Voice For Liberty

Tag: Kansas Policy Institute

  • Kansas must reform KPERS

    New research from Kansas Policy Institute reinforces what some have known but many have discounted: The Kansas Public Employee Retirement System is in poor financial shape, and it’s going to cost Kansans a lot to fix it. It is urgent that we enact substantive and meaningful reforms now, rather than later. KPI writes the following in introducing its new study Preventing Bankruptcy in the Kansas Public Employees Retirement System.

    Preventing Bankruptcy in the Kansas Public Employees Retirement System

    It turns out that the $9.2 billion hole found in Kansas’ public pension program will balloon under new accounting standards used by governments across the country.

    Under the current standards, Kansas’ pension system (KPERS) is funded at 59.2%, 80% is a generally accepted barometer of pension health. These numbers demonstrate that Kansas has one of the worst funded pension systems in the country.

    Unfortunately, the new standards will only make things worse as our funding ratio will drop to 46.1 percent under the new standards.

    Each person in Kansas will have to pay $3,285 to fill our KPERS hole under the old standards and things will only get worse.

    The executive summary of the study follows.

    Recent evidence reveals that the Kansas Public Employees Retirement System (KPERS) is one of the most underfunded pension plans in the country (59 percent funding ratio at the end of 2011) and that there is a high probability the plan will not have sufficient funds to meet pension obligations over the next decade. This funding ratio will deteriorate further under the new accounting standards discussed below. The solution to this funding crises is to bring pension benefits into line with the costs of pension plans for individual employees. A number of states have successfully enacted structural reforms in their state pension plans to accomplish this objective, including defined contribution and hybrid plans.

    Unfortunately the recent reforms enacted in KPERS creating a cash balance plan for new employees fails to accomplish that objective. This study provides a roadmap for pension reform in Kansas, the major conclusions of the study are:

    1. Use the New GASB Accounting Standard

    The new GASB standards to be implemented in 2013 and 2014 will require realistic actuarial assumptions and reporting. It is time for Kansas and other states too incorporate this more realistic data in transparent and timely reporting and to use this data in policy formulation.

    2. Enact Structural Reforms

    Using more realistic actuarial assumptions, via new GASB standards, most states, including Kansas, will find that they face a funding crises in their state and local pension plans. Kansas legislators must follow the lead of state and local governments that have successfully replaced these defined benefit pension plans with defined contribution or hybrid plans.

    3. Bring Public Sector Pension Benefits In Line with Private Pension Benefits

    Public sector workers receive wages and salaries equal to or greater than comparable employees in the private sector. The pension and other post employment benefits received by public sector workers are significantly above that received by private sector workers. The outcome of recent pension reforms is to bring convergence of pension benefits in the public and private sector.

    4. Legal Challenges to Public Sector Pension Reform

    Structural reforms enacted to solve the funding crises in state and local pension plans have been and will continue to be subject to legal challenges, and Kansas is well positioned to meet these legal challenges.

    5. Bankruptcy, Not Bailouts

    In Kansas there will be tremendous pressure to bailout failed state and local pension systems to avoid bankruptcy. Bailouts of pension plans create all the wrong incentives. If state and local governments cannot manage their pension plans and other financial affairs bankruptcy forces them to address these issues.

    6. Launch an Education Campaign

    Successful pension reform in other states such as Utah and Rhode Island has required a bi-partisan effort in the legislature and support from all the stakeholders. Generating this support for pension reform in Kansas will require an education campaign. Kansas citizens must understand that the current defined benefit pension plan is not sustainable. Solving the funding crisis in KPERS will require burden sharing by all the stakeholders, including current employees, retirees and new employees.

    The full study is at Preventing Bankruptcy in the Kansas Public Employees Retirement System.

  • Low education standards limit Kansas childrens’ dreams

    School

    A new video from Kansas Policy Institute highlights the fact that Kansas schools have low standards. Additionally, the standards have been changed so that it appears students are doing better.

    For its trouble, KPI will likely be criticized by the Kansas public school education bureaucracy and newspaper editorial writers. They will accuse KPI of branding Kansas students and teachers as failures.

