Fitch Rates Oklahoma Development Finance Authority's $8.2MM Lease Revs 'AA-'; Outlook Stable.
The rating reflects the payment of lease rentals by the State Regents from state general fund revenues, subject to annual appropriation, and allocation by the State Regents to the participating educational institutions, in this case Redlands Community College. Both the state constitution and enabling statutes provide for appropriation of lease payments in support of this master real property program. All higher education appropriations to the State Regents are consolidated, with the State Regents authorized to allocate funds first to payment of lease rentals of each participating institution. The State Regents covenant to include a budget request for lease payments sufficient to pay debt service for this program, which has been in use for over eight years. The fiscal 2010 appropriation for the state regents is $1.1 billion.
The state's 'AA' GO bond rating and Stable Outlook reflect low debt levels, disciplined financial policies, including an appropriation limit of 95% of certified general fund revenues, close monitoring of revenue results, and a constitutional budget reserve funded at $596 million or 10% of expenditures. The state has continued to demonstrate a willingness and ability to address fiscal challenges which now include revenue underperformance. Tax revenues are constrained both by an economic base with below-average wealth levels and a supermajority requirement of the legislature or voter referendum to raise taxes.
ODFA is one of the principal financing agencies of the state as the use of GO bonds is limited. The term of the lease extends through the life of the bonds, with a maximum term of 30 years; lease payments are not abatable. In the aggregate, the state's GO and lease debt service expense is a low 2.8% of fiscal 2010 appropriations. Net tax supported debt totals $1.6 billion, equal to 1.2% of 2008 personal income.
Financial operations are conservative. The budget reserve has been fully funded since fiscal 2001, and the state maintains a separate cash flow reserve. Fiscal 2009 general fund revenues were constrained by the weakened economy. Originally projected to rise 3.2% from the prior year, actual revenues came in approximately $428 million less than expected and $435 million below the prior year. While the state's largest revenue source, income tax, fell 9.5% year over year, sales tax revenues, the second largest source, actually increased 2.2% year over year. Nevertheless, the 7.3% shortfall exceeded the state's 5% cushion and cuts of 1.5% were instituted. The fiscal 2010 budget includes use of $641 million in federal stimulus monies and does not use reserve funds. Personal income taxes are projected to decline 2.6% from fiscal 2009 revised receipts with a 1.6% gain projected for sales tax collections. Gas production taxes are projected to drop 29% with oil production tax revenues forecasted at zero.
The state's economy is diversifying, although oil and natural gas production and military installations remain important. Oklahoma continued to grow while the nation as a whole entered the recession, but the state began to contract as well in 2009. August 2009 employment was down 2.2% year over year, much lower than the 4.4% U.S. drop but a sharp reversal from the 1.7% growth in state employment of 2008. Unemployment is rising but remains comparably low at 6.8% as of August 2009, versus the national rate of 9.7%. Personal income growth was strong into early 2009, rising 3.2% in the state during the first quarter of 2009, compared to 0.8% growth for the U.S.
Additional information is available at www.fitchratings.com.
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|Date:||Oct 9, 2009|
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