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GOP imperils Kansas finances

H. Edward Flentje

By A Contributor

“I place economy among the first and most important virtues, and public debt as the greatest of dangers to be feared. To preserve our independence, we must not let our rulers load us with perpetual debt.” —Thomas Jefferson

The radical Republicans who now rule Kansas often hail Jefferson as an icon of their small government dogma but have not heeded his warning.

In their struggle to clean up the financial mess they created a year ago, Gov. Sam Brownback and his political allies focused on taxes and spending and gave little attention to the impact of their actions on state borrowing. Their inattention could damage the state’s credit ratings for the long term.

Kansans may not be aware that over the past 25 years, state gov-ernment has aggressively issued debt to address its obligations. As of last July , the state had $3.2 billion in tax-supported debt on its balance sheets, an amount that is more than twice that of our surrounding states, both in terms of per capita debt and debt as a percentage of state personal income.

Brownback has continued along this path. He has signed off on $660 million in new tax-supported debt and plans to issue another $360 million this year and next. In addition, he has supported $580 million in new borrowing financed by other state revenues.

Kansas has historically man-aged its debt professionally and maintained rock-solid credit ratings. However, Brownback’s perilous tax experiment has placed state finance on an unsustainable course, with state government now projected to spend more than it takes in this year and each of the next four years until it goes underwater in a sea of red ink. And shaky finances will assuredly weaken the state’s borrowing capacity —eroding credit ratings and raising the cost of borrowing.

Moody’s, one of the nation’s most reputable credit rating agencies, issued state law-makers a shot across the bow last week with an unprecedented three-step downgrade of $200 million in economic develop-ment bonds secured by state income taxes. The value of those Kansas securities plum-meted immediately, and any investor holding these bonds will face huge losses in trying to sell them.

Another canary-in-the-mine alert came a few weeks earlier when Moody’s gave investors a “negative outlook” on $14 million in state bonds issued in 2010 to finance student union improvements at Emporia State University.

Moody’s cited “flat state funding” as one of the factors in its warning, likely unaware that just days earlier state lawmakers had cut the university’s tax support by $1.5 million, or nearly 5 percent in the current year.

The budget cuts required to finance Brownback’s income tax cuts will increasingly draw the scrutiny of credit rating agencies and inevitably diminish the state’s credit. Investors will become more wary of Kansas state debt, and borrowing costs will edge upward.

State lawmakers have also embarked on a slippery slope by applying bond proceeds from long-term debt to pay for current obligations. This egregious practice was begun in 2009 to deal with the economic down-turn but has been continued by Brownback for his pur-poses.

For example, last December, the state issued $200 million in highway bonds, and one month later Brownback applied those and prior bond proceeds to pay for an array of opera-tional expenses in his two-year budget, including $248 million for school finance and $10 million for mental health. Republican legislators gave their approval. 

In essence, the state highway fund has become a finance play pen for lawmakers.  They could apply excess highways funds to improve roads or pay off existing debt. Instead, Kansans will be paying sales taxes, gas taxes and vehicle registration fees into the highway fund for the next 20 years in order to pay for income tax cuts in the current fiscal year and next. Even with this per-version of state finance, Brown-back’s risky tax experiment continues on an unsustainable course. 

Jefferson would be appalled.


Flentje is a professor at Wichita State University.

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