January 13, 2017
The budget plan released by the Governor’s office contains an ill-advised idea: sell off dollars that come in to the Children’s Initiatives Fund (CIF) from a settlement with tobacco companies to help close a self-inflicted budget gap. Not only would this move shortchange Kansas kids, but it is extremely risky and would add even more to the state’s current debt load for those same kids in the future.
Securitization, or selling off dollars that Kansas receives from tobacco companies each year, is not sound fiscal policy. It would further jeopardize Kansas’ already unstable finances by increasing the likelihood for another credit rating downgrade, the fourth since the tax plan began. Other states, like New Jersey, have securitized their tobacco settlement money and were given a credit downgrade almost immediately after doing so. Only ahead of three other states, Kansas’ current credit rating is already in the bottom range of the nation.
The tax plan adopted in 2012-2013 has thrown our state into a perpetual budget mess, and securitizing the CIF would add another disastrous layer to our financial crisis by possibly adding hundreds of millions in debt to the state. New Jersey, along with Ohio, have huge debt obligations from securitizing their settlement money; Ohio’s sale of tobacco payments got them almost $320 million in quick cash, but when the repayment on these bonds comes due they’ll have to repay $6.6 billion in total. That’s over twenty times the amount they originally received.
In the governor’s latest budget proposal, we learned that Kansas’ experience would be similar to that of New Jersey and Ohio. The securitization deal that the administration outlined assumes a $530 million payment for a 30-year bond. The state received its first tobacco settlement payment in 2000, and in the last 16 years has received over $975 million. Even as payments decline over time with the smoking rate, it’s likely that we’d be leaving billions of dollars on the table for quick cash now that does nothing to fix the problems caused by the tax plan.
Finally, this proposal is just another ploy to add to a long list of gimmicks – sweeps from the highway fund, cuts to essential public health and education services, and many other small tricks – used to paper over a budget shortfall caused solely by irresponsible tax policy. Securitization will not fix the problem but it will kick the can down the road for future generations – the same ones being shortchanged in this plan.
The only realistic and responsible way to fix the mess caused by the “Kansas Experiment” is through comprehensive tax reform. To learn more about the Rise Up Kansas tax plan, visit www.RiseUpKansas.org. For more information on why Kansas can’t afford securitization, read the issue brief here.