The State of Kansas did about as well as could be expected in settling a federal securities fraud charge without having to admit or deny the specific findings and without having to pay any penalties.
The charge stemmed from the summer of 2009 to the summer of 2010 and accused the state of misleading investors about the financial health of KPERS, the Kansas Public Employees Retirement System. At the time, Mark Parkinson was governor, having taken the position when former Gov. Kathleen Sebelius became Secretary of the U.S. Department of Health and Human Services.
According to the U.S. Securities and Exchange Commission, the Kansas Development Finance Authority raised some $273 million through multiple series of bonds without having disclosed the depth of KPERS’ underfunded liability. At the time, KPERS was the second most underfunded pension system in the country.
As LeeAnn Ghazil Gaunt, chief of the SEC’s enforcement unit for public pensions, said, “Kansas failed to adequately disclose its multi-billion dollar pension liability in bond offering documents, leaving investors with an incomplete picture of the state’s finances and its ability to repay the bonds among competing strains on the state budget.”
Those “competing strains” were significant. The alleged violations took place in the heart of the Great Recession when Kansas, like other states, was cutting spending in a scramble to fund the most necessary services.
KPERS’ present situation isn’t quite rosy, but it’s vastly improved. Gov. Sam Brownback and the Kansas Legislature deserve much of the credit for that. Lawmakers in 2012 increased contributions both by employers and employees and set up a plan for new employees effective next year that the governor says will reduce the system’s projected pension debt by $500 million.
Those measures, greater transparency and the fact that the SEC did not allege intentional misconduct contributed to the SEC’s decision not to levy financial penalties. That’s appropriate. The state’s failure to reveal pertinent information about the transactions in 2009 and 2010 is instead attributed to ineffective procedures and poor communication between the state’s Development Finance Authority and the Kansas Department of Admin-istration.
The black eye to KPERS and to the state’s image will heal. No less important, tens of thousands of present and former Kansas public employees again have a retirement system worthy of their trust.