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Fitch Rates Oklahoma Capitol Improvement Authority's $152MM Lease Revs 'AA-'; Outlook Stable

Fitch Rates Oklahoma Capitol Improvement Authority's $152MM Lease Revs 'AA-'; Outlook Stable

 

BUSINESSWIRE.COM

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA-' rating to $152 Oklahoma Capitol Improvement Authority (OCIA) state highway capital improvement revenue bonds series 2009A and 2009B (federally taxable - interest subsidy - Build America Bonds). The bonds are expected to sell through negotiation Sept. 1, 2009 and are due July 1, 2010-2024. The Rating Outlook is Stable.

The rating reflects the payment of lease rentals by the State Department of Transportation from state revenues, specifically from the Rebuilding Oklahoma Access and Driver Safety Fund, subject to annual appropriation. The Department of Transportation covenants to include a budget request for lease payments sufficient to pay debt service for this program. OCIA is one of the principal financing agencies of the state as the use of general obligation (GO) bonds is limited. The term of the lease extends through the life of the bonds; 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. Including the current offering, net tax supported debt totals $1.7 billion, equal to 1.3% of 2008 personal income.

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.

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. The state continued to grow while the nation as a whole entered the recession, but Oklahoma began to contract as well in 2009. June 2009 employment was down 2% year over year, much lower than the 4.2% 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 6.3% as of June 2009, versus the national rate of 9.5%. 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.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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