- Associated Press - Wednesday, May 14, 2014

TOPEKA, Kan. (AP) - Kansas needs to make more spending cuts to offset tax cuts enacted by Gov. Sam Brownback and the Legislature last year, but it won’t be easy, a report released by Moody’s Investor Services this week said.

The report by the debt analysis agency goes into additional detail about why it downgraded the credit rating on Kansas bonds last month and what needs to be done to achieve structural balance in the state’s finances.

Because of tax cuts championed by Brownback, revenues are shrinking and more spending cuts are needed to offset that, Moody's said.

But reducing state spending won’t be easy because of court-ordered school funding, federal mandates in such programs as Medicaid, and legal requirements to fund the state pension system, The Lawrence Journal-World (http://bit.ly/1v3MM4W ) reported.


The Legislature recently increased spending $129 million for education in the 2014-14 school year after the Kansas Supreme Court ruled that past cuts in aid to poor school districts created unconstitutional gaps in funding between poor districts and wealthier ones.

“These constraints could also lead the state to continue to utilize credit-negative actions such as appropriation from other one-time sources like the state highway fund,” the report said.

Last year the Legislature approved and Brownback signed into law reductions in state income tax rates and elimination of income taxes for many businesses, with the rates to continue falling through 2018.

While Brownback has said the tax cuts will promote growth, the Moody's report says Kansas’ economic growth is lagging behind many of its neighbors.

Neither the governor nor Republican leaders in the House and Senate responded to requests to comment on the new report.

Moody's said it doesn’t see lack of a state income tax as a credit risk, but “eliminating a tax that has been in place for many years and has accounted for a large share of revenue entails risks.”

As Kansas removes the income tax, its revenue structure will become more dependent on excise and severance taxes, Moody's said, while the full economic and revenue impacts are unclear.

On April 30, Moody's downgraded Kansas bonds and state highway revenue bonds from Aa1 to Aa2. Only 13 states have that Aa2 rating, 14 have the next higher rating of Aa1 and 15 states have the top Aaa rating. Five other states are ranked at Aa3 or below.

That same day, the state announced revenues for April were $93 million lower than anticipated. The Moody's report said that will put more pressure on the budget because of the tax cuts.

Many lawmakers were shocked by the revenue numbers, with Democrats blaming Brownback for cutting income taxes too much.

Brownback countered that the revenue decrease was President Barack Obama’s fault because wealthy taxpayers filed their capital gains income in the 2012 instead of 2013.

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