Kansas bond rating downgraded after tax cuts


Kansas Gov. Sam Brownback, center, chatted with Lt. Gov. Jeff Colyer, left, and U.S. Sen. Pat Roberts, right, in May in Topeka, Kan. (AP Photo/John Hanna)

An ambitious plan to cut income taxes in Kansas will end up costing the state more money than it initially estimated after a key ratings agency downgraded the state’s debt on Wednesday.

Standard & Poor’s cited structural imbalances created by the tax cut in its decision to slice Kansas’s bond rating from AA+ to AA. That means Kansas will have to offer a higher interest rate to lenders when it issues new bonds.

The package of tax cuts, backed by Gov. Sam Brownback (R) and his conservative allies in the state legislature, was never offset with equal spending cuts, S&P said Wednesday. The lost revenue is expected to eat up much of Kansas’s budget reserves during this fiscal year; S&P said it expected the state to face a $333 million budget shortfall this year.

“In our opinion, there is reason to believe the budget is not structurally aligned,” S&P analysts wrote.

S&P is the second ratings agency to reduce Kansas’s bond rating this year. In May, Moody’s Investors Service reduced its rating from Aa1 to Aa2 after state budget officials said tax revenue had plummeted by 45 percent over the previous year. Moody’s also said it was concerned the state would be required to shell out more than $100 million in mandatory spending on schools.

In May, Brownback laid blame with the federal government for the lower tax revenue, thanks to the fiscal cliff of 2012. Wealthy taxpayers moved income into 2012 to avoid paying higher taxes after the deal to keep the government functioning, leading to higher-than-expected state tax revenues in 2013 and lower revenues in 2014.

“What we are seeing today is the effect of tax increases implemented by the Obama administration that resulted in lower income tax payments and a depressed environment,” Brownback said at the time.

The ratings cuts could be a blow to Brownback, who faces a surprisingly difficult race for reelection against state House Minority Leader Paul Davis (D) this November.

Reid Wilson covers state politics and policy for the Washington Post's GovBeat blog. He's a former editor in chief of The Hotline, the premier tip sheet on campaigns and elections, and he's a complete political junkie.
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