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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.

SECURITY

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.

KEY RATING DRIVERS

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.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

--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.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

--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.

PROFILE

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: 

• $1.4 billion of lease revenue bonds issued by the Oklahoma Capital Improvements Authority at 'AA-'
• $86.6 million of Transportation Infrastructure Finance and Innovation Act (TIFIA0 loan obligations issued by the Oklahoma Capital Improvement Authority at 'AA-'
• $400 million of lease revenue bonds issued by the Oklahoma Development Finance Authority at 'AA-'

"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.

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."