Jamie Manoles, Director
Oklahoma Capitol Improvement Authority
Oklahoma Capitol Improvement Authority
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New York, March 20, 2025 -- Moody's Ratings (Moody's) has assigned a Aa2 rating to
the State of Oklahoma's approximately $275 million State Highways Capital
Improvement Revenue Bonds, Series 2025A (Oklahoma Department of
Transportation Project), to be issued through the Oklahoma Capitol Improvement
Authority (OCIA). We maintain a Aa1 issuer rating on the state. The outlook is stable.
State Treasurer Todd Russ alongside a delegation of Oklahoma leaders, recently traveled to New York City to meet with the nation’s leading credit rating agencies—S&P Global Ratings and Fitch Ratings. These strategic meetings highlighted Oklahoma’s improving economic outlook and the state’s efforts to strengthen its bond ratings.
“Oklahoma is thriving, and we are telling our story on a national stage,” said Treasurer Russ. “Our conservative fiscal policies, historic reserves, and robust economic diversification are being recognized. Meetings like these are critical in demonstrating our financial progress and ensuring the best possible outcomes for Oklahoma taxpayers.”
This marks Treasurer Russ’ third coordinated outreach with the leading credit rating agencies, building on previous efforts. By fostering ongoing dialogue, state leaders continue to highlight Oklahoma’s commitment to fiscal discipline and economic innovation. In 2024, Moody’s upgraded Oklahoma’s credit rating to Aa1, the second-highest possible rating, citing strong reserves, low debt, and prudent fiscal management. Earlier, S&P Global and Fitch Ratings both revised the state’s outlook to positive, emphasizing economic stability and resilience.
"Oklahoma has one of the strongest economies in the nation, as is reflected in our high credit ratings," said Lt. Governor Matt Pinnell. "Our state balances having both minimal debt and strong reserves with the lowest costs of living and doing business, making us the most pro-business state in the country. With our strong financial standings, Oklahoma is set up for long-term financial success to impact generations to come."
The trip also allowed state leaders to provide updates on key financial strategies, including Oklahoma’s proactive approach to pension funding, debt reduction, and leveraging economic diversification to counter volatility in energy markets.
“We were able to show that Oklahoma’s economy has done well, and our fiscal house is in order, which will hopefully lead to increasing our bond ratings,” said Pro Tem-Elect Lonnie Paxton, R-Tuttle. “Historically, we have been successful in making the case for the state by passing good, conservative and fiscally responsible legislation that has put Oklahoma on the right trajectory, leading to increased ratings by bond agencies. I thank the efforts and work put in ahead of our meetings by our teams and the delegation in attendance.”
“Oklahoma’s robust economy, unprecedented savings and track record of conservative fiscal policies are some of our best assets, and I took pride in bragging about our state,” said Senate Appropriations Chairman Chuck Hall, R-Perry. “I’m optimistic that these meetings will result in improved state bond ratings, enabling us to make the most of taxpayers’ dollars while ensuring Oklahoma’s financial stability for years to come.”
The Oklahoma delegation included Lieutenant Governor Matt Pinnell, President Pro Tempore Elect Lonnie Paxton and Senator Chuck Hall, and the state’s bond oversight team, who worked to ensure analysts had a full understanding of Oklahoma’s economic trajectory.
“These agencies have acknowledged our strong fiscal practices,” said Treasurer Russ. “This visit is another step toward ensuring Oklahoma remains financially competitive and continues to lead the nation in economic growth.”
As the state anticipates further improvements in its credit ratings, leaders remain committed to a disciplined approach to governance, ensuring long-term fiscal health for future generations.
“It's no surprise Moody's continues to improve Oklahoma's credit rating. The rating upgrade is a reflection of the hard work the state, Governor Stitt and the Legislature have done to build and maintain a stable financial foundation while navigating challenges and continuing to foster economic growth,” stated Treasurer Russ. “As Oklahoma continues its commitment to economic growth and financial stability, we look forward to sharing notable achievements like real GDP growth and improved resident income levels with the rating agencies. These advancements will point to enhancing the quality of life for all Oklahomans. I’m proud of the Debt Management team in my office who has worked tirelessly to share the Oklahoma story with Moody’s and other rating agencies alongside the Governor and other state leaders.”
In its press release, Moody’s noted “a long trend of conservative budget management” and various “balance sheet strengths”, in conjunction with extremely low “fixed costs from debt, pensions and retiree healthcare”. Oklahoma received its last credit upgrade from Moody's in October of last year, and this consecutive upgrade further demonstrates the state's continued improvement and strong economic outlook. It highlights the state's ongoing commitment to financial stability and growth, reinforcing confidence in Oklahoma’s fiscal future.
“Our new Aa1 rating from Moody's is validation of the conservative fiscal policies we champion in our state,” said Governor Stitt. Fiscal responsibility is a win for every Oklahoman. To set the next generation up for success, we have to make good financial choices now. That's why Treasurer Russ and I are proud to report to Oklahomans that we're leaving our state in better fiscal shape than we found it."
The state was placed on Positive Outlook by three credit rating agencies last year. As noted in the Moody’s press release, “the outlook has been revised to stable from positive in conjunction with the upgrade.” The state looks forward to continued discussions with S&P Global Ratings and Fitch Ratings, who both have a Positive Outlook on the state’s credit rating, as they consider resolving the credit outlook in the near term.
The upgrade will positively impact the upcoming bond issue by the Oklahoma Development Finance Authority (ODFA), with additional savings extending to certain colleges and universities. The upgrade will also benefit all future bond issues by ODFA as well as the Oklahoma Capitol Improvement Authority, the state’s largest issuer of tax-backed debt.
In an effort to enhance rural road safety in Oklahoma, the
Build America Bureau (Bureau) provided a series of five Transportation Infrastructure
Finance and Innovation Act (TIFIA) loan packages totaling over $200 million to the
Oklahoma Capitol Improvement Authority (OCIA) on behalf of the Oklahoma Project locations for RAAMP Packages 1 – 5 TIFIA Loans Provide Financing for Rural
Road Safety Improvements in Oklahoma Department of Transportation (ODOT) to help fund 33 projects as a part of the State's Rural Two-Lane Advancement and Management Plan (RAAMP). (See attached)
Fitch Ratings has assigned a 'AA-' rating to the
Oklahoma Capitol Improvement Authority's (OCIA) Transportation Infrastructure Finance
and Innovation Act (TIFIA) loan obligations, series 2021-3, series 2021-4 and series 2021-5
(subject to annual appropriation), which are being issued in connection with the U.S.
Department of Transportation's (US DOT) Rural 2-Lane Advancement and Management
Plan (RAAMP) program:
--$45.2 million TIFIA loan obligation, series 2021-3 (RAAMP Package 3);
--$39.2 million TIFIA loan obligation, series 2021-4 (RAAMP Package 4);
--$29.4 million TIFIA loan obligation, series 2021-5 (RAAMP Package 5).
The TIFIA loans are expected to close on, or around, June 27, 2024. Proceeds will be used
finance the reconstruction and expansion of rural highways within the state of Oklahoma.
The Rating Outlook is Positive.
Fitch Ratings - New York - 04 Apr 2024: Fitch Ratings has assigned a 'AA-' rating to the following bonds to be issued by the Oklahoma Capitol Improvement Authority (OCIA):
--$121.4 million state facilities refunding revenue bonds series 2024A;
--$46.54 million state facilities refunding revenue bonds series 2024B.
The bonds are expected to sell via negotiation on, or around, April 18. Proceeds will be used to currently refund the OCIA's series 2014A and 2014C bonds for net present value savings.
The Rating Outlook is Positive.
The 'AA-' rating on the OCIA lease revenue bonds is directly linked to the state's 'AA' Long-Term Issuer Default Rating (IDR). The one-notch rating differential reflects a slightly elevated risk of non-appropriation of moneys sufficient to pay debt service on the bonds, given the optionality inherent in repayment of bonds from budgetary appropriations.
Oklahoma's 'AA' IDR reflects a low long-term liability burden and Oklahoma's still sizable concentration in natural resource development industries, which limits its long-term revenue growth prospects while increasing tax revenue volatility. The state's reserves have been strongly affected by economic cycles in the past. Fitch expects this may remain the case over the medium term. However, Oklahoma's fiscal reserve cushion is now at its highest-ever level.
