Kansas doing better at making tax predictions, Moody’s says

In its latest Credit Outlook report, Moody’s credit rating service took note of Kansas’ improved ability to forecast its tax collections.

It isn’t changing the state’s credit rating – Aa2/negative outlook – but calls the state’s better estimates over the past three months a “credit positive.” So far in the fiscal year starting July 1, Kansas’ revenue is $32 million ahead of estimates. Last year, at this time, it was $26 million behind.

However, the state still faces a $340 million shortfall between now and June 30 that will require action by the Kansas Legislature and Gov. Sam Brownback.

But, Moody’s notes, at least now the state can more accurately cut spending or increase taxes to eliminate the gap, with less of a risk of a surprise.

Dan Seymour, the Moody’s analyst who wrote the recommendation, said Monday there is some slight cause for optimism in state finances: Overall tax revenue increased 1.7 percent in January compared with a year earlier.

But, he said, Moody’s still gives the state a negative outlook, which means it’s more likely to be downgraded than upgraded. The rating affects how safe bond investors consider the bond, which means the state has to pay a higher interest rate to sell it.

The biggest reasons for the negative outlook are the underfunding of the state pension system – which creates a long-term liability that would compete with the state’s ability to repay creditors – and the state spending more than it receives in taxes, he said.

The state would be able to change the outlook – or even raise its credit rating – if the state got its revenue and spending into alignment and showed the ability and the will to start paying down the pension liability, Seymour said.

This story was originally published February 6, 2017 at 12:54 PM with the headline "Kansas doing better at making tax predictions, Moody’s says."