The bonds are expected to sell via negotiation on
In addition, Fitch affirms the ratings on the following outstanding debt:
The Rating Outlook is Stable.
The bonds are limited special obligations of the ODFA secured by annual appropriations of the state of
KEY RATING DRIVERS
APPROPRIATION MECHANISM: The rating on the ODFA bonds, backed by
CONSERVATIVE FINANCIAL OPERATIONS: The state's financial operations are conservatively managed, including maintenance of separate rainy day (the constitutional reserve) and cash flow reserve funds and a policy of appropriating only 95% of expected revenues. Growth in personal and corporate income taxes as well as sales tax revenues has bolstered financial operations and allowed for consecutive deposits to the rainy day fund (RDF). This has in turn offset the cyclical collections of severance tax revenue.
CONCENTRATED ECONOMIC BASE: The state's commodity-based economy, based on oil and gas production as well as various agricultural products, strongly rebounded from the recession although recent economic growth has been more subdued.
MANAGEABLE DEBT POSITION: Debt levels are low, and tax-supported debt is amortized relatively quickly. Most new issuance is in the form of lease revenue bonds. The unfunded pension liability for state employees has improved following significant pension reform.
The rating is sensitive to shifts in the state's GO rating to which it is linked.
The ODFA bonds currently offered are secured by lease rental payments by the State Regents from state general fund revenues, subject to annual legislative appropriation. ODFA is one of the principal financing agencies of the state. Both the state constitution and enabling statutes provide for appropriation of lease payments in support of the master equipment program, and the master leasing structure on behalf of the State Regents has been validated by the
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 program bonds. The fiscal 2015 operating fund appropriation for the State Regents is
The state's 'AA+' GO bond rating and Stable Outlook reflect low debt levels and disciplined financial policies. This includes an appropriation limit of 95% of certified general fund revenues, close monitoring of revenue results, and provisions to maintain separate rainy day (the constitutional reserve fund) and cash reserves. The state has demonstrated a willingness and ability to address fiscal challenges including revenue underperformance through the recent recession. Tax rate adjustments are limited by a supermajority requirement of the legislature or voter referendum to raise tax rates.
SLOW GROWTH IN STATE'S CONCENTRATED ECONOMIC BASE
After consecutively outperforming national growth trends coming out of the recent recession, the state's year-over-year (yoy) employment growth slowed in 2013. The state recorded 1.2% yoy employment growth in calendar year (CY) 2013 as compared to a more robust national employment growth rate of 1.7%.
The economy continues to be supported by the state's large natural resources base; an analysis conducted by the
CONSERVATIVELY MANAGED FINANCIAL OPERATIONS
Financial operations are conservatively managed with the state permitted to enact appropriations for only 95% of anticipated revenues in the forthcoming fiscal year. This conservative budgeting is important given wide fluctuations in both severance and corporate income tax receipts to the general fund, including in the recent fiscal year that ended on
Positive economic momentum coming out of the recession translated into strong receipts for the fiscal year ending
Notable deviations from forecast occurred with the sales tax (short of forecast by 3.5% but 3.1% growth yoy) and the corporate income tax (CIT; short of forecast by 36.4% and 32.1% below collections in fiscal 2013). The personal income tax (PIT) missed the forecast by a modest 0.9% while declining 1.4% yoy from fiscal 2013. The difference from the PIT forecast is notable as the forecast benefited from the addition of
A PIT rate reduction for the state's highest taxpayers from 5.25% to 5%, contingent on increases in GRF tax revenue compensating for the foregone PIT revenue, was enacted in the 2014 legislative session, but does not take effect until
CONSERVATIVE DEBT MANAGEMENT
The state's debt management is conservative and net tax-supported debt of
The state has taken significant steps to address pension underfunding, which had been a credit issue. Several reform measures were adopted in the fiscal 2011 legislative session to address funding gaps. Unfunded cost of living adjustments were eliminated, reducing all seven state systems' unfunded liabilities by a combined one third; the minimum age for retirement was raised for all new employees; a portion of all future surplus revenue and one-time funds was dedicated to the fiscal restoration of the systems; employer and employee contribution rates were set to meet the annual actuarially calculated required contribution (ARC); and other actions were taken to restore system integrity.
For fiscal 2013 on a reported basis, OPERS' (state's largest system) funded ratio was a solid 81.6% and TRF's (teachers') funded ratio was a weaker 57.2%. Using Fitch's more conservative 7% discount rate assumption (instead of the 7.5% rate assumed by OPERS and 8% for TRF), the funded ratio for OPERS would be 77.3%, while for TRF it would be 51.6%. The state overfunded its required contribution to the systems in fiscal years 2012 and 2013. On a combined basis, the state's debt and unfunded pension liabilities as a percentage of personal income at 7% is slightly above the median for U.S. states of 6.1%.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's report 'Tax-Supported Rating Criteria', this action was additionally informed by information from
--'Tax-Supported Rating Criteria' (
--'U.S. State Government Tax-Supported Rating Criteria' (
Tax-Supported Rating Criteria
U.S. State Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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