The Positive Outlook reflects sustained improvements in Oklahoma's expenditure flexibility and overall fiscal management, particularly its adherence to conservative budgeting practices through economic cycles -- including revenue volatility during the recent pandemic -- which are improving the state's financial resilience. A long pattern of supplemental pension contributions and restoration of service levels enhances the state's ability to adjust spending when necessary.
The bonds are lease revenue obligations of the OCIA backed by annual state budgetary appropriations to the respective state agencies overseeing the projects financed. The lease revenue bonds are issued pursuant to lease agreements for use and occupancy (lease agreements) entered into between the respective state agency or other obligor and the OCIA. Debt service is secured by payments received by the OCIA from the various state agencies according to their lease agreements. These payments are ultimately backed by annual budgetary appropriations of the state.
Revenue Framework - 'aa'
Fitch expects Oklahoma's revenues, which are supported by a broad-based taxes and fees, will continue to reflect above-average economic volatility tied to the natural resource sector over the medium term. The state legislature has unlimited legal ability to raise operating revenues, but tax rate increases require either a legislative supermajority or direct voter approval, limiting the state's practical revenue-raising flexibility to some degree.
Expenditure Framework - 'aaa'
The state maintains ample expenditure flexibility with a low burden of carrying costs for liabilities and the broad expense-cutting ability common to most U.S. states. As with most states, Medicaid remains a key expense driver but one that Fitch expects the state will continue to actively manage to prevent impairment of other functions.
Long-Term Liability Burden - 'aaa'
On a combined basis, the state's debt and net pension liabilities are well below the median for U.S. states as a percentage of personal income, and are a low burden on the resource base. Net pension liabilities have shrunk as a proportion of statewide personal income over the past decade as a result of the state's decision to fund annual pension contributions above their actuarially determined amounts since the early 2010s. Oklahoma's other post-employment benefit (OPEB) obligations are minimal compared to its debt and net pension liabilities.
Operating Performance - 'aa'
A constitutional provision limiting appropriations to 95% of expected general revenue fund revenues provides a cushion for revenue variability, while the state's proactive management of financial operations has, to some extent, offset underlying revenue volatility. The state rapidly rebuilds reserves during periods of economic growth, but regular drawdowns during periods of low crude oil and natural gas prices have tended to limit the state's prospects for sustained financial resilience.
Consistently strong budget and revenue forecasting have provided the state with ample gap-closing capacity, while adroit management of long-term liabilities has kept carrying costs low. Reserve levels are currently above historical norms.
--An inability to maintain dedicated fiscal reserves at or near the pre-pandemic peak of 12% of revenues through economic cycles;
--State revenue growth that falls below the level of Fitch's expectations for long-term U.S. inflation for an extended period of time;
--Evidence of weaker budget management practices that lead to recurring budgetary structural imbalances.
--Maintenance of fiscal reserves at or near current levels as a percentage of revenues and sustained prudent budgeting practices including management of recurring expenditure growth to maintain structural balance;
--Revenues demonstrate less volatility and/or grow at a faster pace, ahead of Fitch's long-term expectations for national inflation;
--Material diversification of the state's economy such that natural resource market volatility is less consequential for operating performance.
Oklahoma's economy is broad, but has a high concentration in natural resources given the state's role as a major producer of crude oil and natural gas. Nearly one-fifth of state GDP is directly tied to natural resource development and multiplier effects boost this concentration still further. Excluding federal offshore areas, Oklahoma was the sixth-largest crude oil producing state in 2022 and fifth-largest natural gas producer. The state's economic base also includes notable healthcare, higher education, trade and federal government components.
Wednesday, February 14, 2024
Today, Governor Kevin Stitt and Treasurer Todd Russ celebrated Oklahoma's strong financial standing after Fitch Ratings released their revised Rating Outlook, moving Oklahoma’s rating from 'Stable' to 'Positive.' Fitch Ratings becomes the third rating agency to improve Oklahoma's outlook within the last year, following Moody's and S&P.
"I'm proud of Oklahoma's conservative fiscal policies, and I commend Treasurer Russ for his commitment to keeping Oklahoma on sure footing,” said Gov. Stitt. “We know that Oklahoma is the best place to build a business and raise a family, and having a solid economic track record shows the world that we are in a strong position to face any financial challenge.”
Fitch's updated rating highlights several positive financial trends for the state to adjust spending when necessary, such as quick action to address revenue shortfalls and budgets at ninety-five percent of projected operating revenues, a long pattern of supplemental pension contributions and restoration of service levels. Fitch applauded Oklahoma’s strong fiscal reserves and our broad economy. They also affirmed the following ratings of the state:
"We appreciate acknowledgment from the well-known bond rating agency, Fitch Ratings, noting the state’s sustained improvements in expenditure flexibility and overall fiscal management,” said Treasurer Russ. “With particular emphasis on conservative budgeting practices through economic cycles of revenue volatility, I’m proud to join the Governor, Speaker and Pro Tempore to advocate for Oklahoma taxpayers."
In a statement, Fitch Ratings said, in part: "Fitch's revision of the Outlook on Oklahoma's 'AA' long-term IDR to Positive from Stable reflects the state's sustained improvements in expenditure flexibility and overall fiscal management, particularly its adherence to conservative budgeting practices through economic cycles including the recent period of revenue volatility caused by the coronavirus pandemic. The state has consistently taken timely action to address revenue shortfalls and budgets only 95% of projected operating revenues. A long pattern of supplemental pension contributions and restoration of service levels enhances the state's ability to adjust spending when necessary."
The full report from Fitch Ratings can be found here.
Fund State Building Projects & Improvements with the Office of the State Treasurer (oklahoma
The office of the State Treasurer announces the completion in the first inaugural, Legacy Capital Financing Fund from the Oklahoma Capitol Improvement Authority or “OCIA”. The act creating the states self-financing structure passed during the First Special Session of the 2023 Legislature, marking a new era of capital project funding for the state of Oklahoma.
With this new way of funding, OCIA is no rookie. The agency has issued bonds for 65 years, equaling more than $4.2 billion in bonds. With direct access to capital markets and strong credit ratings, along with favorable interest rates over the last decade, we provide attractive mechanisms to fund state capital needs. Surplus state revenues have created opportunities to finance state projects and maintenance at zero percent interest, something capital markets can never beat.
Jamie Manoles, Director of OCIA for the Legacy Capital Financing Fund said, “OCIA staff worked tirelessly to create a Memoranda of Understanding to structure and monitor the projects authorized through the Legacy Capital Fund and to keep with the goals of the legislation, reducing financing and interest costs to accelerating the project timelines.”
New projects currently with the fund include the Capitol complex tunnels, Jim Thorpe Memorial Building, Oklahoma Library facilities and more. Manoles stated, “policies and procedures were also implemented to prudently monitor spending of taxpayer dollars.”
“As this fund is a direct display of legislative and executive powers for the state of Oklahoma, I want to thank the Governor and all authority members from the Senate and House of Representatives,” said Oklahoma State Treasurer, Todd Russ.
OKLAHOMA CITV-S&P Global Ratings has issued a revised outlook for the State of Oklahoma, elevating its status
from stable to positive, and affirmed the state's 'AA' long-term issuer credit rating, State Treasurer Todd Russ
announced today.
The upgraded outlook from stable to positive applies to the appropriation-backed outstanding debt of the
Oklahoma Development Finance Authority (ODFA) and the Oklahoma Capitol Improvement Authority (OCIA),
including ODFA's $3.88 million master real property lease revenue bonds from series 2023A. These particular
bonds are issued by the Legislature on behalf of the Oklahoma State System for Higher Education, with sale
proceeds being used to finance capital enhancement and construction at state colleges and universities.
According to S&P, "The outlook reflects our expectation that Oklahoma will continue its practice of tight
expenditure management, and its accumulation of large reserve balances should provide the state with a
substantial financial buffer to navigate potential near-term cyclical pressures."
Treasurer Russ welcomed the news from S&P as an endorsement of the state's fiscally conservative practices.
"The recognition of Oklahoma's improved financial condition is well-earned and can be attributed to state leaders'
commitment to keeping debt levels low, decreasing pension system liabilities and providing reserves for the Rainy
Day Fund," said Russ. "A better credit status should translate into reduced costs for public infrastructure projects."