    But it’s not the students and teachers who set the standards. It’s the Kansas public school education bureaucracy that does that. Their constituencies — Democrats, moderate Republicans, superintendents, the teachers unions — will defend these bureaucrats.

    Or is it those who look to find the truth, and advocate for the necessary reforms?

  • In Wichita, community needn’t be government

    Wichita, Kansas logo

    Kansas Policy Institute offers commentary on the Wichita/Sedgwick County Community Investment Plan.

    In The Righteous Mind: Why Good People Differ on Politics and Religion, renowned psychologist Jonathan Haidt describes how the human mind is dual in nature: “We live most of our lives in the ordinary world, but we achieve our greatest joys in those brief moments of transit to the sacred world, in which we become ‘simply a part of a whole.’”

    A recent survey by the City of Wichita capitalized on this innate human tendency by equating community with government. Our natural desire to become “simply a part of a whole” manifests itself in our jobs, churches, softball leagues, clubs, dinner parties and recently pride in WSU’s success in the NCAA tournament. Our citizenship in Wichita is one of many communities that define us as individuals, one of many communities we make sacrifices for, one of many communities we call upon to solve problems.

    Wichita/Sedgwick County Community Investment Plan

    The survey respondents provide a list of wishes, all with the goal of improving our lives, many of which can and should be provided by city and county governments. Allowing businesses to openly compete to build water and street infrastructure, with competitive bidding for contracts, would strengthen the community by precluding any unfairness that weakens trust in the city.

    Survey respondents showed a plea for business formation and young talent. The city could promote a sense of community by creating a welcoming culture for all businesses, one that does not pick favorites. 71.8 percent of respondents do not have faith that most people are willing to put community interests above personal interest — perhaps because so often city hall is called upon to hand out special tax treatment.

    The survey also tries to identify challenges to the community; respondents were asked one question about Boeing and two questions about political divisions. Overwhelmingly respondents believe political divisions are negatively impacting our community’s ability to respond to global challenges.

    We live in the biggest city in the state which brings with it many challenges; solutions to those challenges come in many forms, giving rise to the vast diversity of opinion borne out in the survey. That diversity may be trying but we should not allow the aspiration for political unity to squelch debate. Ultimately it is our ability to engage and debate these issues that unites us as a community.

  • Bonding KPERS debt is not the solution

    Burden of debt, money

    The Kansas House has passed, and now the Senate Ways and Means Committee will consider HB 2403, captioned “Issuing $1,500,000,000 of pension obligation bonds to finance a portion of the unfunded actuarial liability of KPERS.”

    Borrowing money to shore up the Kansas state employee pension plan is about the worst idea that could come out of Topeka. Legislatures across the country, and counties and cities of all sizes, have shown that government is fundamentally unable to manage the responsibilities of a defined benefit pension plan.

    For more about the problems with KPERS, see KPERS problems must be confronted. Newspapers are not helping Kansans grasp the gravity of the problem; see KPERS editorial a disservice to Kansans. Below is a helpful explanation written by Kansas Policy Institute Adjunct Fiscal Policy Fellow Barry Poulson, Ph.D.. He is also Emeritus Professor at the University of Colorado — Boulder.

    Public officials in Kansas have proposed using pension obligation bonds to solve the funding crisis in the Kansas Public Employee Pension System (KPERS). In my view this is not a solution to the funding problem and I will discuss what I perceive to be flaws in this proposal.

    The rationale for using pension obligation bonds to pay off unfunded liabilities in the pension plan assumes that the state can borrow funds at a low interest rate and then earn a higher rate of return on the proceeds deposited with the pension fund. The flaw in this rationale is the assumption that KPERS will earn a higher rate of return on bond proceeds deposited in the KPERS fund. KPERS assumes an 8 percent return on assets accumulated in the fund. For a number of years, economists and actuaries have questioned this assumed rate of return and the use of this assumed rate to discount liabilities in the plan. The Government Accounting Standards Board has issued new standards, 67 and 68, to be implemented over the next two years, requiring state and local governments to use a lower interest rate, the mortgage bond rate, to discount liabilities in their financial statements.

