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Archive for Wednesday, June 25, 2003

State’s credit rating downgraded

Moody’s reduces Kansas’ outlook from stable to negative

June 25, 2003

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— Continued reliance upon one-time sources of revenue and declining cash reserves have prompted analysts to reduce the state's credit outlook from stable to negative.

Moody's, one of the nation's major credit-rating services, issued a new report on the state Wednesday, citing the state's ongoing budget problems as a concern.

"Moody's expects the state of Kansas will continue to experience budgetary stress in the near future, and we will continue to monitor economic and financial developments over the upcoming months," Moody's said.

It was the second time in 10 months that the state's outlook was downgraded. Moody's still gives Kansas a rating of Aa2, while Standard & Poor's rates Kansas at AA+.

"It's a reflection of the time we're in," said Caroline Cruise, analyst for Moody's.

Downgrading the outlook indicates that investors see more risk in purchasing state debt. Cutting the credit rating would increase the cost of borrowing money by boosting the interest rate the state would have to pay.

Cruise said the next step would be to place Kansas on Moody's watch list, meaning the bond rating is in danger of being cut in the short term. States currently on Moody's watch list are Connecticut and Michigan.

Legislators approved two major bond issues during the 2003 session. The first authorizes $500 million in bonds to be issued to cover liabilities of the Kansas Public Employee Retirement System. The second, also worth $500 million, would be issued to help Boeing Wichita land work on the company's new 7E7 Dreamliner aircraft.

Nicole Corcoran-Basso, spokeswoman for Gov. Kathleen Sebelius, said the governor was advised last fall after the election that most states not just Kansas faced downgradings in their credit outlooks.

"That was why she was so concerned during the session about the ending balance," Corcoran-Basso said.

Kansas began the fiscal year 2003 budget cycle with $12 million in reserve. Twice during the year before he left office, Gov. Bill Graves cut government spending by more than $110 million.

Through reliance on one-time sources of revenue, including delaying state aid payments to school districts and forgoing repayment of funds to the highway program, Kansas is expected to end the fiscal year with as much as $90 million in reserves.

The new fiscal year begins July 1. Legislators and Sebelius have agreed to a budget that allows her to accelerate property tax collections to give a one-time bump in revenue, to end fiscal 2004 with as much as $150 million in reserves.

However, Cruise cautioned that the budget maneuvers left the state with little flexibility.

"We kind of see it as limiting the state's ability to restore the structural balance in the near future, or its ability to respond to downturns," Cruise said.

State Treasurer Lynn Jenkins, a former Topeka state senator, said that while she was concerned about the negative outlook, the message was that everyone in state government needed to focus on improving the bottom line with sound practices.

"This is a different environment than what we are accustomed to in recent economic times," Jenkins aid.

Moody's said all states would benefit, as well, from the recent federal assistance package signed by President Bush, of which Kansas is to receive more than $150 million.

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