The report from S&P comes on the heels of the credit rating agency's invitation by the Treasurer to visit Oklahoma
in the spring, where the Governor, state officials and business leaders showcased the state's extensive presence in
the aerospace and defense industries through tours at Will Rogers World Airport, Boeing and Tinker Air Force
Base. In its justification for the state's updated outlook, S&P pointed out that "Oklahoma has made significant
efforts to diversify its economy, which, over the long-term, could bolster its employment and overall economic
metrics during downturns."
Carrying on with its positive outlook on the state, S&P suggested a future raise in Oklahoma's credit rating "should
the state continue to attract development that grows its economy, while also demonstrating a firm commitment
to structurally balanced financial performance and sustaining reserves and liquidity."
The U.S. Department of Transportation today announced that its Build America Bureau has provided a $45 million low-interest loan to the Oklahoma Capital Improvement Authority (OCIA), on behalf of the Oklahoma Department of Transportation (ODOT) to improve rural road safety. By providing Transportation Infrastructure Finance and Innovation Act (TIFIA) loans and other financing, the Bureau helps communities expedite infrastructure projects and reduce project costs.
Bucking the traditional 33 percent cost coverage of such matters, the United States Department of Transportation (DOT) announced this week that it granted a $41.55 million loan to the Oklahoma Department of Transportation (ODOT) for its Rural Two-Lane Advancement and Management Plan (RAAMP)
New Ardmore center to house more veterans
The new center at Ardmore will be considerably larger than the existing facility and will accommodate several dozen more veterans.The existing center encompasses almost 159,000 square feet of space among all of the buildings on the campus, Kirkland said. The new center will have approximately 250,000 square feet of space, he said.
Thu 21 Apr, 2022 - 4:34 PM ET
Fitch Ratings - New York - 21 Apr 2022: Fitch Ratings has assigned a 'AA-' rating to the Oklahoma Capitol Improvement Authority's (OCIA) $41.547 million Transportation Infrastructure Finance and Innovation Act (TIFIA) loan obligation series 2022-1 (subject to annual appropriation). In addition, Fitch has affirmed the ratings of the following securities issued by the state:
--the state's long-term Issuer Default Rating (IDR) at 'AA';
--$1.3 billion of lease revenue bonds issued by the Oklahoma Capitol Improvement Authority at 'AA-';
--$512.5 million of lease revenue bonds issued by the Oklahoma Development Finance Authority at
'AA-'.
The Rating Outlook is Stable.
The TIFIA loan is a limited special obligation of the OCIA for the benefit of the Oklahoma Department of Transportation (ODOT) to be paid from annual state budgetary appropriations to the ODOT. The TIFIA loan is being issued and secured pursuant to a lease and use agreement between the OCIA and ODOT, and by a separate loan agreement being entered into between the ODOT and the U.S. Dept. of Transportation (U.S. DOT).
Under the terms of its lease and use agreement with the OCIA, ODOT is obligated, and pledges to use, moneys included in annual appropriations it receives from the state to make lease rental payments equal to debt service on the TIFIA loan to OCIA, which will use said funds, along with legislative apportionments and any other legally available funds, to pay TIFIA loan debt service.
The 'AA-' rating assigned to the loan made by TIFIA (a division within U.S. DOT) to the OCIA for the benefit of ODOT reflects the annual appropriation security for loan repayments codified in the lease and use agreement entered into by OCIA and ODOT, which is an instrumentality of Oklahoma, the ultimate obligor. The 'AA-' rating, one notch below the state's 'AA' Long-Term Issuer Default Rating (IDR), reflects the slightly elevated risk of non-appropriation of moneys sufficient to pay loan debt service.
Oklahoma's 'AA' IDR reflects conservative budgeting practices, including timely actions to address budget shortfalls and its practice of budgeting only 95% of projected operating fund revenue, and a low liability position. These factors are critical to the rating given the sizable economic concentration in natural resource development, which limits long-term revenue growth prospects and increases revenue volatility. The state's reserves have historically been strongly affected by economic cycles.
Oklahoma's economy is broad, but with high concentration in natural resources given the state's role as a major producer of crude oil and natural gas. One-fourth of state GDP is directly tied to natural resource development and multiplier effects boost this concentration still further. Excluding federal offshore areas, Oklahoma was the fourth-largest crude oil producing state in 2020 and third-largest natural gas producer. The economic base also includes notable health care, higher education, trade & transportation and state and federal government components.
Revenue Framework: 'aa'
Fitch expects Oklahoma's revenues, which are supported by broad-based sources, will continue to reflect above-average economic volatility tied to the natural resource sector. While the state legislature has unlimited independent legal ability to raise operating revenues, tax rate increases require either a legislative supermajority vote or direct voter approval, limiting practical revenue-raising flexibility.
Expenditure Framework: 'aa'
The state maintains ample expenditure flexibility with a low burden of carrying costs for liabilities and the broad expense-cutting ability common to most U.S. states. As with most states, Medicaid remains a key expense driver but one that Fitch expects the state will continue to actively manage to prevent fundamental impairment of other functions.
Long-Term Liability Burden: 'aaa'
On a combined basis, the state's debt and net pension liabilities are well below the median for U.S. states as a percentage of personal income, and are a low burden on resources. Other post-employment benefit (OPEB) obligations are minimal compared to debt and net pension liabilities, accounting for 0.1% of personal income versus 2.9% for debt and pensions, or less than 3% of total liabilities.
Operating Performance: 'aa'
A constitutional provision limiting appropriations to only 95% of expected General Revenue Fund revenues provides a cushion for revenue variability, while the state's proactive management of financial operations has historically offset volatility. The state rapidly rebuilds reserves during periods of economic growth, but regular drawdowns and other non-recurring actions during periods of low crude oil and natural gas prices have to date tended to limit the prospects for sustained financial resilience.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
--Revenues showing evidence of less volatility and/or growth at a faster and more sustainable pace, ahead of Fitch's long-term expectations for national inflation;
--A sustained increase in reserves to levels in excess of historical norms that provides an enhanced cushion against the state's high economic volatility and revenue cyclicality;
--Diversification of the state's economy to the extent that natural resource market volatility is less consequential for operating performance.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
--An inability to restore reserves to levels that can cushion revenue volatility, roughly commensurate with pre-pandemic levels, as the economic recovery continues;
--State revenue growth that falls below the level of Fitch's expectations for long-term U.S. inflation over an extended period of time.
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
Federal Relief Provides Critical Support
Federal aid measures enacted starting in 2020 have provided direct fiscal support and boosted economic activity in Oklahoma and throughout the country. Under the American Rescue Plan Act (ARPA), Oklahoma's state and municipal governments have been allocated $3.19 billion in direct aid from the Coronavirus State and Local Recovery Fund. The state's portion is $1.87 billion. Oklahoma received its entire ARPA allocation in 2021.
The governor and legislature created a collaborative process for determining how to utilize the federal moneys. A legislative joint committee on pandemic relief funding is working with the governor to issue project recommendations. The committee approved several project awards in November 2021, but none of the ARPA funds have yet been formally allocated.
Fitch expects the combination of direct aid and significant federal stimulus will positively affect Oklahoma's state economy and tax revenues over the near term. However, Fitch also believes that recent and ongoing stimulus is unlikely to alter Oklahoma's underlying credit fundamentals.
Oklahoma Economic Update
Oklahoma's 2020 employment declines were not as steep as those of the nation, but its employment recovery has lagged that of the US. Non-farm payrolls shrank 10% on a seasonally-adjusted basis from February through April 2020 versus a 15% contraction nationally. Through February 2022, the state recovered 79% of jobs lost compared to 90% nationally. Oklahoma's weaker recovery is related to an initially slow rebound in energy industry employment. Considerable stored crude supplies, more efficient extraction and energy producers' desire to limit capital spending from mid-2020 through late 2021 served as a drag on hiring for more than a year.
Monthly unemployment data from the U.S. Bureau of Labor Statistics (BLS) shows the state well-positioned with a 2.6% unemployment rate for February 2022, compared to a 3.8% rate for the nation. Oklahoma's Fitch-adjusted unemployment rate (which incorporates labor force exits) was 2.7% versus the 4.8% state median. Oklahoma is one of few states whose labor force has grown since 2020.
