The hits just keep coming regarding the recently passed Kansas state budget. The desired "glide path to zero" for income tax obligations already has universities, Head Start programs, arts groups and others scrambling to replace lost support. Starting next week, the state sales tax scheduled to drop back to 5.7 percent instead will increase to 6.15 percent -- permanently.
This week we discover Moody's Investors Service is not impressed with Topeka's willingness to eliminate more than 40 percent of its general fund revenue source. According to the Kansas Economic Progress Council, Moody's has given a "super downgrade" to bonds issued through the Department of Commerce's IMPACT program.
The Investments in Major Projects and Comprehensive Training bonds dropped three levels Tuesday from Aa3 to A3. The new rating gives a "negative outlook" to bond-holders on approximately $200 million of outstanding debt.
Why? Moody's reported: "Because IMPACT program bonds are backed by a statutory allocation of revenue from income tax withholding, efforts to eliminate the state income tax without defeasing the debt or substituting a new revenue source will expose bondholders to risks greater than previously anticipated."
The IMPACT program has helped Sprint Nextel, Cessna, General Motors and Amazon create or retain more than 93,000 jobs in Kansas. The bonds are meant to be paid off with income tax withholding on those very jobs. Without income tax, the bonds can't be paid off.
That won't sit well with investors. And, if the Legislature doesn't create a new revenue source to pay for the bonds, then Moody's will downgrade them even further.
We are not surprised by the investment organization's move. Neither should the governor nor any of the lawmakers who've supported the moves to starve state government.
Almost fittingly, one of the Kansas Commerce Department's requirements for companies to take advantage of the IMPACT program is that "a company must show financial strength adequate to accomplish the goals of the project. In addition, a firm must be current with its state tax obligation and with repayment to other state and local economic development programs ..."
It's too bad the state itself now finds itself in a position of inadequate financial strength to pay off the bonds.
The unintended consequences keep mounting. Concerns about where this glide path will lead are warranted.
Editorial by Patrick Lowry