Thanks to Gov. Sam Brownback and his legislative backers, your child or grandchild born this year will still be paying off a new $1 billion state debt in the year 2045. Of course, this assumes your children and grandchildren will choose to live in Kansas and take on the financial burden state lawmakers are placing on them.
With this new debt, Kansas taxpayers are now saddled with a total debt load of more than $4 billion, by far the highest in state history and a jump of about one-third over current borrowing. Debt recently authorized by lawmakers but not yet issued could bump these figures up even higher.
State decisions on taxing and spending draw public attention because of their immediate impact on our pocketbooks. Yet bonded indebtedness represents fixed obligations that reorder state taxing and spending priorities for the long term and, therefore, requires careful public scrutiny.
Most Kansans may not be aware that state government has been aggressively using debt to meet its obligations for the past 25 years. As of last year, the debt burden of Kansas taxpayers was more than twice that of surrounding states in terms of per capita debt and debt as a percentage of personal income. The new debt will boost those numbers further.
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So why are state lawmakers so hell-bent to borrow another billion dollars? They are gambling that state officials can invest proceeds from the $1 billion bond issue in marketable securities that will earn better returns than the interest charged on the debt – at least over the long term. Their betting scheme may carry less risk than playing games in the state lottery or at a casino, but it could backfire on Kansas taxpayers.
The real story here is that the governor and his legislative coalition want to borrow a billion dollars in order to reduce state pension obligations this year and next, and in doing so help pay for the revenue lost from state income tax cuts. But their borrowing is projected to pay for less than $50 million of the tax cuts over these two years, well less than one-half of 1 percent of the state’s biennial budget. This speculative venture represents another act of financial desperation designed to rescue for two more years the risky, ill-advised tax cuts of 2012 and 2013.
Without question the state’s deteriorating financial condition has elevated the state’s risks. National rating agencies downgraded state credit last year, and last month Moody’s graded the planned pension debt down one step from a similar bond issue in 2004, citing “the structural imbalance in the state’s budget and reliance on interfund borrowing, as well as an underfunded pension plan.” These downgrades translate into higher interest costs that narrow the potential for any state benefit.
Last week Moody’s took the additional step of warning that the new debt would do little or nothing to alleviate the state pension’s unfunded liability of $9 billion.
Further, state lawmakers have played fast and loose with highway debt in recent years. During the Brownback administration alone, $450 million in new highway debt has been issued, but that amount plus another $750 million has been swept from the highway fund to help pay for current obligations, such as state income tax cuts for the wealthiest Kansans, rather than highway improvements.
Growing debt levels will skew state priorities and have long-term costs for Kansans. Repaying bonded debt immediately becomes the state’s highest spending priority, leaping past school and university funding, highways and assistance to vulnerable Kansans. Further, repaying debt may foreclose taxing options such as reducing property taxes or eliminating the state income tax. Future state borrowing will be more constrained, and the recent warning by Moody’s may signal another credit downgrade for the state.
Finally, mounting debt will hasten the shift of state obligations and tax burdens onto future generations. So, while you are enjoying this year’s tax cuts, remember to thank your children and grandchildren, who will be paying for them for many years to come.
H. Edward Flentje is professor emeritus at Wichita State University.