SESSION OF 2021
SUPPLEMENTAL NOTE ON HOUSE BILL NO. 2405
As Amended by Senate Committee on Ways
and Means
Brief*
HB 2405, as amended, would authorize the Kansas
Development Finance Authority (KDFA) to issue bonds, in
one or more series, in an amount not to exceed $500.0
million, plus all amounts required to pay the costs of
issuance. Proceeds from those bonds must be applied to the
unfunded actuarial pension liability (UAL) of the Kansas
Public Employees Retirement System (KPERS). The interest
rate of those bonds would not exceed 3.75 percent. No bonds
could be issued without the approval of the State Finance
Council, which could give approval while the Legislature is in
session. The bonds issued and interest owed would be an
obligation of KDFA and not KPERS. The bonds issued would
not be considered a debt or obligation of the State for
purposes of the Kansas Constitution. The Department of
Administration and the KDFA would be permitted to enter into
contracts to implement the payment arrangements after the
bonds are issued.
Background
The bill was introduced by the House Committee on
Appropriations at the request of Representative Steven
Johnson and referred to the House Committee on Insurance
and Pensions. As introduced, the bill would authorize the
issuance of up to $1.0 billion in bonds for the KPERS UAL.
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*Supplemental notes are prepared by the Legislative Research
Department and do not express legislative intent. The supplemental
note and fiscal note for this bill may be accessed on the Internet at
http://www.kslegislature.org
House Committee on Insurance and Pensions
In the House Committee hearing on February 22, 2021,
a representative of KPERS testified as a proponent, stating
the addition of $1.0 billion to the KPERS Trust Fund would
have both immediate and long-term impacts on the system.
The representative stated the funded ratio for the KPERS
State/School Group would increase by about 4.8 percent, to
76.7 percent, while the estimated UAL for calendar year (CY)
2021 would decrease from $6.05 billion to $5.01 billion.
A representative of the Kansas Association of Retired
School Personnel and the Kansas Coalition of Public Retirees
also provided proponent testimony, stating the 2004 and
2015 KPERS Pension Obligation Bond issues are performing
well. The representative further stated enactment of the bill
and an additional benefit increase would result in a positive
economic boost to the State of Kansas.
A representative of the Kansas Association of Chiefs of
Police, Kansas Sheriffs Association, and Kansas Peace
Officers Association also testified as a proponent, stating the
bill is evidence of the State attempting to make KPERS a
reliable retirement system.
Lastly, Representative Miller spoke as a proponent of
the bill, stating investing borrowed money is an effective
means of generating revenue for the KPERS Trust Fund.
Representative Miller further stated the 2004 KPERS Pension
Obligation Bond issue delivered almost $332.0 million in net
proceeds while the 2015 bond issue added almost $141.0
million in net proceeds.
The House Committee amended the bill to authorize
KDFA to issue up to $500.0 million in bonds if the interest rate
on those bonds exceeds 3.5 percent but not 3.75 percent.
The House Committee also amended the bill to correct the
technical language of the bill.
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House Committee of the Whole
On March 4, 2021, the House Committee of the Whole
made a technical amendment to update a reference to an act
referenced in the bill.
Senate Committee on Ways and Means
In the Senate Committee hearing on March 22, 2021, a
representative of KPERS testified as a proponent, stating
the addition of $1.0 billion to the system would have
immediate and long-term impacts, including a $1.04 billion
decrease to the UAL for CY 2021. The representative stated
the annual debt service cost on a 30-year, $1.0 billion bond
issue at a 2.75 percent interest rate would be approximately
$48.5 million. The representative also stated the addition of
$500.0 million to the KPERS Trust Fund would have about
half as much of an impact as the addition of $1.0 billion. For
the KPERS State/School Group (assuming the issuance of
$500.0 million in bonds), the funded ratio would increase by
2.4 percent, to 74.3 percent, while employer contribution
rates to that group would decrease by 0.83 percent, or about
$43.8 million for FY 2024.
[Note: A representative from the KDFA appeared at the
hearing and indicated the State of Kansas currently has about
$1.9 billion in tax-supported debt. The representative also
stated the transactions for the new pension obligation bond
would be a fixed-rate issuance for the full negotiated term.
Estimates from KPERS and KDFA assume a 30-year term.]
A representative of the Kansas Association of Retired
School Personnel and the Kansas Coalition of Public Retirees
also provided proponent testimony, stating the 2004 and
2015 KPERS Pension Obligation Bond issues are performing
well. The representative further stated enactment of the bill
and an additional benefit increase would result in a positive
economic boost to the State of Kansas.
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Representative Steven Johnson also spoke as a
proponent of the bill, stating the issuance of a pension
obligation bond and the addition of supplementary revenue
into the KPERS Trust Fund would have a positive impact to
the system. The Representative also cautioned of a worst
case scenario in which an underfunded system would likely
require annual appropriations from the Legislature.
A representative of the Kansas Policy Institute submitted
written-only opponent testimony, stating the issuance of
additional pension obligation bonds is a continuance of policy
decisions to underfund the system. Another representative of
the Kansas Policy Institute provided written-only opponent
testimony, stating the bill would extend debt payments on top
of an increasingly risky asset allocation.
On March 25, 2021, the Senate Committee amended
the bill to limit the bond issuance to $500.0 million with an
interest rate not to exceed 3.75 percent.
Fiscal Information
According to the fiscal note prepared by the Division of
the Budget on the bill as introduced, enactment of the bill and
the issuance of a $1.0 billion 30-year bond would result in
approximately $49.8 million to $55.9 million annually in debt
service payments. The KPERS consulting actuary notes that
bond proceeds would first be reflected in the December 31,
2020, valuation and would set the employer contribution rates
for FY 2024. Under the current schedule of KPERS
State/School Group employer contributions, a total of $13.56
billion is estimated to be received by the system for the 30-
year duration. The actuary further estimates the addition of
$1.0 billion toward the UAL would reduce employer
contributions over the same time period to $12.11 billion, for
net savings of approximately $1.5 billion.
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[Note: The bill, as amended by the Senate Committee,
would reduce the bond issuance from $1.0 billion to $500.0
million.]
Pensions; bonds; KDFA; KPERS
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