Fiscal 2021 Results Reflected Tight Spending Coupled with Revenue Outperformance
Fiscal 2021 actuals outperformed projections by $282 million (4.2%) and exceeded the prior fiscal year by $735 million (11.7%). The entire $282 million surplus, plus $30 million of excess income taxes, was deposited into the constitutional reserve fund (CRF), raising its balance to $371 million. The CRF, along with the budget stabilization fund (BSF), held $541.9 million at the start of the 2022 fiscal year, equal to 7.7% of GRF revenues. This compares to $1.2 billion, or 17.6% of revenues at the start of fiscal 2020.
Fiscal 2021 tax revenue performance was supported by solid growth in personal and corporate income taxes (PIT and CIT), which were $400 million, or 13.6%, above estimate. Sales and use tax (SUT) growth was less robust, finishing only 1.5% above estimate but above prior-year levels. Gross production taxes (GPT) ended at $419 million versus $577 million forecast, 27% below budget.
Fiscal 2022 Budget Focused on Reserve Augmentation, Medicaid Expansion and Tax Cuts
Oklahoma's adopted fiscal 2022 budget included appropriations of $9.07 billion, up 4.4%, and reflecting a return to the practice of appropriating 95% of certified revenues. The budget uses $200 million of cash for core operations and $884 million of unspent 2021 collections as free cash to appropriate as needed. The fiscal 2022 budget also allocated $251 million of dedicated revenues for supplemental pension contributions, restoring a pre-pandemic practice that improved the asset-to-liability ratios of Oklahoma's public pension systems.
Related to Oklahoma's Medicaid expansion, which became effective Oct. 1, 2021, the budget included a $164 million deposit to cover the state's first-year share of Medicaid expansion costs. The state is covering its long-term share of expansion costs by raising its medical provider fee over three years.
The fiscal 2022 budget also included $330 million of tax cuts. The top CIT rate was reduced to 4% from 6%, resulting in a $54 million revenue loss in fiscal 2022 and $110 million annually thereafter. The budget also reduced all PIT rate brackets by 0.25% (e.g. the top PIT rate was cut to 4.75% from 5%) for an $83 million GRF revenue loss in fiscal 2022 followed by $237 million annually thereafter. Fitch believes the tax cuts will likely have a modest effect on Oklahoma's pace of revenue formation. This is reflected in its Stable Outlook.
Oklahoma Fiscal 2022 Revenue Update
GRF tax collections performed above estimates through March 2022. GRF revenues YTD have totaled over $5.7 billion, nearly $1.1 billion, or 23% above budget estimates. All major tax revenues are outperforming budget and the state's December 2021 BOE estimate, with income taxes tracking $446 million, or 23% above estimate, sales taxes $255 million (16% above estimate), and GPT on oil & gas extraction $337 million (92% above estimate).
The recovery in oil and gas prices is driving half the fiscal 2022 revenue surge with GPT up $511 million or 269% yoy through March. A recovery in consumer spending is spurring the expansion of PIT, CIT and SUT. If revenue growth stays near current levels, the state will be required to make a $1.08 billion deposit to the CRF at fiscal YE. This would bring the CRF balance close to $1.6 billion, or about 20% of revenues, above its 15% of revenues constitutional cap, not counting additional moneys in the BSF and cash flow reserve.
Fiscal 2023 Executive Budget Proposal Targets Higher Reserve Levels
On February 8, the governor presented his executive budget proposal for fiscal 2023. The governor's proposal holds budget appropriations in key spending areas essentially flat at current-year levels despite an expansion of all major revenues that is projected to continue into 2023. The proposed $8.9 billion all-funds budget represents a $204 million (2.3%) drop in spending from fiscal 2022, with virtually the entire difference relating to lower non-recurring expenditures. Spending on education, public safety, and health & human services would remain flat.
The governor's proposal argues that it would be prudent to boost Oklahoma's statutory reserves further in light of continued economic and energy market volatility stemming from both the ongoing pandemic and uncertain commodity prices connected to heightened geopolitical risks. The state's consensus revenue forecasting unit, the Board of Equalization (BOE), estimates that solid economic growth will raise general revenues by over $1 billion in fiscal 2023. The governor's stated aim is to utilize virtually all new resources to bolster reserves and liquidity, to insulate the state against future economic shocks.
Oklahoma's economy is closely linked with the fortunes of the energy industry, but the presence of large health care, higher education, trade & transportation and government components add diversity. Five U.S. military installations that employ 69,100 active duty personnel account for the large federal presence, as does the U.S. Postal Service and U.S. Dept. of Veterans affairs, both among the state's top 10 employers.
Other major employers include Wal-Mart, Amazon Inc., Integris Health, Oklahoma State University and Hobby Lobby. Wealth and educational attainment levels are below the U.S. average. Unemployment tends to be low.
The Oklahoma Board of Equalization's (BOE) June 2021 West Texas Intermediate (WTI) forecast was for a $47/bbl average for fiscal 2022. The state averaged only 27 active oil rigs in June 2021 versus over 100 rigs in 2019. By April 14, 2022, however, that number climbed to 51 as crude oil and natural gas prices rose. WWTI spot oil prices reached $94/bbl as of April 11, 2022 - double the forecast. The recovery in crude oil prices has boosted Oklahoma's oil and gas tax collections in 2021 and 2022 YTD. Collections are expected to remain strong through 2022.
SUT and PIT provide almost equal support to the GRF, accounting for more than 70% of fiscal 2021 general revenues on a cash basis, with significant additional revenue flowing from corporate income and severance taxes in most years.
Historical growth in revenues, after adjusting for the estimated effect of tax policy changes, was slightly above the pace of U.S. inflation over the 10 years through 2020, even when incorporating the deep natural resource downturn of 2015 through 2017. A multi-year slump in commodity prices combined with a PIT rate cut required significant action to close budget gaps in fiscals 2016 through 2018, including extensive use of one-time actions.
Over the long-term, Fitch expects GRF revenues to expand at the rate of inflation--assuming that the boom and bust cycles common to the natural resource industry largely cancel each other out and result in a slow annualized pace of revenue growth. Fitch believes elevated revenue volatility will remain part of Oklahoma's financial profile given its dependence on natural resource-related taxes and income tax.
Fitch would regard a faster pace of revenue formation accompanied by lessening economic volatility as positive for the rating. Increased economic diversification could contribute to such a trend.
The state has unlimited legal ability to raise revenues, although rate increases require either a supermajority vote of the legislature or a majority vote of the people. An additional constitutional restriction that prohibits enacting new revenue measures during the final week of the legislative session is also a limiting factor on the state's revenue-raising flexibility.
As in most states, education and health and human services spending are Oklahoma's largest operating expenses. Education is the larger item, as the state provides significant funding for local school districts and public higher education. Health and human services account for the second largest spending area, with Medicaid the main driver. The fiscal challenge of Medicaid is common to all U.S. states. The nature of the program and federal rules limit states' options for managing spending growth. As with all federal initiatives, Medicaid remains subject to regulatory changes that could affect aspects of the program.
Fitch expects spending growth, absent policy actions, will be marginally ahead of natural revenue growth, driven primarily by Medicaid, and will require regular budget adjustments to ensure ongoing balance. Baseline spending growth grew significantly in fiscal years 2019 and 2020 as the state raised teacher and state employee salaries and increased K-12 education funding. The state also restored funds to other budget areas that were cut during the 2015-16 downturn. Fiscal 2022 budgeted spending rose by 4.4%, led by K-12 education.
Oklahoma retains ample ability to adjust expenditures to meet changing fiscal circumstances. Medicaid remains a notable cost pressure, but spending on debt service, pension contributions and OPEB are low; carrying costs are less than 4% of expenditures.
Pension contributions in recent years have been significantly above the actuarially determined contributions (ADCs) because by Oklahoma statutorily dedicates 5% of SUT, PIT, CIT and net lottery proceeds, and 1% of cigarette taxes, to support the ADCs for several state pension systems. These include plans for firefighters, law enforcement, police and teachers. Other revenues dedicated for ADCs include insurance premium taxes, driver's license taxes and motor vehicle inspection fees.
Although the state is a frequent borrower, overall debt levels are modest. There are no general obligation bonds currently outstanding. Outstanding debt consists of $1.85 billion of lease revenue bond obligations supported by annual legislative appropriations divided between OCIA for state agency projects and ODFA mainly for higher education system projects. The latter are supported, to a significant extent, by student tuition and campus fees.