    If we assume that a lower rate of interest, such as the municipal bond rate, is the interest rate relevant in discounting unfunded liabilities in the pension plan then it is not clear that issuing pension obligation bonds will generate returns above the interest cost on those bonds. If the returns fall below the interest cost on the bonds then this introduces an additional risk and could in fact exacerbate the funding problem in KPERS.

    A major flaw in the proposed issuance of pension obligation bonds is the lack of nexus between the investment of the bond proceeds and payments for unfunded liabilities in the plan. The experience in other states is that sometimes bond proceeds are earmarked for other state expenditures. The most egregious example of this problem is the state of Illinois which issued $10 billion in pension obligation bonds and then used the proceeds to meet current expenditures rather than to pay off unfunded liabilities in the pension plan.

    Even if the state of Kansas would not commit this form of fraud on the taxpayers the fungible nature of state funding makes it impossible to guarantee the nexus between bond proceeds and the payment for unfunded liabilities in the pension plan. If legislators see that additional funds are available to pay off unfunded liabilities in the pension plan they may choose to allocate less general fund money to meet these pension obligations. The state has not allocated the annual required contribution (ARC) to KPERS for several decades and is not projected to do so for the foreseeable future. Legislators continue to promise pension benefits without allocating the funds required to meet these obligations. We should expect this moral hazard to be even greater with the issuance of pension obligation bonds.

    Even if the proceeds of pension obligation bonds could be set aside in a lock box and earmarked to pay off unfunded liabilities in the pension plan the state must still address the accumulation of unfunded liabilities in the defined benefit plan. Without fundamental structural change, including shifting public employees to some form of defined contribution pension plan, these unfunded liabilities will continue to accumulate. Legislators should not be diverted from this difficult task by non-reforms, such as the issuance of pension obligation bonds.

    Shifting the cost of pension obligations from one generation of employees and taxpayers to the next generation is not a solution to the funding crisis in KPERS. The defined benefit plan offered by KPERS is not sustainable.

    I analyze the sources of unfunded liabilities in the plan and explore alternative reforms to solve this problem in an upcoming paper with KPI.

    Some of my other work for KPI on KPERS is here and a legal analysis of what can, and cannot, be changed in KPERS is here; the latter piece was done by another scholar.

  • Legislator’s guide to delivering better service at a better price

    Service bell

    From Kansas Policy Institute:

    How can Kansas get to the point of lowering spending, lowering taxes, and allowing for more job creation? It is not an easy process, but “A Legislator’s Guide to Delivering Better Service at a Better Price” offers an outline. This road map from KPI was recently released and will be updated as new analysis is added and ideas are refined.

    A few of the ideas from the guide:

    • Use the $2.5 billion held in cash reserves by state agencies to manage the process of lowering spending (Page 3).
    • Review discretionary spending. For instance, State agencies spent $5.8 million on Advertising in 2012 (Page 6).
    • Set up a privatization panel to deliver higher quality service at lower prices (Page 7).
    • Utilize priority-based budgeting that requires each agency to prioritize every program or service from most to least effective. Those on the bottom of the list can be considered for possible elimination and/or being scaled back (Page 7).

    The report is at A Legislator’s Guide to Delivering Better Service at a Better Price: How to reduce government spending and create a better taxpayer experience.

  • Kansas school spending excused

    Kansas public school teachers and the education bureaucracy want taxpayers to trust them as a reliable source for facts about Kansas schools. But the record doesn’t inspire trust.

    At a recent meeting of the South-Central Kansas Legislative Delegation with citizens, teachers jeered when a legislator cited the spending numbers for USD 259, the Wichita public school district. A comment left to a KAKE TV news story claims that spending numbers presented by the legislator are “misrepresented,” because he included every single dollar. In fact, the numbers presented were correct, as explained in In Kansas, don’t mention the level of school spending.

    kansas-school-funding-comment-2013-03-02

    The writer seems to believe that “bond money” shouldn’t count as school spending. This is a common stance taken by public school spending boosters. They argue that spending on buildings, or perhaps on teacher pension costs, shouldn’t count as money spent educating students.

