Fitch Rates Oklahoma Capitol Improvement Auth's $13MM Supreme Court Project Lease Revs 'AA-'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA-' rating to the Oklahoma Capitol Improvement Authority's (OCIA) $13,000,000 state facilities revenue bonds, series 2008B (Oklahoma Supreme Court Project-subject to annual appropriation). The bonds are expected through negotiation Nov. 4, 2008 and are due July 1, 2010-24. Fitch has also assigned an 'AA-' rating to OCIA's $20.6 million outstanding series 2006C and $6.9 million outstanding series 1999A bonds which are both on parity with the new project bonds. Additionally, Fitch has affirmed the state of Oklahoma's (the state) $203.7 million in outstanding general obligation (GO) bonds and $51.8 million GO Industrial Finance Authority bonds at 'AA'. The Rating Outlook is Stable.

The 'AA-' rating and Stable Outlook on the bonds reflects the payment of lease rentals by the Oklahoma Supreme Court derived from state general fund revenues, subject to annual legislative appropriations and allocation by the Supreme Court. Bond proceeds will complete funding for renovations to the Wiley Post building in the capitol complex. The state's 'AA' GO bond rating and Stable Outlook reflect continued 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 reserve of $596 million, the required 10% of expenditures.

The state has demonstrated a willingness and ability to address fiscal challenges and honor its stringent financial controls. Tax revenues are constrained by both an economic base with below-average wealth levels and a supermajority requirement of the legislature, or voter referendum, to raise taxes. Pension funding ratios are low.

The 2008B bonds are on parity with $20.6 million outstanding 2006C bonds and $6.9 million series 1999A bonds payable from state appropriations sufficient to make the lease payments. The non-abatable lease rentals are due on the first day of the month. The state has been making lease rental payments, subject to annual legislative appropriation, on the court project bonds since fiscal 1999. OCIA is one of the principal financing agencies of the state, as the use of general obligation bonds is quite limited. Net tax supported debt as of Oct. 2, 2008 aggregates $1.6 billion, equal to $430 per capita and 1.2% of 2007 personal income. Debt service is very manageable 3.4% of fiscal year 2008 revenues.

Financial operations are conservative with the state budgeting 95% of revenues. Reserves have been fully funded since fiscal 2001. Fiscal 2009 general fund revenues are projected at $5.9 billion, up 3.2% from the prior year with personal income taxes to rise 1%, sales tax to grow 6%, and corporation income taxes expected to be up 2%. Gas production taxes are projected to rise 17.8%. For the first quarter of fiscal 2009, total revenues rose 6.9% from the prior year and were 6.5% above budget estimates.

The state's economy is diversifying although oil and natural gas production remain important. The state's military installations gained employment during the last round of base closures. Non farm employment rose 1.7% in 2007 with September 2008 rising 0.7% from a year ago as compared with the 0.4% national decline. Personal income growth has also been strong, rising 135% of the US rate of growth during 2007. Second quarter 2008 personal income growth was 7.2%, well above the U.S. rate of growth. Personal income per capita has also risen more rapidly than the nation, rising 6.9% in 2007 equal to $34,153, 89% of the U.S. Unemployment rates are low, 3.8% in September 2008, below the US rate of 6.1%.

Fitch issued an exposure draft on July 31, 2008 proposing a recalibration of tax-supported and water/sewer revenue bond ratings which, if adopted, may result in an upward revision of this rating (see Fitch research 'Exposure Draft: Reassessment of the Municipal Ratings Framework'.) At this time, Fitch is deferring its final determination on municipal recalibration. Fitch will continue to monitor market and credit conditions, and plans to revisit the recalibration in the first quarter of 2009.

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