October 19, 2016
Kansas’ bond debt has jumped nearly $4 billion over the past 20 years — more than tripling the level seen in the late 90s.
At a time when the state struggles to keep its budget balanced, the increasing amount of debt often escapes notice, especially now as Democrats and Republicans fight over legislative seats ahead of the November election.
The bond debt has increased under both Republican and Democratic governors, and now stands at more than $5 billion, but is not solely dependent on executive decisions. In fiscal year 1997, the debt was $1.1 billion. By fiscal year 2017, it had ballooned to $5 billion, according to a chart produced by legislative researchers.
The chart shows that from fiscal year 1997 to 2017, the total amount of bond debt increased by 336.4 percent, or $3.8 billion.
The national debt often plays into political debates, but state-level debt doesn’t draw the same level of attention. Kansas is required to have a balanced budget every year, but that doesn’t stop the debt from building.
Debt itself is not necessarily good or bad. Bonds provide the fuel to construct buildings and pave highways. But they also saddle the state with long-term obligations, and can eat into future revenue.
Bond debt for general government, which includes the Department of Administration, Commerce, Insurance and pension bonds, has rocketed upward by 4368 percent over the past 20 years. The debt of the Kansas Board of Regents, which oversees the state universities, rose by 1062 percent.
Bond debt associated with the Kansas Department of Transportation rose 81 percent over the same time period. Human resources, which includes the Department for Children and Families and the Department of Health and Environment, saw its debt increase by 299 percent.
Only public safety – featuring the Department of Corrections, Adjutant General, Highway Patrol and Kansas Bureau of Investigation – saw a decline in its debt load over the past 20 years. The debt is currently 7.2 percent smaller than it was in 1997.
The debt has marched upward during the administrations of Democratic Govs. Kathleen Sebelius and Mark Parkinson, as well as Republican Gov. Sam Brownback. During the Sebelius and Parkinson administrations, 2003-2011, the debt load increased by about 57 percent.
The bonded indebtedness has risen by about 37 percent since Brownback’s first full fiscal year in office. Brownback has a little more than two years left in office.
The debt load was $1.3 billion larger when Parkinson left office than when Sebelius began her administration. Sebelius inherited a debt of about $2.3 billion and Parkinson left with a debt load of about $3.6 billion.
Under Brownback, the debt load is also about $1.3 billion larger than when he entered office. He began his administration with a debt load of about $3.6 billion that currently sits at just over $5 billion.
The debt load dropped some years under both administrations, but the overall trend for the state points up. The debt figures are drawn from a chart produced late last year by the Kansas Legislative Research Department that tracked the percentage change in the state’s debt load between fiscal years 1997 and 2017. Bart Hildreth, a professor at Georgia State University’s Center for State and Local Finance, said compound annual growth provides a better way to examine the debt over time, however.
Hildreth served as the director of the Kansas Public Finance Center at Wichita State University from 1994-2009. After The Topeka Capital-Journal approached him for this story, he produced his own analysis of the state’s debt load using compound annual growth.
According to his analysis, between 1997 and 2017, the state’s bond debt grew at a compound annual growth rate of 7.65 percent. Between 1997 and 2010, the rate stood at 9.62 percent. From 2010 to 2017 it has been 4.07 percent.
‘State credit card’
Sen. Tom Hawk, a Manhattan Democrat, draws a distinction between borrowing to fund projects and borrowing to plug budget holes. More than $1 billion has been transferred out of the state highway fund since fiscal year 2011, even as KDOT issued a record $400 million in bonds in 2015.
“When you use the money to plug holes, then you’re not really creating those jobs, you’re not really stimulating the economy as much and that leads to those credit downgrades,” Hawk said.
KDOT spokesman Steve Swartz said state highway fund debt peaked in December 2015 at $2.059 billion. The agency expects its debt to continue to trend downward in the future, he said.
