By Johnathan Shorman
February 10, 2017
The Kansas budget director rebutted concerns on Friday that selling off annual payments that go toward children’s programs could harm the state’s credit rating, after a ratings agency cited the possibility this week in downgrading its credit outlook.
Gov. Sam Brownback’s budget plan proposes securitizing annual payments received as part of an agreement between Kansas and large tobacco companies that currently funds early childhood programs. Securitizing would produce hundreds of millions of dollars in immediate cash for the budget but would greatly diminish or eliminate annual payments going forward.
S&P issued a lowered credit outlook for Kansas on Wednesday. Its report referenced weak economic trends and structural budget pressures. The ratings agency said pension underfunding and tobacco securitization would place additional pressure on future state budgets.
Shawn Sullivan, the budget director, said S&P was looking at structural balance.
“If I read it correctly, I think what they’re pointing to more is if this were to be used to get through the next two years and separate to this not achieving structural balance of revenue and expenditures — that that would be a credit negative, certainly,” Sullivan said. “That is not what we have proposed.”
Sullivan said the governor’s budget proposal returns the state to structural balance in fiscal year 2019. S&P’s report acknowledged the proposal projects structural balance that year but said the projection doesn’t include continued pension underfunding.
S&P projects pension underfunding will lead to another structural deficit of 2.2 percent in 2019. The ratings agency said Kansas stands a one-in-three chance of a “negative rating action” in the next two years.
“We believe the next two years will remain pressured and the proposed budget does not adequately provide solutions to Kansas’ ongoing structural deficits,” S&P said in its report.
Sullivan made the comments while speaking to the Children’s Cabinet, the group mandated with recommending how tobacco settlement dollars are spent. Cabinet members appeared strongly opposed, or at least highly skeptical, of securitization — though they thanked the budget director for presenting.
So far, lawmakers have shown little interest in securitizing the tobacco settlement, which Sullivan acknowledged. He suggested the Legislature may become more open to the possibility as the session progresses.
“There probably hasn’t been much appetite for discussing this among policymakers in the House or Senate as of yet,” Sullivan said. “We’ll see whether that picks up or increases between now and when the legislative session ends. Right now, every proposal that gets thrown out gets poked at. It’s still early in the session, so we’ll see what we end up with.”
The Senate called off a Thursday debate on budget cuts and tax hikes after Republican leaders realized they didn’t have enough votes to pass the bills. The package didn’t include tobacco securitization.
In the House, a bill with tax increases advanced to the floor on Thursday. It’s not yet known when it might be debated.
At the Children’s Cabinet meeting, Annie McKay, the director of Kansas Action for Children and a cabinet appointee of Senate Minority Leader Anthony Hensley, asked chairwoman Amanda Adkins, a Brownback appointee, whether the group could vote to oppose securitization.
Essentially, Adkins responded that the group could not. But she noted members were already on-record that tobacco funds should go toward children’s programs.
“That puts the cabinet in a position where we’re advocating as opposed to educating on the outcomes of programs, which could be construed as lobbying,” Adkins said. “So what I’ve shared with people is that we’re already very clearly on public record as having made recommendations and having in a much more general way that we believe all of the tobacco settlement dollars should be spent on early childhood programs, and that that is a statement shared by this full group that I think many can take forward.”
McKay then asked that minutes reflect she strongly opposes securitization. Two other cabinet members also asked the record reflect the same for them.
Cabinet members made no mention during the meeting of the absence of Tom Arpke and Echo Van Meteren, two Republicans whom Brownback has appointed to the cabinet. The governor’s office has said in response to questions from The Topeka Capital-Journal that the two won’t be allowed to join for now because Brownback has met the cap on the number of appointees he’s allowed from the same political party.
In response, Democrats have put forward two names to the governor’s office for consideration. House Minority Leader Jim Ward, D-Wichita, said he’s awaiting Brownback’s decision.
“We have submitted the names of two strong Democrats who have great credentials and experience in children’s issues for consideration for appointment to the Children’s Cabinet,” Ward said.