As of Fitch's 2021 State Liability Report, Oklahoma's combined liability burden was 2.8% of 2020 personal income when applying Fitch's standard 6% discount rate assumption for U.S. state and local government pension plans. This is well below the 50-state median of 4.7% as calculated by Fitch. Using updated data from the state's fiscal 2021 audited financial statements and 2021 state personal income data, Fitch calculates combined liability burden of 2.9% of personal income for the state.
The funded status of the major pension systems, covering state employees (PERS), teachers (TRS) and other retirees, has improved since 2012 due partly to overfunding of annual ADCs using allocations of specific tax receipts, as noted above. Fitch views Oklahoma's commitment to over-funding its pension ADCs as noteworthy. Pension ADCs are a small percentage of overall spending.
PERS reported a 112.5% ratio of assets to liabilities as of fiscal 2021 while TRS reported an 80.8% ratio. Using Fitch's standard 6% discount rate for U.S. state and local government pension systems (versus the 6.5% and 7.0% rates used by the systems) would lower the systems' asset-to-liability ratios to 106.7% and 72%, respectively. These levels are improved from 82% and 56% in 2015. Sharp asset value growth in 2021 pushed the ratio of assets to liabilities higher for Oklahoma's pensions, like other pensions nationally. Improvement in Oklahoma's plan ratios over time also reflects a consistent practice of making contributions higher than the ADCs, including through dedicating portions of state tax revenues.
Oklahoma's ability to respond to cyclical downturns rests upon a combination of strong budgetary flexibility and maintenance of a healthy fiscal reserve cushion. The state's reliance on spending cuts and one-time actions to close budget gaps, supplemented by reserve draws when structural balance cannot be achieved, partly reflects the restrictions noted above that limit the state's practical ability to raise recurring revenues.
Fitch's Analytical Stress Test (FAST) scenario analysis tool relates historical revenue volatility to GDP to support the assessment of operating performance under Fitch's criteria. FAST is not a forecast, but represents Fitch's estimate of possible revenue behavior in a downturn based on historical revenue performance. FAST provides a relative sense of a particular state's risk exposure compared to its peers.
Oklahoma's FAST results show a 7% revenue decline in year one of the scenario in response to a standard 1% GDP contraction, well above the 3% median year-one decline for U.S. states. Oklahoma's revenues decline by a cumulative 7% over the three-year scenario versus essentially flat revenues for the U.S. state median. Above-average revenue volatility is reflected in Fitch's 'aa' financial resilience assessment. Fitch anticipates the state will rely on its strong budgetary flexibility to absorb the effects of downturns, but use all or most of its reserves. The state acts to rebuild resilience during recoveries, but its profile is more consistent with 'aa' than with 'aaa'.
Oklahoma's actions over the past decade reflect a pattern of drawing down reserves almost completely during recessions and replenishing them when the economy rebounds. The state's post-Great Recession recovery was tied to vibrant growth in the natural resource industry. Oklahoma replenished the CRF to $806 million (12% of revenues) in 2019, assisted by higher oil prices and faster GDP growth.
The state then reduced the CRF balance to $302 million and RSF balance to $333 million on a cash basis by FYE 2020. The budgeted use of reserves in fiscal 2021 lowered combined balances to $229 million at June 30, 2021 (equal to 3.4% of GRF revenues). Solid fiscal 2021 revenue performance resulted in a $282 million surplus deposited directly to the CRF, raising its balance to $370 million in July 2021 and boosting total reserves to $542 million, equal to 7.7% of fiscal 2021 GRF revenues.
The state is examining options to enhance reserve funding, as a consensus exists in state government that Oklahoma's reserve practices have not spared it from the negative impacts of repeated, energy-related downturns. Maintaining adequate reserves is critical to Oklahoma's ability to weather the 'boom and bust' cycles inherent to the energy industry. A sustained boost to reserve funding could have positive rating implications.
Oklahoma's financial operations are supported by conservative fiscal policies, including a provision in the state constitution that limits appropriations to 95% of anticipated operating fund revenues as certified by the BOE for the next fiscal year. Revenues exceeding 100% of the BOE-certified amount flow are deposited into the CRF up to a constitutional cap of 15% of the prior fiscal year's GRF revenues.
Monthly revenue monitoring by the Office of Management and Enterprise Services (OMES) and three BOE revenue forecasts annually are used to help maintain structural balance. State agency spending is overseen by OMES' director, who has legal authority to cut spending when revenues fall below forecast.
In addition to the sources of information identified in Fitch's applicable criteria specified below, this action was informed by information from Lumesis.
The principal sources of information used in the analysis are described in the Applicable Criteria.
Oklahoma, State of (OK) [General Government] has an ESG Relevance Score of '4' for Biodiversity and Natural Resource Management due to due to the impact of natural resources management on its economy and governmental operations, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
Fitch Ratings - New York - 13 Apr 2022: Fitch Ratings has assigned a rating of 'AA-' to the Oklahoma Capitol Improvement Authority's (OCIA) $36.3 million state facilities revenue bonds, taxable series 2022C (subject to annual appropriation).
The Rating Outlook is Stable.
The bonds will be sold by negotiation on April 20, 2022. Proceeds will be used to finance construction of the new Veterans Center, a long-term care facility for veterans, which will be located in Ardmore, OK. The facility will be constructed and operated under the authority of the Oklahoma Department of Veterans Affairs (DVA).
The bonds are lease revenue bonds secured by and payable from payments to be received by the OCIA from the DVA pursuant to the terms of a lease agreement for use and occupancy (the 'agreement') entered into between the OCIA and the DVA. Payments under the agreement are payable from all legally available funds including, but not limited to, annual budgetary appropriations made by the Oklahoma legislature and allocated to the DVA for the purpose of funding its annual operating budget.
The 'AA-' rating on this OCIA issue, one notch below Oklahoma's 'AA' Issuer Default Rating (IDR), reflects the optionality inherent in the expected repayment of the bonds from annual budgetary appropriations made by the state of Oklahoma to the Oklahoma DVA.
Oklahoma's 'AA' IDR reflects conservative budgeting practices, including timely actions to address budget shortfalls and its practice of budgeting only 95% of projected operating fund revenue, and a low liability position. These factors are critical to the rating given the sizable economic concentration in natural resource development, which limits long-term revenue growth prospects and increases revenue volatility. The state's reserves have historically been strongly affected by economic cycles.
Oklahoma's economy is broad, but with high concentration in natural resources given the state's role as a major producer of crude oil and natural gas. One-fourth of state GDP is directly tied to natural resource development and multiplier effects boost this concentration still further. Excluding federal offshore areas, Oklahoma was the fourth-largest crude oil producing state in 2020 and third-largest natural gas producer. The economic base is nevertheless diverse and includes notable health care, higher education, trade & transportation and state and federal government components.
Revenue Framework: 'aa'
Fitch expects Oklahoma's revenues, which are supported by broad-based sources, to continue to reflect economic volatility tied to its extensive natural resources sector. While the state legislature has an unlimited independent legal ability to raise operating revenues, tax rate increases require either a legislative supermajority vote or direct voter approval, limiting practical revenue-raising flexibility.
Expenditure Framework: 'aa'
The state maintains ample expenditure flexibility with a low burden of carrying costs for liabilities and the broad expense-cutting ability common to most U.S. states. As with most states, Medicaid remains a key expense driver but one that Fitch expects the state will continue to actively manage to prevent fundamentally impairing other functions.
Long-Term Liability Burden: 'aaa'
On a combined basis, the state's debt and net pension liability are well below the median for U.S. states as a percentage of personal income, and a low burden on resources. Other post-employment benefit (OPEB) obligations are minimal compared to debt and net pension liabilities, accounting for 0.1% of personal income versus 3.1% for debt and pensions, or less than 3% of total liabilities.
Operating Performance: 'aa'
A policy of appropriating only 95% of expected general revenue fund (GRF) revenues provides a cushion for revenue variability, while the state's proactive management of financial operations has historically offset volatility. The state rapidly rebuilds reserves during periods of economic growth, but regular drawdowns and other non-recurring actions during periods of low crude oil and natural gas prices have tended to limit the prospects for sustained financial resilience, to date.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
--Revenues showing evidence of less volatility and/or growth at a faster and more sustainable pace, ahead of Fitch's long-term expectations for national inflation;
--A sustained increase in reserves to levels in excess of historical norms that provides an enhanced cushion against the state's high economic volatility and revenue cyclicality;
--Diversification of the state's economy to the extent that natural resource market volatility is less consequential for operating performance.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
--An inability to restore reserves to levels that can cushion revenue volatility, roughly commensurate with pre-pandemic levels, as the economic recovery takes hold after the crisis has passed;
--State revenue growth that falls below the level of Fitch's expectations for long-term U.S. inflation over an extended period of time.