    Part of the reason for this deflection is that when people learn the true level of school spending, they’re usually astonished at how much is spent. So the school spending lobby has to explain — rather, make excuses for — the high level of spending. Recently Kansas Association of School Boards (KASB) recommended Kansans ignore employee pension costs and the costs of buildings and equipment. Here’s how KASB explained this as part of a document titled Questions about recent Kansas Policy Institute survey:

    Finally, districts received $690 per pupil in KPERS contributions for district employees, and districts spent $2,320 for capital costs such as buildings and equipment, payments on construction bonds for new schools, and other local revenues like student fees. None of these funds — almost 25 percent of total revenues — can be spent for regular education operating costs.

    (See Ignore this Kansas school spending, please.)

    Should teacher pension costs and the cost of buildings and equipment be included in school spending? Of course — unless you’re arguing for more school spending.

    The comment writer also claimed that lawmakers have “cut education funding consistently.” As shown on the nearby chart, it’s true that spending on Kansas schools, on a per-pupil basis, fell slightly for two years running. It then rose a small amount last year. Spending from all sources, individually and collectively, is much higher than ten years ago. I don’t see how you can make an argument for consistent cutting — unless you decide to ignore parts of spending.

    Kansas school spending per student, adjusted for CPI

  • Suitable education in Kansas

    Kansas Judicial Center in snowToday the Senate Judiciary Committee held a hearing on SCR 1608, a proposed amendment to the Kansas Constitution that would remove the ability of courts to order the level of spending on schools. Specifically, the proposed amendment adds this language: “The financing of the educational interests of the state is exclusively a legislative power under article 2 of the constitution of the state of Kansas and as such shall be established solely by the legislature.”

    The key sentence in the Constitution reads “The legislature shall make suitable provision for finance of the educational interests of the state.” Proponents of increased school spending in Kansas interpret that to mean the state guarantees Kansas children a suitable education, and the state must spend whatever it takes to accomplish that result.

    But that’s not what the Constitution says. In the following audio excerpt from today’s hearing, Sen. David Haley questions Sen. Steve Abrams, who was testifying to the committee in his role as chair of the Senate Education Committee. Abrams clarifies what the Constitution actually says.

    [powerpress url=”http://wichitaliberty.org/wp-content/uploads/2013/02/steve-abrams-senate-judiciary-2013-02-13.mp3″]Sen. Steve Abrams responds to Sen. David Haley.

    Also providing testimony to the committee was Dave Trabert of Kansas Policy Institute. He told the panel that the courts’ decisions, both in the 2005 Montoy case and the just-decided Gannon case, were based on a flawed cost study by the consulting firm Augenblick & Myers (A&M). And the courts knew this, as explained in Trabert’s written testimony:

    “A&M openly admitted that they deliberately deviated from their own Successful Schools methodology and delivered artificially high spending numbers by ignoring efficient use of taxpayer money. Amazingly, the Montoy courts still based their rulings on ‘evidence’ that was known to be worthless. And now the Shawnee County District Court is following that legal precedent in its ruling on Gannon.”

    Trabert also explained that there has been no school cost study that considered to cost of schools operating in a cost effective manner, including another study that courts and school spending advocates have relied on:

    To this day, no study has ever been conducted in Kansas to determine what it would cost for schools to achieve required student outcomes and have schools organized and operating in a cost effective manner.

    A Legislative Post Audit study conducted in 2006 is often cited as a basis for determining school funding requirements, but LPA made it quite clear (on page 2, where it is hard to miss) that “… it’s important to remember that these cost studies are intended to help the Legislature decide appropriate funding levels for K-12 public education. They aren’t intended to dictate any specific funding level, and shouldn’t be viewed that way. Finally, within these cost studies we weren’t directed to, nor did we try to, examine the most cost-effective way for Kansas school districts to be organized and operated.” (emphasis added)

    Opponents of the proposed amendment will testify tomorrow.

    [powerpress url=”http://wichitaliberty.org/wp-content/uploads/2013/02/dave-trabert-senate-judiciary-2013-02-13.mp3″]Dave Trabert, Kansas Policy Institute.

