Outlook for Kansas DOT Bonds Goes Negative

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In response to an additional $553 million in planned transportation projects being delayed because of the state’s budget crunch, Moody’s Investors Service downgraded its outlook for Kansas highway bonds from stable to negative. Gov. Sam Brownback, with the consent of the Legislature, has shifted more than $1.4 billion from Kansas’ Department of Transportation to the state’s general fund since taking office in 2011.

The $553 million includes 14 projects in fiscal 2017 that cost $271 million, nine in fiscal 2018 that cost $247 million and two in fiscal 2019 that cost $35 million.

Moody’s said the revised outlook “reflects the downward pressure on the state’s general credit quality … “By continuing to balance its budget with unsustainable nonrecurring resources, including pension underfunding, it is accumulating large and expensive long-term liabilities that it will be paying off for a long time.”

KDOT spokesman Steve Swartz noted that Moody’s maintained the Aa2 rating of the department’s bonds.

“That’s important,” Swartz said. “We don’t have any plans to issue any more bonds through fiscal 2017, so there’s no impact on our cash flow or on any [additional] projects. [But] this is definitely not a trend that we want to see continue. My understanding is that KDOT bonds would still be a pretty good buy, but the cost of getting that money would be a little more expensive.”

The ratings agency isn’t alone in its view about Kansas’ creditworthiness. When Kansas announced last month that it anticipated a revenue shortfall of more than $200 million in fiscal 2017, Standard & Poor’s placed the state’s AA rating on its watch list, hinting at a possible downgrade.

Those opinions came on the heels of KDOT issuing a record $400 million in bonds in December under a temporary law that allowed it to borrow more than 18% of its revenue.