Credit agency downgrades ratings on Kansas bonds

TOPEKA, Kansas – A second leading bond-rating agency has downgraded its credit rating for Kansas and cited what it calls the state’s “structurally unbalanced budget” following massive personal income tax cuts.

Standard & Poor’s said Wednesday that it is dropping its rating for Kansas to AA from AA+.

At the same time, Standard & Poor’s downgraded Kansas’ annual appropriation-secured debt to ‘AA-‘ from ‘AA’.

“The downgrades reflect our view of a structurally unbalanced budget, following state income tax cuts that have not been matched with offsetting ongoing expenditure cuts in the fiscal 2015 budget,” said Standard & Poor’s credit analyst David Hitchcock. “The negative outlook reflects our belief that there will be additional budget pressure as income tax cuts scheduled in future years go into effect, or if midyear revenue shortfalls resume, although the state recently announced a small positive revenue variance for July.”

Moody’s Investor Services downgraded its credit rating for Kansas in May.

Dr. Malcolm Harris is a finance professor at Friends University. He says the downgrade is no reason to panic. But it could mean the state will have to pay a higher interest rate to finance large capital projects, meaning taxpayers dollars won’t go as far as they did before the downgrade.

“The sky hasn’t fallen in, Kansas can still issue bonds and they are still going to be able to issue bond at a pretty reasonable interest rate.” Harris said.

S&P said in its report that Kansas will probably need to cut spending in the future to offset the income tax cuts. The reductions were enacted that the urging of Republican Gov. Sam Brownback to stimulate the economy.

Brownback noted that the state’s rating remains high and said rating agencies don’t like tax cuts.

Brownback issued this response:

“Breaking our addiction to high taxes and soaring debt is difficult, but necessary if we are to continue growing. We need jobs and we have proven the way to job growth is through lower taxes, as evidenced by the creation of 55,000 new private sector jobs in the past four years and our low unemployment rate.”

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