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
Federal Relief Provides Critical Support
Federal aid measures enacted starting in 2020 have provided direct fiscal support and boosted economic activity in Oklahoma and throughout the country. Under the American Rescue Plan Act (ARPA), Oklahoma's state and municipal governments have been allocated $3.19 billion in direct aid from the Coronavirus State and Local Recovery Fund. The state's portion is $1.87 billion. Oklahoma received its entire ARPA allocation in 2021.
The governor and legislature created a collaborative process for determining how to utilize the federal moneys. A legislative joint committee on pandemic relief funding is working with the governor to issue project recommendations. The committee approved several project awards in November 2021, but none of the ARPA funds have yet been formally allocated.
Fitch expects the combination of direct aid and significant federal stimulus will positively affect Oklahoma's state economy and tax revenues over the near term. However, Fitch also believes that recent and ongoing stimulus is unlikely to alter Oklahoma's underlying credit fundamentals.
Oklahoma Economic Update
Oklahoma's 2020 employment declines were not as steep as those of the nation, but its employment recovery has lagged that of the U.S. Non-farm payrolls shrank 10% on a seasonally-adjusted basis from February through April 2020 versus a 15% contraction nationally. Through February 2022, the state recovered 79% of jobs lost compared to 90% nationally. Oklahoma's weaker recovery is related to a slow rebound in energy industry employment. The recovery in spot oil prices has spurred some hiring; but considerable stored crude supplies, more efficient extraction techniques and energy producers' desire to limit capital spending will limit the short-term upside.
Monthly unemployment data from the U.S. Bureau of Labor Statistics (BLS) shows the state well-positioned with a 2.6% unemployment rate for February, compared to a 3.8% rate for the nation. Oklahoma's Fitch-adjusted unemployment rate (which incorporates labor force exits) was also 2.7% versus the 4.8% state median. Oklahoma is one of few states whose labor force has grown since 2020.
Fiscal 2021 Results Reflect Tight Spending Coupled with Revenue Overperformance
Fiscal 2021 actuals outperformed projections by $282 million (4.2%) and exceeded the prior fiscal year by $735 million (11.7%). The entire $282 million surplus, plus $30 million of excess income taxes, was deposited into the constitutional reserve fund (CRF), raising its balance to $371 million. The CRF, along with the budget stabilization fund (BSF), held $541.9 million at the start of the 2022 fiscal year, equal to 7.7% of GRF revenues. This compares to $1.2 billion, or 17.6% of revenues at the start of fiscal 2020.
Fiscal 2021 tax revenue performance was supported by solid growth in personal and corporate income taxes (PIT and CIT), which were $400 million, or 13.6%, above estimate. Sales and use tax (SUT) growth was less robust, finishing (1.5%) above estimate, but above prior-year levels. Gross production taxes (GPT) ended at $419 million versus $577 million forecast -- 27% below budget.
Fiscal 2022 Budget Focused on Reserve Augmentation, Medicaid Expansion and Tax Cuts
Oklahoma's adopted fiscal 2022 budget included appropriations of $9.07 billion, up 4.4%, and reflecting a return to the practice of appropriating 95% of certified revenues. The budget uses $200 million of cash for core operations and $884 million of unspent 2021 collections as free cash to appropriate as needed. The fiscal 2022 budget also allocated $251 million of dedicated revenues for supplemental pension contributions, restoring a pre-pandemic practice that improved the asset-to-liability ratios of Oklahoma's public pension systems.
Related to Oklahoma's Medicaid expansion, which became effective Oct. 1, 2021, the budget included a $164 million deposit to cover the state's first-year share of Medicaid expansion costs. The state is covering its long-term share of expansion costs by raising its medical provider fee over three years.
The fiscal 2022 budget also included $330 million of tax cuts. The top CIT rate was reduced to 4% from 6%, resulting in a $54 million revenue loss in fiscal 2022 and $110 million annually thereafter. The budget also reduced all PIT rate brackets by 0.25% (e.g. the top PIT rate was cut to 4.75% from 5%) for an $83 million GRF revenue loss in fiscal 2022 followed by $237 million annually thereafter. Fitch believes the tax cuts will likely have a modest effect on Oklahoma's pace of revenue formation. This is reflected in our Stable Outlook.
Oklahoma Fiscal 2022 Revenue Update
GRF tax collections performed above estimates through February 2022. GRF revenues totaled $5.1 billion through the first eight months of the fiscal year, nearly $905 million or 21.6% above budget estimates. All major tax revenues outperformed budget and the state's December 2021 BOE estimate, with income taxes tracking $366 million, or 20%, above estimate, sales and use taxes (SUT) $221 million (15.7%) above estimate, and GPT on oil & gas extraction $280 million (97%) above estimate.
The recovery in oil and gas prices is driving half the fiscal 2022 revenue surge with GPT up $450 million or 377% yoy through February. A recovery in consumer spending is spurring the expansion of PIT, CIT and SUT. If revenue growth stays near current levels, the state will be required to make a $905 million deposit to the CRF at fiscal YE. This would bring the CRF balance close to $1.3 billion, or about 20% of revenues, above its 15% of revenues constitutional cap, not counting additional moneys in the BSF and cash flow reserve.
Fiscal 2023 Executive Budget Proposal Targets Higher Reserve Levels
On Feb. 8, the governor presented his executive budget proposal for fiscal 2023. The governor's proposal holds budget appropriations in key spending areas essentially flat to current-year levels despite an expansion of all major revenues that is projected to continue into 2023. The proposed $8.9 billion all-funds budget represents a $204 million (2.3%) drop in spending from fiscal 2022, with virtually the entire difference relating to lower non-recurring expenditures. Spending on education, public safety, and health & human services would remain flat.
The governor's proposal argues that it would be prudent to boost Oklahoma's statutory reserves further in light of continued economic and energy market volatility stemming from both the ongoing pandemic and uncertain commodity prices connected to heightened geopolitical risks. The state's consensus revenue forecasting unit, the Board of Equalization (BOE), estimates that solid economic growth will raise general revenues by over $1 billion in fiscal 2023. The governor's stated aim is to utilize virtually all new resources to bolster reserves and liquidity, to insulate the state against future economic shocks.
Under the statute that authorized the OCIA to issue the bonds (Oklahoma Title 73, as amended), the Oklahoma legislature expresses its intention to provide funds sufficient to pay debt service due on the bonds each year as part of its lump-sum appropriation for the DVA. Under the terms of the agreement, the DVA, for its part, pledges to include the debt service amount on the bonds due in the coming fiscal year in its annual budget requests to the legislature.
For additional information on the State of Oklahoma, please see "Fitch Affirms Oklahoma's 'AA' IDR and 'AA-' Lease Revenue Ratings; Outlook Stable," published on Feb. 3, 2022.
02 February 2022
In addition to the sources of information identified in Fitch's applicable criteria specified below, this action was informed by information from Lumesis.
The principal sources of information used in the analysis are described in the Applicable Criteria.
Oklahoma, State of (OK) [General Government] has an ESG Relevance Score of '4' for Biodiversity and Natural Resource Management due to the impact of natural resources management on its economy and governmental operations which, in combination with other factors has a negative impact on the state's credit profile and is relevant to the rating in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
"After years of work to restore and modernize the state Capitol, a new addition showcasing the state's history and founding artifacts opened to the public on Tuesday. "
Fitch Ratings - New York - 08 Mar 2022: Fitch Ratings has assigned a rating of 'AA-' to the Oklahoma Capitol Improvement Authority's (OCIA) $46.595 million of state facilities revenue bonds, federally taxable series 2022B (subject to annual appropriation).
The Rating Outlook is Stable.
The bonds will be sold by negotiation on March 23, 2022. Proceeds will be used to finance construction of the Oklahoma National Guard Museum, which will be located in Oklahoma City, OK. The museum will be constructed and operated under the authority of the Oklahoma Military Department (OMD).
