming from the Dept. of Revenue. Shawn Sullivan actually works pretty hard and is a pretty likeable guy. He has been dealt a pretty bad hand to deal with.

[wsushox1]

You won't find this in the Eagle, but there was a very large tax increase last year, and still the revenue projections were high.

To have struggling Ag, Oil&Gas, and Manufacturing markets all at the same time is rare and therefore would be tough to predict the length of their cycle.

We live in a global marketplace and much of what happens economically in Kansas is due to outside pressures. The Federal government can manipulate currency and run up deficits to try an appease different groups.

The state of Kansas thankfully has a balanced budget amendment, which prevents politicians from giving in to pressure groups to the detriment of the financial health of the state. Unless you're Kathleen Sebelius and you illegally steal from KPRS to spend more money.

I'm aware of the tax increase but it wasn't so much an increase as a closing of loopholes for LLC's correct?

Also, is it not the legislature and the executives branch to balance the budget? They've done a piss poor job. I hope they realize that when student employees were furloughed this past summer that they alienated a huge amount of there future republican voting base.

[shockmonster]

I think those things, while very nice benefits, can hurt the ability to fund the program.

FYI-If you retire that early, you do not receive full benefits. Any person who works for 10 years is vested and receives funds from the state. It is figured on the time paid into the system, and salary, but they are eligible for extra benefits after 85. People who retire early have to have other funding resources, or continue working (they couldn't afford to live on what their KPER payj,ent would be). The legislature has also placed caps on what a person can earn if getting a job in education (double dipping after retirement). Most people would make a lesser amount of money unless they have other skills that are high paying and marketable. In the 90's, it was lucrative to retire and work elsewhere but now, not so much.

Five or so years ago, KPERS reform, required the legislature and workers to put in additional funds. Workers have been paying more since then, and the benefits went down for some. The legislature has not been paying for the past several years. Public employees who include firemen, police, judges, county, most city workers, state educators, etc. have done their part but not the legislature.

[shockmonster]

I'm aware of the tax increase but it wasn't so much an increase as a closing of loopholes for LLC's correct?

Also, is it not the legislature and the executives branch to balance the budget? They've done a piss poor job. I hope they realize that when student employees were furloughed this past summer that they alienated a huge amount of there future republican voting base.

The tax increase was a sales tax on everyone. LLC owners continued not to pay. I really respect the city businesses who overwhelmingly (during a poll), said that they were willing to pay taxes to help the state. It was like 4 out of 5 business owners in Wichita who said they were willing to pay more because it wasn't fair that they didn't pay taxes but their workers did. I think that if jobs were being created from the lower taxes, people would feel differently but the data doesn't show that.