Interest-only payments concern Kansas lawmakers, who want more oversight of state finances

Lawmakers surprised by recent financial decisions made by Gov. Sam Brownback’s administration say they want tighter control of the state’s finances.

Senate President Susan Wagle, R-Wichita, said in a statement that she and her colleagues “have serious heartburn” over aspects of recent deals.

The Kansas Department of Transportation recently issued $400 million in bonds, arranging to pay only interest on the bonds for the first decade. Borrowing by KDOT has risen to more than $1 billion since 2011.

And the Kansas Department of Administration recently agreed to a $19.9 million lease deal with Bank of America.

Wagle said lawmakers were upset to learn “that interest-only payments are being made on long-term debt and a lease-to-own agreement with Bank of America has been signed without legislative approval. We are pursuing legislation to ensure legislative oversight over principal and interest payments, collateral agreements and long-term leases.”

On the most recent KDOT bonds, the state will pay $184.5 million in interest through June 2025. It will then owe $498 million between July 2025 and September 2035, a figure that reflects the principal and the remaining interest.

Steve Swartz, spokesman for the agency, said in an e-mail that this “provides relatively level debt service over our bonding portfolio through 2023” and that by “having consistent debt service, we can better plan for and manage the KDOT budget.”

Swartz said that when other bonds are taken into account, KDOT’s overall bond obligations will begin to decline in 2024.

Common practice

KDOT Secretary Mike King said many states use this strategy, calling it common practice “to level your total debt load.”

Matt Fabian, a Connecticut-based analyst with the firm Municipal Market Analytics, called it “wrapping the new bonds around the old bonds.” He agreed it was a common practice but said it will be important to watch what projects the bonded money funds and whether they have a longer life than the bonds.

“You have to see to what extent are they actually trying to keep things stable and to what extent are they just backloading expenses to subsidize the near-term budget,” he said.

Lawmakers of both parties have raised concern about paying only interest up front.

Senate Minority Leader Anthony Hensley, D-Topeka, one of the governor’s fiercest critics, called it “Brownback’s ponzi scheme.”

“You are leaving a bill to pay for future Legislatures,” he said. “Very irresponsible and sneaky, to be quite blunt about it.”

Eileen Hawley, the governor’s spokeswoman, responded in a statement: “The Department of Administration and Department of Transportation acted well within their legal scope of authority. The Governor is happy to review legislation improving legislative oversight.”

Power plant deal

The Department of Administration agreed to a 15-year $19.9 million municipal lease arrangement with Bank of America on Dec. 29 to finance the construction of a power plant for state office buildings in Topeka.

The deal did not go before a legislative committee for approval, and some lawmakers have voiced concern that they were not informed. The agency said Tuesday that it has the power to enter into lease agreements for state business and disputed that it had not informed lawmakers throughout the process.

Rep. Ron Ryckman, R-Olathe, said the issue will be brought up at a meeting of the House Appropriations Committee on Tuesday. He also said that he and Rep. Mark Hutton, R-Wichita, are working on a bill to address the issue.

“This situation demonstrates that we as lawmakers need to provide more guidance and ensure accountability for taxpayer dollars,” he said. “Better oversight of the state’s bonding activities is just one of the many ways we are working to improve state government.”

This story was originally published January 25, 2016 at 8:34 AM with the headline "Interest-only payments concern Kansas lawmakers, who want more oversight of state finances."