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Archive for Sunday, February 8, 2004

Deeper in debt

Legislative decisions in the mid-1990s have contributed to what many Kansans may consider an uncomfortable level of state debt.

February 8, 2004

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The Kansas Constitution bars the state from spending more money than it has -- but that doesn't mean Kansas is debt-free.

In fact, the state's debt -- and the amount it must budget each year to service that debt -- is growing at a rate that some people may find disturbing. According to state budget figures, the amount the state must budget each year to work toward retiring its debt has more than tripled in the last decade, rising from $78.8 million in 1994 to $278.4 million in the last fiscal year.

And proposals in this year's budget will add to that debt. In fact, just two major proposals will add $965 million to the load.

The governor's budget includes a proposal to give the Department of Transportation authority to issue $465 million in bonds to allow it to move forward on the state's Comprehensive Transportation Plan approved in 1999. Because of state budget shortfalls, KDOT has received none of the general fund money it was promised for the last three years. The only way to keep the department on track is to either find new tax revenue or issue bonds. In an election year, bonds are the obvious choice.

State leaders also approved last week the issuance of $500 million in bonds to shore up the Kansas Public Employees Retirement System. The funds will be used to try to whittle down the nearly $3 billion gap between future pension obligations and current assets.

The nine-member State Finance Council that approved the KPERS move is made up of Gov. Kathleen Sebelius and legislative leaders. The lone vote against the plan was cast by House Minority Leader Dennis McKinney, D-Greensburg, who said the action was too risky.

Many Kansans might agree. The KPERS fund is in trouble now because of the inadequate contributions from the state and the downturn in the stock market. The state now plans to sell $500 million in bonds and hope that the return on its investment exceeds the amount required to service the debt. What happens if the stock market plummets again? The state could be left with lower-than-expected revenue but an obligation to not only fund KPERS but pay off the debt.

Although McKinney voted against the KPERS plan, he said Friday it probably would work. His concern with both the KPERS and KDOT proposals is the philosophy that left the state in its current financial predicament.

The state should control its debt by paying it down in good economic times so it can take advantage of lower interest rates and continue projects during bad economic times. Rather than paying down debt when economic times were good in the mid-1990s, however, the state chose to cut taxes while continuing to spend. That meant that in the tougher economic times that followed, the state was stacking new debt on existing debt.

The need to pay debts in the good times in order to weather the bad times is something anyone who lived through the Great Depression understands, McKinney said, but when today's legislators look at state finances, they too often don't look beyond the next election.

The KPERS and KDOT bonds probably are necessary at this point to dig the state out of its financial hole, but the debt the bonds create makes some Kansans a little uncomfortable. Hopefully, legislators will remember the discomfort of having to dig the state out of debt when good times come again.

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