Sen. Masterson advised Brownback to withhold information about Kansas’ potential credit downgrade

A Wichita-area lawmaker said Monday he was the one who advised Gov. Sam Brownback to withhold information about a potential downgrade to the state’s credit.

Sen. Ty Masterson, R-Andover, the Senate’s budget committee chairman, made this revelation about an hour into an emotional Republican caucus meeting Monday in which Republican lawmakers weighed overrides to two recent vetoes by Brownback.

The meeting highlighted deep divisions among factions of Republican lawmakers and the Brownback administration as Secretary of Administration Sarah Shipman and Secretary of Commerce Antonio Soave tried to dissuade lawmakers from overriding the vetoes.

An attempt to override one of the vetoes was halted last week when the governor disclosed on social media that doing so could have resulted in a credit downgrade for the state. The bill Brownback vetoed would have barred the Kansas Department of Administration from spending state funds to demolish a state office building in Topeka or to construct a new power plant for the Capitol.

The governor did not include the credit information in his veto message, and most lawmakers were unaware of the possibility.

Rebecca Floyd, an attorney for the Kansas Development Finance Authority, said this was to prevent the information from being revealed in the media, which would have had a ripple in the markets.

“But the governor announced it on Twitter,” Sen. Michael O’Donnell, R-Wichita, said during the meeting.

O’Donnell called the lack of communication by the governor’s office “very insulting.”

The governor’s veto message simply called the bill unnecessary because the construction project had already been canceled. Brownback revealed the concern about a credit downgrade only after lawmakers mounted an attempt to override the governor’s veto on the Senate floor, posting the information on Twitter and sending out e-mails to the media.

Masterson said he had advised the governor to keep the information confidential to avoid “a fistfight in front of the press” because the construction contract for the controversial power plant project in Topeka had already been terminated.

“I take responsibility for that. … I thought a fistfight for no reason wasn’t profitable,” Masterson said. “I suggested just say the deal’s done. Because the deal’s done.”

Masterson said this was poor advice in hindsight.

Lawmakers ejected reporters from the Monday meeting an hour later.

“People can open up when the press isn’t there,” said Senate President Susan Wagle, R-Wichita.

Caucus meetings are not legally required to be open, but closures are rare because Republicans hold enough seats in the Senate to pass veto-proof legislation without any Democratic support.

Several lawmakers exited the meeting after it became closed to the media.

“I want no part in that,” said Sen. Vicki Schmidt, R-Topeka.

Raw emotion

Wagle said closing the caucus allowed lawmakers to vent, but plenty of raw emotion was on display prior to the closure.

Wagle grilled Shipman, the administration secretary, over a 10 percent cancellation fee that was inserted into the construction contract for McCarthy Building Companies for the power plant. Shipman maintained that such clauses are standard in state contracts, but Wagle alleged otherwise.

The state ended up paying the firm $2.1 million for the project even though it never broke ground. It also paid more than $160,000 to Bank of America to exit out of a lease-purchase agreement with the bank, which was being used to finance the project. The agreement was not approved by lawmakers, but the administration maintains it had the legal authority to enter into it.

Shipman said that the bill lawmakers drafted to help force the state out of the contract could have resulted in a credit downgrade because it would have been seen by rating agencies as the state refusing to meet its obligations.

Dennis Lloyd, an attorney with Overland Park-based Columbia Capital Management who was brought along to serve as an expert, said this could have led to the state being downgraded from its AA- bond rating to BBB-, a rating worse than any other state’s.

Lloyd said “the market is hypersensitive” to a perceived refusal to pay debt.

Sen. Jim Denning, R-Overland Park, noted that rating agencies have repeatedly cited income tax cuts, which are Brownback’s signature policies, as a threat to the state’s credit rating. He questioned why those concerns had not prompted similar responses from the administration.

Denning called the controversy over the power plant project “a pimple on an elephant’s butt” compared to the elephant the governor was ignoring.

Denning urged lawmakers to override another veto by Brownback to a policy that was meant to prevent the governor from using sales tax revenue bonds to lure the American Royal, a Kansas City, Mo. event involving barbecue contests and rodeos, across the Kansas state line.

The STAR bonds program allows municipalities to use sales tax revenue generated from tourist attractions to pay off the bonds that were used for development. Denning and others say the program has diverted sales tax revenue that would have otherwise gone into the state’s general fund and that the program needs more transparency.

Soave, the commerce secretary, said the administration supported making reforms to the STAR bonds program but that Denning’s proposal, which would apply only to Wyandotte County, could hamper development in blighted areas.

The Senate will hold a debate Tuesday on a separate bill that would bring some transparency reforms, including a restriction to the program. Masterson said it might be wiser to hold off on the override while that legislation moves forward.

The Legislature has 30 days to override a veto. Votes to override either veto would have to take place by the end of next week before the Legislature goes on a monthlong break.

This story was originally published March 14, 2016 at 5:52 PM with the headline "Sen. Masterson advised Brownback to withhold information about Kansas’ potential credit downgrade."