Kansas gets positive rating outlook from Moody's

Moody's Ratings revised its outlook on Kansas' ratings to positive from stable, citing the state's improving governance profile, which incorporates a trend of budgetary reserve fund maintenance and increasing pension contributions.

The outlook change announced Wednesday affects Kansas' Aa2 issuer and highway revenue bond ratings, as well as the Aa3 rating for bonds payable from annual general fund appropriations. Moody's said the Aa2 issuer rating is supported by a budget stabilization fund equal to about 20% of general fund expenditures, along with substantial ending fund balances.

"Tax reduction initiatives have remained a key legislative objective, but fiscal impacts of recent policy changes should be manageable, provided the state adheres to statutory guardrails and uses its careful revenue monitoring and management to address adverse conditions when they materialize," the rating agency said.

In 2024, Kansas shrank the number of individual income tax brackets to two from three, reduced the top rate to 5.58% from 5.7%, exempted Social Security payments from state taxation, and increased tax deductions.

Last year, the lawmakers overrode Gov. Laura Kelly's veto of legislation to further reduce tax rates under certain conditions.

Kelly, a Democrat who will leave office in January after serving two terms, said the positive outlook reflects "hard work done over the last eight years," including ending the use of Kansas Department of Transportation funds to plug budget gaps, building a $2 billion rainy day fund, tapping surpluses to pay for one-time projects, and paying the state's bills on time.

"We must remain fiscally disciplined if we are to continue on this strong economic path," she said in a statement.

The governor in April reluctantly signed the Republican-controlled legislature's $26.8 billion fiscal 2027 all-funds budget that includes $10.7 billion in general fund spending, after making line-item vetoes.

"Once again, the legislature completely ignored my statutorily-required budget proposal that would have put our state back on track to a structural balance between revenues and expenditures," she said.

S&P Global Ratings rolled its positive outlook for Kansas' AA-minus rating down to stable in March 2025 due to the income tax cuts and "potential actions taken at the federal level that could create a weaker revenue environment and budget pressure for the state."

The state has an AA rating and stable outlook from Fitch Ratings.