Kansas officials have reason to hope Greece doesn’t sort out its debt impasse right away.
The state plans to sell $1 billion of taxable bonds by mid-August to shore up its main pension fund, said Jim MacMurray, senior vice president of the Kansas Development Finance Authority, which is handling the sale. Kansas can’t sell the 30-year debt for yields above 5 percent, according to state law. It may be running out of room: Similar bonds that Kansas sold in 2004 with insurance have traded less than a half-percentage point below that level.
Greece’s standoff with creditors over austerity measures such as pension cuts is helping keep Kansas’s bond plan alive. The euro-area tension is holding down interest rates by stoking demand for Treasuries even as bets build that the Federal Reserve is getting closer to raising borrowing costs.
“We have interest-rate risk until we can get to market,” MacMurray said in an interview. “It’s certainly possible we could get hit by higher rates.”
Kansas’s pension system, which covers 290,000 members in multiple funds, had two-thirds of the $24.8 billion it needed to pay promised benefits as of June 2014. Under Republican Governor Sam Brownback, the state opted for a controversial strategy to bolster the biggest of the plans, the Kansas Public Employees Retirement System, by borrowing and investing the proceeds with the hope of earning a higher return.
In January, a group of state and local-government officials warned against the practice. The Government Finance Officers Association called it “speculative” and said it may backfire if investments don’t pan out.