The bonds are lease revenue bonds secured by and payable from payments to be received by the OCIA from the OMD pursuant to the terms of a lease agreement for use and occupancy (the 'agreement') entered into between the OCIA and the OMD. Payments under the agreement are payable from all legally available funds including, but not limited to, annual budgetary appropriations made by the Oklahoma legislature and allocated to the OMD for the purpose of funding its annual operating budget.
The 'AA-' rating on this OCIA issue, one notch below Oklahoma's 'AA' Issuer Default Rating (IDR), reflects the optionality inherent in the expected repayment of the bonds from annual budgetary appropriations made by the state of Oklahoma to the Oklahoma Military Department.
Oklahoma's 'AA' IDR reflects conservative budgeting practices, including timely actions to address budget shortfalls and its practice of budgeting only 95% of projected operating fund revenue, and a low liability position. These factors are critical to the rating given the sizable economic concentration in natural resource development, which limits long-term revenue growth prospects and increases revenue volatility. The state's reserves have historically been strongly affected by economic cycles.
Oklahoma's economy is broad, but with high concentration in natural resources given the state's role as a major producer of crude oil and natural gas. One-fourth of state GDP is directly tied to natural resource development and multiplier effects boost this concentration still further. Excluding federal offshore areas, Oklahoma was the fourth-largest crude oil producing state in 2020 and third-largest natural gas producer. The economic base is nevertheless diverse and includes notable health care, higher education, trade & transportation, and state and federal government components.
Revenue Framework: 'aa'
Fitch expects Oklahoma's revenues, which are supported by broad-based sources, to continue to reflect economic volatility tied to its extensive natural resources sector. While the state legislature has an unlimited independent legal ability to raise operating revenues, tax rate increases require either a legislative supermajority vote or direct voter approval, limiting practical revenue-raising flexibility.
Expenditure Framework: 'aa'
The state maintains ample expenditure flexibility with a low burden of carrying costs for liabilities and the broad expense-cutting ability common to most U.S. states. As with most states, Medicaid remains a key expense driver but one that Fitch expects the state will continue to actively manage to prevent fundamentally impairing other functions.
Long-Term Liability Burden: 'aaa'
On a combined basis, the state's debt and net pension liability are well below the median for U.S. states as a percentage of personal income and a low burden on resources. Other post-employment benefit (OPEB) obligations are minimal compared with the debt and net pension liability burden, accounting for 0.1% of personal income versus 3.1% for debt and pensions, or less than 3% of total liabilities.
Operating Performance: 'aa'
A policy of appropriating only 95% of expected general revenue fund revenues provides a cushion for revenue variability, as does the state's proactive management of financial operations. The state rapidly rebuilds reserves during periods of economic growth, but regular drawdowns and other non-recurring actions during periods of low crude oil and natural gas prices have tended to limit the prospects for sustained financial resilience, to date.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
--Revenues showing evidence of less volatility and/or growth at a faster and more sustainable pace, ahead of Fitch's long-term expectations for national inflation;
--A sustained increase in reserves to levels in excess of historical norms that provides an enhanced cushion against the state's high economic volatility and revenue cyclicality;
--Diversification of the state's economy to the extent that natural resource market volatility is less consequential for operating performance.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
--An inability to restore reserves to levels that can cushion revenue volatility, roughly commensurate with pre-pandemic levels, as the economic recovery takes hold after the crisis has passed;
--State revenue growth that falls below the level of Fitch's expectations for long-term U.S. inflation over an extended period of time.
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
Federal Relief Provides Critical Support
Federal aid measures enacted starting in 2020 have provided direct fiscal support and boosted economic activity in Oklahoma and throughout the country during the pandemic. Under the American Rescue Plan Act (ARPA), Oklahoma's state and municipal governments have been allocated $3.19 billion in direct aid from the Coronavirus State and Local Recovery Fund. The state's portion is $1.87 billion. Oklahoma received its entire ARPA allocation in 2021.
The governor and legislature created a collaborative process for determining how to utilize the federal moneys. A legislative joint committee on pandemic relief funding is working with the governor to issue project recommendations. The committee approved several project awards in November 2021, but none of the ARPA funds have yet been formally allocated.
Fitch expects the combination of direct aid and significant federal stimulus will positively affect Oklahoma's state economy and tax revenues over the near term. However, Fitch also believes that recent and ongoing stimulus is unlikely to alter Oklahoma's underlying credit fundamentals.
Oklahoma Economic Update
Oklahoma's 2020 employment declines were not as steep as those of the nation, but its employment recovery has lagged that of the U.S. Non-farm payrolls shrank 10% on a seasonally-adjusted basis from February through April 2020 versus a 15% contraction nationally. Through December 2021, the state recovered 71% of jobs lost compared with 84% nationally.
The weaker jobs recovery is related to a slow rebound in energy employment. The recovery in spot oil prices has spurred some hiring, but considerable supplies of stored crude, more efficient extraction techniques and energy producers' desire to limit capital spending will limit the short-term upside.
Monthly unemployment data from the U.S. Bureau of Labor Statistics (BLS) shows the state well-positioned with a 2.3% unemployment rate for December, compared with a 4.2% rate for the nation. Oklahoma's Fitch-adjusted unemployment rate (which incorporates labor force exits) was also 2.3% versus the 5.5% state median. Oklahoma is one of few states whose labor force has grown since 2020.
Fiscal 2021 Results Reflect Tight Spending Coupled with Revenue Overperformance
Fiscal 2021 actuals beat projections by $282 million (4.2%) and exceeded the prior fiscal year by $735 million (11.7%). The entire $282 million surplus, plus $30 million of excess income taxes, was deposited into the constitutional reserve fund (CRF), raising its balance to $371 million. Together, the CRF and the budget stabilization fund (BSF) held $541.9 million at the start of fiscal 2022, equal to 7.7% of fiscal 2021 GRF revenues. This compares with $1.2 billion, or 17.6% of revenues at the start of fiscal 2020.
GRF tax revenues' fiscal 2021 performance was supported by solid growth in personal and corporate income taxes (PIT and CIT), which were $400 million, or 13.6%, above estimate. Sales and use tax (SUT) growth was less robust, finishing (1.5%) above estimate, but above prior-year levels. Gross production taxes (GPT) ended at $419 million versus $577 million forecast -- 27% below budget.
Fiscal 2022 Budget Focuses on Reserve Augmentation, Medicaid Expansion
The fiscal 2022 budget included appropriations of $9.07 billion, up 4.4% annually, reflecting a return to the practice of appropriating 95% of certified revenues. The budget used $200 million of cash reserves for core operations and $884 million of unspent 2021 receipts as free cash to appropriate as needed. The budget also allocated $251 million to fund two years of supplemental pension contributions, restoring a pre-pandemic practice that improved the public pension systems' asset-to-liability ratios.
Related to Oklahoma's Medicaid expansion, which became effective Oct. 1, 2021, the budget included a $164 million deposit to cover the state's first-year share of Medicaid expansion costs. The state is covering its long-term share of expansion costs by raising its medical provider fee from 2.5% to 4.0% of hospital net patient revenues over three years.
The fiscal 2022 budget also included $330 million of tax cuts that affect two state funds: the GRF and education reform revolving fund. The top CIT rate was reduced to 4% from 6%, resulting in a $54 million revenue loss in fiscal 2022 and $110 million annually thereafter. The budget also reduced all PIT rate brackets by 0.25% (e.g. the top PIT rate was cut to 4.75% from 5%) for an $83 million GRF revenue loss in fiscal 2022 followed by $237 million annually thereafter. Fitch believes the tax cuts will likely have a modest effect on Oklahoma's pace of revenue formation. This is reflected in Fitch's Stable Outlook.
Oklahoma Fiscal 2022 Revenue Update
GRF tax collections performed above estimates through January 2022. GRF revenues totaled $4.6 billion, nearly $809 million or 21% above budget estimates. All major tax revenues are outperforming budget and the state's December 2021 BOE estimate, with income taxes tracking $284 million, or 16%, above estimate, sales taxes $211 million (17%) above estimate, and gross production taxes (GPT) on oil & gas extraction $268 million (117%) above estimate.
