Kansas Tax Changes Threaten Economic Incentive Bonds' Rating

Moody’s Investors Service has put $220 million of Kansas economic incentive bonds on review for a possible downgrade over uncertainties from falling income tax collections due to rate reductions.

The rating has been supported by long-term stability and growth in state revenues, but recent and proposed tax cuts are threatening growth as well as stability, the Moody’s report said.

“The review for possible downgrade takes into account enacted and potential tax policy changes that we expect to reduce the income tax withholding revenues pledged to the debt,” the analysts said. “Over time, debt service coverage may drop substantially from current levels, putting pressure on the rating, depending on the state’s income-tax policy choices.”

The Kansas Senate has adopted a budget measure that calls for phased reductions in the state income tax rate while the House budget allows the rate to drop only if revenues go up. The differences will be resolved through a conference committee this month. 

The Impact Program bonds, currently rated Aa3 by Moody’s, are issued for the state Department of Commerce by the Kansas Development Finance Authority.

Proceeds from the bonds fund job-training grants for companies moving to Kansas or expanding their operations in the state.

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