Jan 17 (Reuters) - A court ruling last week that found Kansas is underfunding its public schools is a negative credit factor for the state, Moody's Investors Service said on Thursday.
The ruling "underscores challenges the state faces as it tries to offset revenue losses from the income tax cuts it enacted last year," the rating agency said in a report.
The state has projected the tax cuts will reduce general fund revenue by about $800 million or 13 percent in fiscal 2014, which begins July 1, according to Moody's, which rates Kansas Aa1 with a negative outlook.
In the ruling, the court said it made no sense for the state to argue that its finances were tight and increasing education spending could have "disastrous consequences to the Kansas economy," while it was intentionally reducing revenue by cutting the state income tax.
Governor Sam Brownback blasted the ruling in his state of the state address on Tuesday, saying only the legislature has the power to control state revenue.
He asked legislators to make it "clear in law that defining what is 'suitable provision' for public funding of education is a job for the people's elected representatives - and no one else."
Moody's said the ruling is expected to be appealed to the Kansas Supreme Court. But it noted that if the ruling is ultimately upheld, the state will have to come up with more money for schools and about 63 percent of Kansas' budget would be off-limits for cuts.