S&P downgrades Kansas bond rating; Brownback pushes back

08/06/2014 11:35 AM

08/06/2014 11:36 AM

News that the state’s credit rating had been downgraded put a damper on Gov. Sam Brownback and U.S. Pat Roberts’ Republican unity celebration Wednesday morning.

Standard & Poor’s lowered Kansas’ bond rating to AA from AA+, citing the state’s unbalanced budget caused by income tax cuts signed into law in 2012.

"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 in a release.

S & P also downgraded the state’s appropriation-secured debt to AA- from AA.

The rating agency gave the state a “negative” outlook on both ratings and projects that the state will face serious budget woes by the end of fiscal year 2015.

"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,” Hitchcock said.

The rating downgrade came to light just minutes before Roberts and Brownback began their dual press conference. Republican leaders had gathered at Republican Party Headquarters in Topeka to promote unity in the party after Tuesday’s primary election.

However, the news of the downgrade undercut Brownback’s proclamations of prosperity.

The governor pushed back against the downgrade, which comes on the heels of a downgrade by Moody’s Investor Services in May that also cited the tax cuts.

He accused the ratings agencies of not understanding the state and making faulty analyses.

“You know breaking addictions to high taxes is hard. That’s a difficult thing to do. And that’s what we’re trying to do, is break addictions to high taxes,” Brownback said.

“We’re putting those dollars back into the economy and the bond rating agencies don’t like you cutting taxes,” he said. “We will repay the bonds to investors. These are still high grade bonds. … It is hard cutting taxes and we are doing it to create jobs.”

House Minority Leader Paul Davis, the Democratic nominee for governor, issued a statement saying the downgrade “is terrible news for Kansas and is further evidence that the Governor's economic experiment has failed. This downgrade will cost Kansans even more money at a time when we can least afford it.”

Republican State Treasurer Ron Estes, who attended the event in Topeka, called the downgrade unfortunate.

“I think S & P is kind of following Moody’s lead. They all kind of want to put the same ratings on there,” he said. However, he said he remained confident about the state’s ability to pay its bills long-term.

“Since July 2011, we’ve paid all of our school bills – which is one of the biggest things that the state’s responsible for – for the full amount on time,” Estes said. “And I expect us to continue paying the bills on time. That’s really what the rating agencies would look for is making sure that your bills are paid on time.”

Senate President Susan Wagle, R-Wichita, who drove up to Topeka for the morning event, suggested that the downgrade was caused partially by the state’s unfunded liability in the pension system.

“The governor inherited that from previous administrations. We are fixing that. We’re getting good news from KPERS,” Wagle said.

However, she said the other question was whether one believes in supply-side economics.

“Do you think it’s better to have money in people’s pockets or money in the government coffers?” Wagle said.

“And we believe here in the state that we want to put it back in people’s pockets and that will ultimately grow the economy as soon as we can get some of these federal regulators off our back,” Wagle said. “And as soon as people have confidence in our economy we’re going to have explosive growth in Kansas.”

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