Using budget surplus to pay off debt makes sense

Kansas Attorney General Derek Schmidt, who hopes to be the Republican Party’s next nominee for governor, says he would like state lawmakers to use much of a projected $2.9 billion state surplus to pay down public debt.

Schmidt has the right idea. Paying off public debt is what Kansans should expect a good candidate for governor, like Schmidt, to say.

Faced with a rare occurrence of a state budget surplus, it would be easy to play the poltical hero and suggest spending the excess funds in any number of ways to win votes.

Schmidt, a fiscal conservative, is calling for lawmakers to send $1 billion in cash — or more — into the Kansas Public Employees Retirement System.

“The bottom line is we have a rare and unprecedented opportunity to fix this long-term pension debt problem that’s accumulated over a generation in Kansas, to shore up the system for current and future (state employee and teacher) retirees, to wipe a huge chunk of expensive state debt off the books,” Schmidt told The Topeka Capital-Journal recently.

State economists in November increased tax revenue projections for the fiscal year, forecasting a $2.9 billion surplus. The amount could grow, as revenues continue to beat predictions, it was reported. Such good financial news in Kansas is about as rare as the 100-year floods.

“The KPERS investment obviously helps retirees present and future by improving their security. It also helps taxpayers over the long term, because then there’s not a requirement to put more future general tax money into the KPERS system. It reduces the amount that has to go in to pay off past obligations,” Schmidt said. “But it also, and this is the additional point, helps everybody who relies on any state service going forward, whether it’s public schools, whether it’s transportation, whether it’s social services, whether it’s corrections, because it frees up a significant amount of cash flow every year for the state general fund.”

Schmidt’s plan would save about $75 million in state and school contributions next fiscal year, with $403 million in taxpayer savings over five years.

The system’s unfunded liability would drop from about $5 billion to about $4 billion, improving the funded ratio from about 77 percent to about 82 percent. The ratio measures a pension plan’s assets as a percentage of liabilities. For many years, the ratio has been in the 40 percent and 50 percent range, it was reported.

 “There’s no reason to deal with funny accounting,” Schmidt said. “Just be straight up and honest, write the check, put it in the investment portfolio, pay off the debt, shore up the system.”

Schmidt has also urged caution with any economic forecasts, recalling projected surpluses in 2008 prior to the Great Recession and impending budget cuts and tax hikes.

In addition to sending cash to KPERS, Schmidt is urging state lawmakers to save money by putting excess funds in a budget stabilization fund.

“The idea would be while there’s cash in the bank, set it aside so that when the inevitable downturn comes, it’s possible to cushion the blow and continue to meet our obligations,” he said. “It’s in some ways harder to budget in times when there’s plenty of money than it is in times when there’s lean money, because it’s harder to say no to every good idea that comes along,” Schmidt said. “And there are always more good ideas than there is cash available.”

Both Schmidt and current governor Laura Kelly, a Democrat, have called for cutting the state’s food sales tax. Kelly’s plan would eliminate the state’s 6.5 percent tax on groceries entirely, which would cost the state about $450 million a year, it was reported. Schmidt agrees that state tax on groceries could at least be scaled back annually and eventually phased out.

Gov. Kelly has also shown interest in paying down public debts. In November, her administration paid off a $300 million loan from Money Investment Board two years ahead of schedule. The bridge loan was used by the State Legislature in 2017 to fill budget holes during former Gov. Sam Brownback’s administration.

“You turn to things like paying down debt,” Kelly has said. “Get debt off the books as much as you possibly can because then that frees up state general funds in the years going forward. So look for that.’’

Keep an eye on the State Legislature as this issue of how to spend the state’s budget surplus unfolds.