S&P leaves Kansas' rating unchanged, stable outlook

Posted by Peter Hancock January 21, 2013 at 12:01 p.m.

S&P leaves Kansas' rating unchanged, stable outlook

Not all credit rating services are seeing a gloomy outlook for the state of Kansas in light of a recent court ruling about school finance.

Standard & Poor's confirmed last week that it has not changed its credit rating outlook for Kansas in light of the decision in Gannon vs. Kansas.

"We have not issued any outlook or ratings changes due to the court ruling on school finance. Kansas remains AA+ with a stable outlook," an S&P spokesman said in an email to the Journal-World.

On Jan. 11, a special three-judge panel ruled that the Kansas Legislature had failed to meet its constitutional duty to provide suitable funding for public schools. It ordered the Legislature to increase base state aid to schools by at least $442 million, or $654 per pupil. The panel also declared the system of levying local taxes for capital outlay budgets unconstitutional unless the state resumes funding "equalization" aid for those funds to reduce wealth-based disparities between districts.

Last week, in its weekly market outlook report, Moody's Investors Services said the Gannon decision, in combination with recent income tax cuts, cast a negative cloud on the state's financial picture.

"Although subject to appeal, this ruling is credit negative for Kansas (Aa1 negative) and underscores challenges the state faces as it tries to offset revenue losses from the income tax cuts it enacted last year," the report stated.

Those credit ratings can have a direct bearing on the interest rates investors charge on new debt issued by the state. They can also affect the market value of existing debt when institutional investors try to buy or sell existing bonds.