DALLAS – The Kansas Legislature’s vote to override Gov. Sam Brownback’s veto of a $1.2 billion tax increase has already improved the state’s credit profile.

Moody's Investors Service revised the state's outlook to stable from negative Thursday.

Moody's affirmed the state's issuer rating at Aa2, affirmed Kansas Development Finance Authority appropriation bonds at Aa3, and affirmed the Kansas Department of Transportation's highway revenue bonds at Aa2.

Moody's also upgraded the state's IMPACT Program bonds, which are secured by the state income tax, to A1 from A3.

"The revision of the outlook to stable and the upgrade on the income tax bonds is the result of a significant income tax increase the state passed earlier this week," according to Moody's. "The additional revenues from the tax increase will reduce the state's fiscal problems to more manageable dimensions that are consistent with similarly rated states."

Dan Seymour, the lead analyst on the latest Moody's report on Alaska.
“The decision is a significant step in the state utilizing its available economic resources to meet its obligations,” said Moody’s vice president and senior analyst Dan Seymour.

State lawmakers overrode Gov. Sam Brownback's veto of a bill that largely rolls back tax cuts he championed in 2012.

“The decision is a significant step in the state utilizing its available economic resources to meet its obligations,” Moody’s vice president and senior analyst Dan Seymour said in a comment piece earlier Thursday, before the outlook change. “While Kansas must still contend with high unfunded pension liabilities and an unfavorable school funding court decision, these challenges are consistent with other highly rated states and within its ability to manage.”

S&P Global Ratings has a negative outlook on its AA-minus rating of Kansas.

In reversing Brownback’s veto, lawmakers effectively ended the governor’s self-proclaimed “experiment” in supply-side economics that led to deep cuts in income tax rates and elimination of corporate taxes in 2012. In the process, they closed a nearly $900 million budget gap after five years of lagging revenues.

The override by the GOP-dominated legislature came Wednesday, almost immediately after Brownback vetoed what was its second attempt this year to raise taxes to cover the revenue shortfall.

After almost two hours of debate, the Kansas Senate voted to override the veto 27 to 13. Later, on the 109th day of the session, the House did the same by a vote of 88 to 31.

“Lawmakers took a monumental step forward for Kansas today,” said Heidi Holliday, executive director of the Kansas Center for Economic Growth. “To the nation, we’ve been a model of what not to do. Now we will show them the comeback.”

The KCEG, whose leadership includes former Kansas Treasurer Duane Goosen, a Democrat, was formed in 2013 largely in reaction to Brownback’s policies.

Before the override, state budget director Shawn Sullivan reminded lawmakers that failure to resolve the budget impasse would cause problems for state employees within two weeks.

“The FY 2018 for state payroll starts at 12:01 a.m. on June 18,” Sullivan said in a prepared statement. “Without action by the legislature, we do not have the necessary authority to pay state workers, causing difficult decisions to be made regarding the continued operations of state government.”

More bad news came from the state Department of Revenue, which reported that after meeting or exceeding expectations in the past two months, Kansas revenue numbers fell $2 million below estimates for the month of May.

The shortfall was largely driven by lower-than-expected individual income tax collections, officials said.

Sales tax and corporate income tax collections were both higher than expected. The state says the numbers are better than the first 11 months of last fiscal year.

Several key lawmakers said they had faced growing tensions over the need to fund education and to resolve the chronic shortfall.

Rep. Joy Koesten, R-Leawood, told the Wichita Eagle that a group of women in the legislature began meeting to voice their anger and seek a solution to the fiscal stalemate.

“I think our frustration was that nobody had asked us what was important to us,” Koeston said. “So, I think it was very purposeful – that women intuitively understand relationships have to be cultivated before big decisions can be made.”

Brownback, who has not denied reports that he is preparing to join President Donald Trump’s administration, said SB 30 undoes “much of the progress” the state has made under his administration and “will substantially damage job creation and leave our citizens poorer in the future.”

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