TOPEKA, Kansas (AP) — Administration officials remain confident that Kansas will retain a strong credit rating despite a recent downgrade on previously issued bonds and concerns about the impact of cuts to state income tax rates.
Moody’s announced June 25 that it was downgrading nearly $200 million in outstanding debt in a Kansas Department of Commerce’s program known as Investments in Major Projects and Comprehensive Training, or IMPACT. The program was placed under watch for possible downgrade in March.
The downgrade lowered the rating on the bonds from Aa3 to A3 with a negative outlook, meaning analysts at Moody’s see the potential for increased risk based on state policies.
Eileen Hawley, spokeswoman for Republican Gov. Sam Brownback, said Friday that the state’s bond health is good, confirmed by recent ratings by both Moody’s and Standard & Poor’s. Moody’s has given Kansas an Aa1 rating while Standard & Poor’s rates the state AA+.
Hawley said while Moody’s has raised concerns about the IMPACT bonds, the state has other revenue sources to repay those obligations.
“Kansans pay their debts, and so will their state government,” Hawley said. “However, reducing taxes and allowing Kansans to keep more of their own money is a better fiscal policy than high tax rates and more borrowing. We are confident about the continued strong issuer credit rating for the State of Kansas.”
But House Minority Leader Paul Davis, a Lawrence Democrat, said any increased cost to borrowing money was another example of why income tax cuts enacted in 2012 and 2013 were wrong.
“Since the Brownback tax plan was signed into law, sales taxes are up, property taxes are up, utility rates are up, college tuition costs are up, while school funding is severely down,” Davis said. “The price of Sam Brownback’s narrow agenda is just way too steep for everyday Kansans to bear.”
Kansas stopped issuing bonds in the IMPACT program effective Dec. 31, 2011, replacing it with another program. IMPACT was aimed at providing training to new workers or workers who would otherwise be displaced from their jobs. The bonds are repaid through income taxes collected on the workers who received the training.
Dan Lara, spokesman for the Kansas Department of Commerce which administers the program, said the downgrade didn’t have an immediate effect on the bonds that have been issued.
“We are working on ways to improve the bond rating and mitigate any future issues that may come up so this situation does not become a wider problem for the state,” Lara said.
Moody’s said the recent income tax cuts put bondholders at risk unless another revenue source to repay the debt is substituted by the state.
Bernie Koch of the Kansas Economic Progress Council said the change in the bond rating was “a black eye for Kansas.”
Koch said the downgrade was of particular note because it skipped more than one level of rating when it was reduced. He said the council warned legislators about the impact of the tax cuts on bond ratings when the cuts were being debated.
“This should have been expected,” Koch said. “I’m afraid this is just one of many negative consequences we will discover as the result of the movement toward eliminating state income taxes.”
Kansas has seen its bond rating cut in the past decade as the economy took a downturn.
The state and national economies were slowing in 2001 then accelerated following the events of the 9/11 attacks and declines in the stock market. The Kansas aviation industry was struck hardest when sales dried up, costing the state thousands of manufacturing jobs. Credit agencies cut the state’s rating as Kansas relied on one-time sources of revenue to fund government operations until resources rebounded.
In 2010, Kansas raised the state sales tax rate to 6.3 percent from 5.3 percent to boost revenues during the Great Recession. Brownback and the GOP-controlled Legislature maintained part of that increase in the 2013 tax changes, reducing the rate to 6.15 percent along with other tax adjustments, to generate an estimated $777 million over the next five years.
Copyright 2013 The Associated Press.