The recovery in oil and gas prices is driving half the fiscal 2022 revenue surge with GPT up by a staggering $406 million (441%) yoy through January. A broader recovery in consumer spending is also spurring the expansions of PIT, CIT and SUT. If revenue growth stays near current levels, the state will be required to make an $809 million deposit to the CRF at fiscal YE. This would bring the CRF balance close to $1.2 billion, or about 18% of revenues and above its 15% of revenues constitutional cap, not counting funds in the BSF and cash flow reserve funds and also slightly above pre-pandemic levels.
Fiscal 2023 Executive Budget Proposal Targets Higher Reserve Levels
On Feb. 8, the governor presented his executive budget proposal for fiscal 2023. The governor's proposal holds budget appropriations in key spending areas essentially flat to current-year levels despite an expansion of all major revenues (see below) that is projected to continue into 2023. The proposed all-funds budget of $8.9 billion represents a $204 million (2.3%) spending decrease compared with fiscal 2022, with virtually the entire difference relating to a drop in non-recurring expenditures. Spending on education, public safety, and health & human services would remain flat.
The governor's proposal argues that it would be prudent to boost Oklahoma's statutory reserves further in light of continued economic and energy market volatility stemming from both the ongoing pandemic and from uncertain commodity prices connected to heightened geopolitical risks. The state's consensus revenue forecasting unit, the Board of Equalization (BOE), estimates that solid economic growth will raise general revenues by over $1 billion in fiscal 2023. The governor's stated aim is to utilize virtually all new resources to bolster reserves and liquidity, to insulate the state against future economic shocks.
The rating on the OCIA bonds, secured by annual appropriations from the state's general fund, is one notch below Oklahoma's 'AA' IDR, reflecting the state's general credit standing. The rating also reflects the sound lease structure and statutory authorization for these types of bonds in the State of Oklahoma. OCIA is one of the principal financing agencies of the state and the bonds are secured by lease rental payments made by the OMD that are derived from the state's general fund revenues.
Both the state constitution and enabling statutes provide for appropriation of lease payments, and this type of leasing structure and bond issuance has been validated by Oklahoma's Supreme Court. The term of the lease extends for the 20-year life of the bonds. The lease payments are not abatable.
Under the statute that authorized the OCIA to issue that bonds (Oklahoma Title 73, as amended, or the Act), the Oklahoma legislature expresses its intention to provide funds sufficient to pay debt service due on the bonds each year as part of its lump-sum appropriation for the OMD. Under the terms of the agreement, the OMD pledges to include the debt service amount coming due in the next fiscal year in its annual budget requests to the legislature until final maturity.
For additional information on the state of Oklahoma, please see "Fitch Affirms Oklahoma's 'AA' IDR and 'AA-' Lease Revenue Ratings; Outlook Stable," published on Feb. 3, 2022.
02 February 2022
In addition to the sources of information identified in Fitch's applicable criteria specified below, this action was informed by information from Lumesis.
The principal sources of information used in the analysis are described in the Applicable Criteria.
Oklahoma, State of (OK) [General Government] has an ESG Relevance Score of '4' for Biodiversity and Natural Resource Management due to the impact of natural resources management on its economy and governmental operations which, in combination with other factors has a negative impact on the state's credit profile and is relevant to the rating in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
OKLAHOMA CITY (AP) — Oklahoma closed the books on the fiscal year that ended June 30 with a $282 million deposit into the state’s Rainy-Day Fund, state finance officials announced on Thursday.
“State leaders have exercised fiscal discipline during the pandemic,” Treasurer Randy McDaniel said. “This announcement from a widely respected independent source is welcome news.”
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Oklahoma Credit Outlook Improves
OKLAHOMA CITY – Saying Oklahoma state government has done well managing its finances during the pandemic, Standard & Poor’s Global Ratings has revised the state’s outlook from negative to stable, State Treasurer Randy McDaniel announced today.
S&P had placed the state on negative outlook at the start of the COVID-19 pandemic last year. With the revision announcement, the state’s current credit rating of AA was affirmed.
Treasurer McDaniel said the outlook change is encouraging and should help the state reduce interest costs on future bond issues.
“State leaders have exercised fiscal discipline during the pandemic,” McDaniel said. “This announcement from a widely respected independent source is welcome news.”
The S&P outlook change also anticipates responsible decision-making will continue.
The report states the revision is based, in part, on “the expectation that Oklahoma’s legislative and executive branches will reach consensus on actions to restore and maintain structural balance in future budgets and sustain a commitment to rebuilding reserves.”
The state’s primary reserve funds are the Constitutional Reserve Fund and the Revenue Stabilization Fund. They currently contain approximately $230 million, which is about 3 percent of general revenue appropriations. The combined balance topped $1 billion prior to the pandemic.
Other factors cited by S&P for its more favorable outlook include the state’s relatively low debt burden and its decade-long history of sufficient pension funding.
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For more information contact:
Tim Allen, Deputy Treasurer for Communications & Program Administration
(405) 205-4929
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Oklahoma state parks improvements ongoing as visitors grow during pandemic. The state is using $48.6 million in capital improvement bond money to make improvements and additions at some parks.
Oklahoma City—The Oklahoma Capital Improvement Authority (OCIA) announced today it is offering $13.24 million of State Agency Facilities Revenue Bonds TaxExempt Series 2020D (Oklahoma Department of Human Services Project) and $48.955 million of State Agency Facilities Revenue Bonds Federally Taxable Series 2020E (Oklahoma Tourism and Recreation Department Project) on December 3, 2020.
The bonds will be offered via negotiated sale through the OCIA’s underwriting syndicate, led by co-senior managers Morgan Stanley and Bank of Oklahoma, with Raymond James as co-manager on the transaction. The Municipal Advisor is Hilltop Securities.
A Preliminary Official Statement has been released and is available at www.ociabonds.com. The OCIA’s bonds are rated “AA-” by S&P and Fitch.
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For more information:
Andrew Messer
Deputy State Treasurer/OCIA Director
Andrew.messer@treasurer.ok.gov
(405) 521-4504
The Oklahoma National Guard has announced plans for the construction of a new Oklahoma National Guard Museum in Oklahoma City.
The state is moving forward with plans to fund upcoming projects of the Oklahoma Department of Transportation with money raised by issuing bond debt.
The Oklahoma Department of Transportation will price $193 million of revenue bonds in two series on October 20, 2020
State officials on Wednesday unveiled the new Capitol visitors entrance on the southeast side. During the administration of former Gov. Mary Fallin, lawmakers approved $245 million in bonds for repairs to the interior and exterior of the Capitol, which was plagued by plumbing, electrical and infrastructure issues.
General Revenue Fund collections in August were $438.4 million and came in at $4.1 million, or 0.9%, above the monthly estimate. This is $13.0 million, or 2.9%, below collections in August of 2019. Overall August collections met expectations, but were lower compared to August of 2019 due to the continued depression of gas production tax and decline of other collections.
“This month’s collections were largely boosted by unemployment remittances and timing of corporate income tax payments,” said OMES Director Steven Harpe. “These anomalies should not be expected to continue in other months, especially after federal assistance payments are fulfilled and deferred tax payments are received.”
Income taxes continued with a second month of outperforming prior year collections due to unemployment relief and changes in income filing requirements. Sales tax collections growth to the General Revenue Fund was also not economically driven, but the result of the August 2019 sales tax being reduced by a one-time, $22 million allocation to other state funds. According to the State Treasurer’s August’s Gross Receipts Report, gross sales receipts were down by 4.4%.
Major tax categories in August contributed the following amounts to the GRF:
As state government’s main operating fund, the GRF is the key indicator of state government’s fiscal status and the predominant funding source for the annual appropriated state budget. GRF collections are revenues that remain for the appropriated state budget after rebates, refunds, other mandatory apportionments and after sales and use taxes are remitted back to municipalities. In contrast, gross collections, reported by the State Treasurer, are all revenues remitted to the Oklahoma Tax Commission.
Revenue tables can be viewed on the OMES website: https://omes.ok.gov/pages/august-2020-financial-data-tables
Bond Buyer Article Summarizing the fiscal year 2021 state budget.
The fiscal year 2021 budget adopted by the legislature utilizes cuts and one-time funds to develop a balanced budget.
Oklahoma Living takes a look at the Oklahoma State Capitol renovations.
The long-awaited American Indian Cultural Center and Museum in Oklahoma City is getting a new name.
City and tribal officials announced Thursday (12/12/19) the facility will be called the First Americans Museum. Museum officials say the old name was unwieldy and that the term “Indians” is historically inaccurate.