  • Kansans’ views on role of government

    Kansas Policy InstituteKansas Policy Institute has released the results of a public opinion poll asking Kansans for their views on some issues that are currently in the news. Following is KPI’s press release:

    Kansans’ Views on the Role of Government
    K-12 funding should be based on efficient use of taxpayer funds; narrow opposition to judicial reform; overwhelming support for “paycheck protection”

    Wichita — A new statewide public opinion survey shows strong support for having K-12 funding decisions based on efficient and effective use of taxpayer funds. This is especially noteworthy in light of the fact that no study has ever been conducted in Kansas to determine what it costs to achieve required student outcomes and have schools organized and operating in a cost-effective manner. The survey was conducted by SurveyUSA on behalf Kansas Policy Institute between January 24 and January 27; 500 adults were surveyed with a ±4.5% margin of error. The complete survey and interactive crosstabulations are available here.

    Asked whether cost-effectiveness should be the basis for school funding decisions, 74% agreed and only 23% disagreed. Responses were very consistent across political and ideological lines.

    Participants were also asked “If the Kansas Legislature is not basing school funding decisions on what it costs to hit required achievement levels and also have schools operating in a cost-effective manner, should the Legislature conduct such a study and fund schools accordingly?” A strong majority, 59% said “yes” while only 19% said “no.” Again, responses were very consistent across political and ideological lines.

    The Shawnee County District Court based its recent school finance ruling on the 2005 Montoy decision, in which the State Supreme Court relied on a flawed 2001 Augenblick & Myers cost study. A&M admitted they deviated from their standard methodology and threw efficient use of taxpayer money out the window. A follow-up study by Legislative Post Audit very specifically said that they “… weren’t directed to, nor did we try to, examine the most cost-effective way for Kansas school districts to be organized and operated.”

    KPI president Dave Trabert said, “In addition to funding schools, legislators also have a responsibility to ensure that taxpayer money is used efficiently. Lawsuits and hundreds of millions more in taxpayer funding have … and will continue to have .. little impact on student achievement. The only way to determine whether schools are effectively and efficiently funded is to conduct a thorough student-focused review of the current system examining all of the inputs (not just money), make any necessary adjustments and cost it out.”

    Key findings on Judicial and Court Questions
    A series of questions relating to the courts produced much more divided opinions. Kansans believe that courts should not have final say on how much money is spent on public education (54% vs. 44%) and courts should not have final say on the specific way that money is spent on education (56% vs. 40%). Interesting though, 54% of Kansans believe it is “… in citizens’ best interests to have judges recommended for appointment to the Kansas Supreme Court and the Court of Appeals by a majority-attorney panel” while 39% disagree.

    Even self-identified conservatives narrowly said the current system of appointing judges is in citizens’ best interest (46% vs. 45%) while self-identified moderates and liberals expressing stronger support (53% vs. 41% and 69% vs. 23%, respectively).

    Key findings on Paycheck Protection proposals
    Proposed legislation that would prohibit government from collecting and remitting voluntary union dues intended to be used for political purposes is an extremely controversial topic this year — but apparently, only in the state capitol. Kansans of all political and ideological persuasion overwhelming support some form of change in the current practice.

    Asked whether governments should continue the current practice of withholding union dues, including the portion that is used for political purposes … or withhold regular membership dues only, so that employees wishing to contribute money for political purposes would write their own personal checks … or withhold no union dues, even self-identified government employees and union members say current practice should change.

  • Privatization study released

    Better Service, Better Price: How privatization can streamline government, improve services, and reduce costs for Kansas taxpayers

    Kansas Policy Institute has released a study looking at privatization of government services. From KPI’s press release:

    As the 2013 Legislature begins its work the discussion remains focused on implementing last year’s tax reform package. A new study from Kansas Policy Institute makes clear a good deal of the dollars necessary to implement reform without raising taxes, an 8.5 percent efficiency savings, can be achieved via a slate of reforms commonly referred to as privatization. “Better Service, Better Price,” goes through best practices and case studies to arrive at standard cost savings of between five and 20 percent — a good step toward realizing the benefits of HB 2117.

