Credit agency critical of Kansas’ budget outlook

Projected budget shortfalls and a district court ruling on school funding could lead to a further downgrading of Kansas’ bond rating, Standard & Poor’s said Friday.

The state faces projected budget shortfalls of more than $710 million in the current budget and for the 2016 fiscal year.

Standard & Poor’s, which downgraded Kansas’ credit rating in August – just months after Moody’s Investor Services lowered it – said Gov. Sam Brownback’s plan to address the current budget’s shortfall does not appear to “significantly address the mismatch between recurring revenues and expenditures.”

“In our view, the proposed budget adjustments, if enacted, would result in a state general fund balance position broadly consistent with our expectation in August 2014, when we lowered our rating on Kansas to ‘AA’ from ‘AA+’ and assigned a negative outlook, although it would appear that the state’s structural imbalance has grown,” Standard & Poor’s said.

S&P analyst David Hitchcock said Friday that there’s a relatively large structural gap that will have to be closed for fiscal 2016, which begins July 1.

That and uncertainty about a Shawnee County District Court panel’s ruling last month that current school funding needed to be at least $500 million more per year contributed to S&P’s negative outlook for the state’s finances, he said.

A negative rating outlook means there’s a one-in-three chance that the state’s bond rating will be downgraded in the next two years, Hitchcock said.

In response, Brownback’s office said Friday that he intends to present a “structurally balanced budget proposal” next week for the next two fiscal years.

Last month, he announced a plan to address a $279 million shortfall in the current budget that relies heavily on diverting revenue from other funds to help finance general government programs.

The plan is a short-term measure that allows Brownback to lessen potential spending cuts for now. But absent a long-term solution, the gap between anticipated revenues and spending in the next fiscal year will widen to $436 million, according to the projections.

The budget gaps arose after aggressive personal income tax cuts enacted at Brownback’s urging in 2012 and 2013 aimed at stimulating the state’s economy. The reductions are expected to save taxpayers $1.3 billion in the current and next fiscal years.