TOPEKA, Kan. — A major financial rating agency says a structural imbalance in Kansas’ budget is “likely to persist” even after the state increased income taxes to help close projected shortfalls.
The report this week from S&P Global Ratings highlighted the state’s plans to continue diverting highway funds to other spending and to keep shorting contributions to public pensions. Those moves were crucial to balancing the state budget through June 2019, even with the tax increase expected to raise $1.2 billion in new revenue over two years.
“While the state has boosted ongoing revenues through income tax increases, appropriations also have increased, leading to the persistence of structural imbalance in the biennium,” S&P said in the overview of its report, dated Wednesday.
The S&P report came about a month after another major rating agency, Moody’s Investors Service, upgraded the state’s credit outlook to “stable” from “negative” in the wake of lawmakers enacting the tax increase over Republican Gov. Sam Brownback’s veto. S&P took no action on its negative credit outlook for Kansas.
Even as Moody’s upgraded its credit outlook for Kansas, it cited the diversion of highway funds and shorting of public pension contributions as ongoing concerns.
S&P rates Kansas debt as AA-. Moody’s rates it Aa2. The highest S&P rating is AAA and Aaa for Moody’s.
Lawmakers increased rates and eliminated an exemption for more than 330,000 farmers and business owners. In doing so, they rolled back past income tax cuts championed by Brownback.
Legislators have drawn occasionally scathing criticism from Brownback and his administration. Aides have called lawmakers “spend-happy” and said the tax increase to financed “pet projects,” though they have yet to produce a list of offending items for The Associated Press.
“The S&P report refutes claims made by legislators that their record-breaking tax increase was necessary to stop one-time budget fixes,” Brownback spokeswoman Melika Willoughby said in an emailed statement.
Senate Minority Leader Anthony Hensley, a Topeka Democrat, said it’s not surprising lawmakers still used some one-time fixes because Brownback’s past tax cuts “dug such a deep hole for us.”
“We have begun the steps toward recovery,” Hensley said.
Legislators also phased in a $293 million increase in spending on public schools over two years in response to a Kansas Supreme Court ruling in March that said the state’s $4 billion a year in aid was inadequate. The court is reviewing the new school finance law, and S&P said “uncertainties” about education funding remain as a result.
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