Kansas also issued a $1 billion pension bond last year. The bond boosted the pension system’s funded ratio, but since then lawmakers voted to allow Brownback to delay a $100 million payment into KPERS until 2018 in an effort to ease budget pressures.
“Investing in the solvency of the KPERS fund, with the addition of $1 billion of pension obligation bonds, is the single largest growth factor during the Governor’s time in office,” Brownback spokeswoman Eileen Hawley said. “This has helped us move KPERS out of the bankruptcy zone and is allowing us to keep our promises to current and retired state workers.”
The KPERS bond issue, as well as the frequent sweeps of the highway fund, have proven divisive. Both have emerged as campaign issues in some statehouse races.
Duane Goossen, a former budget director under Republican and Democratic administrations, said as the budget has deteriorated the state has begun relying more heavily on debt to pay its bills and meets it obligations.
“‘State bondedness’ is code for ‘state credit card debt’. As is the case for working Kansas families, the more debt we have, the worse off we are,” said Goossen, who is now a senior fellow at the Kansas Center for Economic Growth, an organization critical of the state’s tax policy.
The debt level does not depend solely on the governor or lawmakers. It also includes bonds issued by the state universities. The Board of Regents debt has increased from about $69 million in fiscal year 1997 to $799 million in fiscal year 2017.
Regents spokeswoman Breeze Richardson said that “as the availability of state appropriations has diminished, universities have had to rely increasingly on the use of debt to make renovations or repairs to aging facilities.”
How debt affects the budget
Although the bond debt is a long-term, slow-moving issue, current budget challenges can have an effect. In fiscal year 2017, Kansas is expected to pay $124 million in debt service from the state general fund, according to the Division of Budget’s Fiscal Year 2017 Comparison Report.
Earlier this year, the Legislature imposed a cap on the percentage of the general fund that can be spent on debt service. Annual debt service may no longer exceed 4 percent of the average of the state general fund revenues for the previous three years.
According to a 2015 debt study by the Kansas Development Finance Authority, debt service as a percentage of revenue was expected to rise to 2.85 percent in 2017, up from 1.84 percent in 2015. The 2015 study is the latest available.
“The thing to remember about debt: debt is not new revenue. Debt is a lien on future revenue,” Hildreth said. “It’s not like a tax, it’s not like a charge where you’re bringing in new money. This is – you’re bringing in new money and you’re going to have to pay it back with future money.”
No single factor determines how much debt a state can safely afford to take on. The Pew Charitable Trusts is currently conducting a 50-state study of state debt affordability studies. Pew expects to release the research in 2017.
“Not unexpectedly, we’re picking up pretty wide variation in how states think about what debt affordability means,” said Mary Murphy, manager of state and local fiscal health at Pew.
According to a June 2015 study by Moody’s that was cited by KDFA, Kansas ranked 23rd among states for tax-supported debt per person. The study found Kansas has $1,099 in per capita tax-supported debt.
Kansas ranked much higher in debt per capita than its neighboring states. The Moody’s study found the average for surrounding states was $489. The state still ranked below the U.S. average of $1,419.
Borrowing may cost Kansas more in the future after multiple credit rating downgrades. S&P cut the state’s rating in July, the second time in two years. Moody’s also downgraded Kansas in 2014, and put the state in a negative outlook in May.
Budget director Shawn Sullivan told the Associated Press in July that the S&P downgrade was unlikely to affect the cost of borrowing and that the state didn’t plan any major bond issues in the near future.
“I think it has more of a perception-public opinion effect more than anything else, more than a practical effect on our ability to borrow,” Sullivan said.
Goossen said the downgrades have real effects, however.
“Due to the irresponsible and unsustainable tax policy changes of the last few years, Kansas’ credit card debt has grown at an alarming rate and resulted in three state credit rating downgrades,” Goossen said. “This makes it even more expensive for Kansas to issue bonds when we might really need them in the future and damages our economy as a whole.”
Read more from the Topeka Capital Journal here.