The Securities and Exchange Commission on Monday said it would file charges against the state of Kansas, alleging that bond documents failed to disclose just how much of the state’s pension system was underfunded.
The SEC said a series of bond offerings from 2009 and 2010, which raised $273 million for the state, did not disclose the unfunded liabilities owed by the Kansas Public Employees Retirement System. The documents required by the SEC also failed to disclose the amount of debt service payments those unfunded liabilities would require.
The commission blamed a lack of communication between the Kansas Development Finance Authority, which issues the bonds, and the Department of Administration, which provided the information required in the filings.
“Kansas failed to adequately disclose its multibillion-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 amid competing strains on the state budget,” LeeAnn Ghazil Gaunt, who heads the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit, said in a statement.
In the meantime, Kansas has taken steps to correct those communications lapses. State agencies have placed responsibility for future bond information with certain officials, and created a disclosure committee tasked with reviewing investment documents before they are filed.
The charges stem from a nationwide review of municipal bond disclosures by the SEC. The agency has also brought charges against New Jersey and Illinois for failing to disclose information to investors about liabilities in their own pension plans. Kansas did not admit or deny fault when it consented to the SEC’s cease and desist order.
In a statement, Kansas Secretary of Administration Jim Clark said he was pleased the SEC decided against levying financial penalties after the state implemented the procedural fixes, and that Kansas was “committed to complying with all disclosure requirements.” Gov. Sam Brownback (R) said his administration had taken steps to reduce the pension fund’s projected debt by almost half a billion dollars.
It’s the latest blow to Kansas’s bond ratings, which have already been downgraded this year by Moody’s and Standard & Poor’s. Those downgrades had to do with projected budget deficits after a Brownback-supported tax cut left a projected $330 million hole in the state budget.