Moody’s Investor Service has labeled Gov. Sam Brownback’s veto of a proposed tax hike as credit negative, saying the tax increase would have “gone a long way toward resolving Kansas’ fiscal troubles.”
Moody’s, which rates the credit worthiness of the state’s bonds, is most concerned about the state and future financial obligations, particularly its underfunded pension obligations. Moody’s has downgraded the state’s bonds in recent years and gives Kansas an Aa2/negative outlook, which means it’s more likely to be downgraded than upgraded.
The report said the income tax increase approved by both the Kansas House and Senate but vetoed by Brownback would have generated more than $450 million of additional revenue annually, 8 percent of total revenue, which would have closed most of the budget gap. The state’s budget shortfall is more than $600 million – a $350 million general fund shortfall, a $250 million transfer from the highway fund, plus ongoing pension underfunding, according to Moody’s.
The company said the state does have a decent economy and moderate long-term liabilities and has the ability to solve its problems.
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“We still expect the state to resolve its fiscal problems eventually, although the longer its budget remains out of balance, the greater the risks to its credit quality,” the report said.
Brownback’s comunications director, Melika Willoughby, responded in an e-mail that the veto was necessary.
“Governor Brownback believes hiking taxes on working Kansas is both punishing and unnecessary. Instead, his proposed balanced budget – currently sitting before the legislature – solves the challenges of today and has solutions for tomorrow.”