DALLAS – The outlook on Kansas' Aa2 credit rating from Moody's Investors Service fell to negative Tuesday.
"The revision of the state's outlook to negative from stable reflects the ongoing difficulties it is having restoring structural balance to its budget and getting on a path to sounder funding of its pension liabilities," Moody's analyst Dan Seymour wrote in the May 3 report.
"By continuing to balance its budget with unsustainable, nonrecurring resources, including pension underfunding, it is accumulating large and expensive long-term liabilities that it will be paying off for a long time," he wrote.
The action came after the state Legislature passed a budget that left wide discretion to Gov. Sam Brownback to make spending cuts.
Final approval came shortly before the Kansas Department of Revenue reported that revenues for April had turned positive after months of sub-par performance. The $4.7 billion in total revenues was $2.6 million more than estimates, which were revised downward last month.
"We are happy to see individual income tax receipts increasing compared to last year, particularly withholding taxes," said Revenue Secretary Nick Jordan. "They are a good sign for the health of the economy,"
Lawmakers based their spending plan on revised estimates of $6.151 billion in revenues for the fiscal year beginning July 1, a decrease of $134.7 million relative to the November estimate.
The new FY 2017 figure is $79 million or 1.3% above the newly revised fiscal year 2016 estimate. Total taxes in FY 2017 are now projected to increase by 3% above the newly revised FY 2016 amount.
The budget assumes that Brownback will cut higher education spending and delay major highway projects as promised last month after the revised revenue estimate.
Brownback also would have to make up to $92 million in as-yet-unspecified spending cuts during the next fiscal year but would be barred from touching aid to public schools.
Joint Budget Committee Chairman Rep. Ron Ryckman of Johnson County said the pledge to protect the schools was a major goal during the budget debates that ended at 3:30 a.m. Monday.
Lawmakers took no action on Democrats' call to close a tax exemption for small businesses. Those tax cuts in 2013 and reductions in income taxes at Brownback's urging have been blamed for the state's chronic revenue shortfalls.
Instead of raising revenue, lawmakers gave Brownback a range of budget-cutting options he offered earlier.
Those cuts will likely include taking $185 million from the Department of Transportation, delaying a $100 million pension payment to the Kansas Public Employee Retirement System and making more across-the-board cuts for state agencies, which will likely include another $17 million hit to higher education.
The highway cuts would delay 25 large projects over three years.
Brownback has until July 1 to decide which cuts to make.
Standard & Poor's placed Kansas' AA issuer credit rating on its watch list for a possible downgrade in April.
"We expect to resolve our CreditWatch within the next 90 days based on the legislature's response to the revised revenue estimates," S&P analyst David Hitchcock wrote. "To the extent we believe long-term structural budget balance will remain challenged, we could lower our rating, which we view as at least a one-in-two possibility."