The Oklahoma Legislature would have a better picture of total state debt under a measure passed unanimously Tuesday. Senate Bill 638, by Sen. Greg Treat, would require the State Bond Advisor and the Office of Management and Enterprise Services to produce an annual written debt affordability study to be presented to the Legislature and Governor by January 15 each year.
“Having this annual study would provide the Legislature with a clearer understanding of our long-term state debt so that we can make more fiscally responsible decisions not just for the next few years but for future generations,” said Treat (R-Oklahoma City). “We have an obligation not only to the citizens of Oklahoma today in providing crucial state services and being good stewards of their tax dollars but we must also work to create a stronger Oklahoma for our children and grandchildren.”
The study would include the state’s debt relative to its benchmark debt ratio, which caps debt service at five percent of revenues. It would combine existing reports, such as the Bonded Indebtedness Report and the State Bond Advisor Annual Report, to analyze Oklahoma’s debt position. Data would include net tax-supported and net revenue-supported debt for the most recently concluded fiscal year as well as the debt for state major component units and agencies for which the state may hold ultimate financial responsibility such as the Oklahoma Housing Finance Agency, the Oklahoma Turnpike Authority, and the Oklahoma Municipal Power Authority.
The bill requires the study to include projections of debt service, future debt issuance, and debt to capacity (such as debt service as a percentage of revenues). Each projection would extend at least five years from the fiscal year of the study’s publication. Also included in the study would be a discussion of Oklahoma’s unfunded pension liabilities and the impact of these liabilities on the state’s ability to borrow and the cost of debt. The study would identify and calculate relevant metrics including debt service as a percentage of revenues, total debt as a percentage of state personal income, and total debt per capita. Analysis would compare debt metrics to a select group of at least ten other states. A sensitivity analysis would also be conducted to understand the effects of uncertain conditions including, but not limited to, analysis of the impact of revenue and interest rate volatility on debt ratios. Finally, it would provide an estimate of available debt capacity Oklahoma could issue over the next five years without causing the benchmark debt ratio of debt service as a percentage of revenues to exceed five percent.
The proposed debt affordability study would make Oklahoma one of 28 states to provide such research.