    “Too often we’re faced with the false choice of either higher taxes or fewer government services,” said KPI president Dave Trabert. “This paper makes clear that governments at all levels and around the country are refusing that false choice and taking steps to deliver essential services at a better price with better outcomes.”

    Privatization reforms include contracting, franchising, and outright divesture of government-owned assets or functions. Examples from around the country demonstrated 130 different outsourcing initiatives in Florida saving $500 million in cash-flow dollars and 345 opportunities for public-private partnerships in the City of Tulsa. The study also highlights existing efforts in Kansas such as the City of Wichita saving $1.3 million annually by outsourcing mowing operations, beginning in 2009, and Kansas State University allowing its on-campus bookstore to be operated by Varney’s, a private entity and previous competitor.

    In addition to case studies and establishing the vocabulary of privatization, a good deal of discussion is provided to best practices. Transparency in contracting and purchasing, truly competitive and open bidding, and quality-driven outcomes help protect taxpayer interests when government dollars go to private entities.

    “Privatization and public-private partnerships are proven policy tools used by policymakers of all political stripes to control spending and improve public services — something that is more critical than ever given the fiscal challenges that many states and local governments continue to face in the wake of the 2008 recession,” said the study’s lead author Leonard Gilroy, the director of government reform at the Reason Foundation. “It is our hope that this new report will help state and local officials in Kansas better understand the range of potential privatization opportunities at their disposal to help navigate the ‘new normal’ of budget constraints and lower the costs of government to taxpayers.”

    Trabert concluded by saying, “With Kansas’ general fund spending having increased by 48 percent in the past decade there are absolutely opportunities for efficiency and savings. In many cases, this could certainly be accomplished by utilizing private sector expertise while at the same time delivering better service to Kansans.”

    The document may be read at Better Service, Better Price: How privatization can streamline government, improve services, and reduce costs for Kansas taxpayers.

    The Kansas Legislature has considered privatization in recent years. Two years ago a bill passed the House, but did not advance in the Senate. The bill was HB 2194, which in its original form would have created the Kansas Advisory Council on Privatization and Public-Private Partnerships.

    According to the supplemental note for the bill, “The purpose of the Council would be to ensure that certain state agencies, including the Board of Regents and postsecondary educational institutions, would: 1) focus on the core mission and provide goods and services efficiently and effectively; 2) develop a process to analyze opportunities to improve efficiency, cost-effectiveness and provide quality services, operations, functions, and activities; and 3) evaluate for feasibility, cost-effectiveness, and efficiency opportunities that could be outsourced. Excluded from the state agencies covered by the bill would be any entity not receiving State General Fund or federal funds appropriation.”

    This bill passed by a vote of 68 to 51 in the House of Representatives. It did not advance in the Senate, falling victim to a “gut-and-go” maneuver where its contents were replaced with legislation on a different topic.

    Opposing this bill was Kansas Organization of State Employees (KOSE), a union for executive branch state employees. It advised its “brothers and sisters” that the bill “… establishes a partisan commission of big-business interests to privatize state services putting a wolf in charge of the hen house. To be clear, this bill allows for future privatization of nearly all services provided by state workers. Make no mistake, this proposal is a privatization scheme that will begin the process of outsourcing our work to private contractors. Under a privatization scheme for any state agency or service, the employees involved will lose their rights under our MOA and will be forced to adhere to the whims of a private contractor who typically provides less pay and poor benefits. Most workers affected by privatization schemes are not guaranteed to keep their jobs once an agency or service is outsourced.”

    Note the use of “outsourcing our work.” This underscores the sense of entitlement of many government workers: It is not work done for the benefit of Kansans, it is our work.

    Then, there’s the warning that private industry pays less. Most of the time representatives of state workers like KOSE make the case that it is they who are underpaid, but here the argument is turned around when it supports the case they want to make. One thing is probably true: Benefits — at least pension plans — may be lower in the private sector. But we’re now painfully aware that state government has promised its workers more pension benefits than the state has been willing to pay for.