Kansas budget pressures trigger S&P rating downgrade

Ongoing budget woes in Kansas led Standard Poor’s on Tuesday to downgrade the state’s credit rating by one notch to AA-minus with a stable outlook.

The rating agency, which put Kansas on review for a possible downgrade in April, also dropped the rating on appropriation-backed state debt to A-plus from AA-minus.

“The downgrade reflects what we believe to be structural budget pressures, as reflected by draw downs in reserve levels to what we consider very low levels during a period of national economic expansion, despite four rounds of midyear adjustments in fiscal 2016,” SP credit analyst David Hitchcock said in a statement.

Kansas budget revenue has fallen below estimates in the wake of tax cuts. As a result, the state has tapped its transportation fund and deferred pension payments to boost its budget. Kansas ended fiscal 2016 on June 30 with an estimated $41.2 million general fund balance, which is equal to a slim 0.7 percent of expenditures, according to SP.

It added that a structurally balanced budget with fatter reserves could earn Kansas a higher rating, while further budget and liquidity deterioration could lead to another downgrade.

Eileen Hawley, a spokeswoman for Kansas Governor Sam Brownback, said the state has boosted pension funding and transportation spending.

“It is clear we have additional work to do to put Kansas on more secure financial footing and we look forward to working with the legislature to address higher than anticipated government expenditures, caused in part by court-ordered K-12 spending,” she said in a statement.

Kansas is battling public school districts in state court over funding. The state’s highest court is scheduled to take up the question of adequate funding in September.

(Reporting by Karen Pierog in Chicago; Editing by Matthew Lewis)

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