Capitol Report, Wayne Greene: State in debt, but it's highly manageable debt
BY WAYNE GREENE World Senior Writer
Sunday, January 27, 2013
1/27/13 at 6:27 AM
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Some Oklahoma legislators treat debt like a four-letter word - something you never utter in public.
Whether it's been for the half-built Native American cultural center in Oklahoma City, the not-yet-built popular culture museum in Tulsa or the state Capitol - apparently unbuilding itself one falling chunk of limestone at a time - the Legislature has been more than skeptical about bond deals.
It has been debt phobic.
But that may be changing.
This month, Gov. Mary Fallin took reporters on a tour of the nasty underside of the state Capitol, emphasizing the 100-year-old building's leaking pipes, antiquated wiring and crumbling facade. The best guess for fixing up the building: $160 million.
Meanwhile, the gang of disappointed suitors from years gone by - the museum boys, the medical examiner's advocate and the veterans lobby - are lining up to get a few minutes with any legislator willing to listen.
Sen. Clark Jolley, R-Edmond, is a legitimate fiscal conservative but says the state needs to form a better relationship with the idea of public borrowing.
Jolley, chairman of the Senate Appropriations Committee, is pushing for a new $38.5 million Medical Examiner's Office in his hometown. The current facility in Oklahoma City is dilapidated, dangerous and is making it hard for the state to attract qualified personnel. Bond funding seems like the most likely means of paying for the new office, but the problem has been hanging fire for years.
"There are people wanting to make it sound like we're in the same situation as Washington, D.C., and we're not," Jolley told me. "Our debt is incredibly low."
This is a question with two right answers. Oklahoma has a lot of debt, and not very much. The state owes a lot of money, if you look at the number of numerals after the dollar sign, but not nearly as much as most other states and a lot less than the experts say we can handle.
The total of state debt is a little north of $7.630 billion.
Like a rush order at the bakery for a gazillion croissants, that's a lot of dough.
But not all that debt is the same. A lot of those obligations, like the current $1.085 billion owed by the state turnpike system, is guaranteed by specific revenue streams - tolls in the case of the turnpikes.
Take out all the revenue-backed debt (including the bonds of the Grand River Dam Authority, the Oklahoma Water Resources Board and a couple of others) and the amount of debt backed by state taxes is just over $2.106 billion.
The bakery's machines are still spewing flour all over the place, but not quite as much.
Only a fraction of that - $204 million - is general obligation debt, meaning it was approved by a vote of the people with an earmarked source for repaying it. In practicality, the last time voters did that was 1992, when they OK'd a building plan for state colleges and universities with a portion of the state cigarette tax pledged to support the payments.
The rest - $1.902 billion - is so-called moral obligation debt, meaning the state has promised to pay it back from future tax revenue.
By comparison, Oklahoma's bakery isn't working nearly as hard as those of some other states.
State bond payments are equal to about 4.4 percent of the unrestricted portion of the state budget. Anything below 5 percent is considered moderate to low, and alarm bells don't start going off until you get to 7 percent.
Forty-two states have more total tax-supported debt than Oklahoma, including all the states in our region. On a per capita basis, we rank No. 38. As a percentage of personal income, we rank No. 39.
Moody's, the bond rating service, figures out what portion of the state's debt matters to Wall Street and says it works out to $615 per Oklahoman.
In Connecticut, the comparable number is $5,096 per capita. Of course, Oklahoma isn't Connecticut, and in a sense that's just a gee-whiz comparison, but it illustrates that we're not anywhere close to the ceiling.
Moody's gives Oklahoma an Aa2 credit rating, which is good, if not the best possible. As a result, the state is currently paying about 3.09 percent interest on its new borrowing, which is just a few notches ahead of the inflation rate. State Bond Advisor Jim Joseph figures the state could easily borrow another $300 million without any damage to the rating.
So, the state has a lot of debt, but it could stand to take on some more for the right reasons, which Jolley says should be the key policy issue for legislators.
He proposes four standards for deciding whether it's a good time for the state to start borrowing and if a proposed bond project is worth the cost.
1) Are interest rates reasonable? 2) Is the state overleveraged? 3) Is the money being used to buy something that will last longer than the debt? 4) Is the borrowing aimed at a core function of government?
When he looks at the balance sheet, Jolley says now seems to be the right time for the state to do some prudent borrowing for the proper purposes. That puts the burden on future taxpayers, some would say; but, if the money is used to finance assets that outlast the debt, those future taxpayers will get to enjoy their use, too.
Meanwhile, today's taxpayers can use their limited current tax revenue to pay for more immediate needs, like schools, roads and public safety.
"That is the conservative approach to government," Jolley said. "Debt is not bad policy; bad debt is bad policy."
In other words, debt is a four-letter word, but it's not dirty.
In other other words, put on your apron and get out the yeast; those croissants aren't going to make themselves.
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Original Print Headline: State in debt, but it's highly manageable debt
Wayne Greene 918-581-8308
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Associated Images:
A barricade blocks the steps to the front of the state Capitol. Barricades and scaffolding — to protect visitors from falling debris — are two signs of an aging building that could cost $160 million to repair. The 2013 legislative session begins Feb. 4, and the approval of bond money to fix up the Capitol will be one of the big debates. MATT BARNARD / Tulsa World file
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