DALLAS - After two trips through the Oklahoma Legislature and two through the state Supreme Court, the first $50 million of bonds to repair the state's Capitol are finally heading to market.
The sale through the Oklahoma Capitol Improvement Authority is tentatively scheduled for Jan. 13-14 with BOSC, Inc., a subsidiary of BOK Financial Corp. as senior manager. Co-managers are RBC Capital Markets and Wells, Nelson & Associates.
Buyers of the OCIA lease-backed obligations usually include Oklahoma and national retail investors, bank trust departments and bond funds, said State Bond Advisor James Joseph.
"With the expected heavy redemption of bonds on Jan. 1, 2015, we anticipate a strong demand for this issue across all investor groups," Joseph said.
Oklahoma lawmakers approved $120 million to repair the 97-year-old Capitol in 2013, but the state Supreme Court declared the legislation unconstitutional because it was combined with a measure cutting taxes, thereby violating the ban on "logrolling," or combining dissimilar measures in a single bill.
In the 2014 session, lawmakers again passed a bill at Gov. Mary Fallin's urging to cover the repairs.
On Dec. 15, the Supreme Court unanimously upheld the constitutionality of the measure, House Joint Resolution 1033, allowing the bonds to go to market. Oklahoma City attorney Jerry Fent unsuccessfully challenged the procedure used to pass the resolution.
Capitol project manager Trait Thompson said the court challenge has not created a major delay. State officials have cited the urgency of the repairs. Pieces of limestone have fallen from the building's exterior. Yellow barricades and scaffolding were put up in September 2011. The Capitol's plumbing and electrical systems are in urgent need of repair, said architect Duane Mass.
House Speaker Jeffrey W. Hickman, R-Fairview, author of HJR 1033, praised the court's decision.
"The state Capitol has suffered decades of neglect which has resulted in unnecessary hazards for employees and visitors," Hickman said. "With this decision in hand, we can move forward to restore the people's Capitol to a condition in which all Oklahomans can once again take great pride."
HJR 1033 authorizes $120 million to repair the Capitol through a 10-year bond issue. Keeping the maturities to 10 years could save Oklahoma taxpayers up to $100 million in interest costs compared to other bond proposals, Hickman said.
The State Capitol Repair Expenditure Oversight Committee, created to supervise the project, approved a preliminary plan on Dec. 11 for restoration of the interior of the Capitol.
"A project of this magnitude will require dedication, ingenuity and long-term commitment from all the stakeholders at the Capitol and beyond," said Stephen Mason, an Oklahoma City engineer who chairs the committee. "Projects of this nature are rarely easy or without inconvenience. Nevertheless, we are certain that the end result is worth all that must be endured to get there."
A contract for the interior restoration will be awarded in February through the state's competitive bidding process. Once selected, the contractor will begin working with the committee to develop a scope of work, officials said.
Exterior restoration should begin in spring, while interior restoration should begin in 2016, the committee said.
Fitch Ratings and Standard & Poor's will rate the OCIA bond issue for the Capitol repair project, Joseph said; it will carry a Moody's rating. Both Fitch and S&P rate Oklahoma's general obligation bonds AA-plus, and prior ratings on lease-backed OCIA issues carry AA ratings from those agencies.
As the Legislature prepares to meet for its 2015 session, budget analysts are keeping an eye on how falling oil prices might affect the process.
"A prolonged decline in oil prices could derail the region's strong growth trends experienced thus far," Standard & Poor's said in a recent report on the region. In addition to creating a drag on the region's GDP growth, the drop in oil prices could constrain state (Texas, Oklahoma, and Louisiana) budgets that were drafted with assumptions of higher oil prices."
Collections from Oklahoma's gross production tax on oil and natural gas slipped below prior year collections in November for the first time in 19 months, down by $3.72 million or 5.3%, said state Treasurer Ken Miller.
November remittances reflect production from September, when the price of West Texas Intermediate Crude at Cushing was listed at $93.21 per barrel. The same oil was selling for around $55 per barrel last week, according to the U.S. Energy Information Administration. Prices peaked in June above $107 per barrel.
"We're beginning to see the effects of the general decline in oil prices that began in July. However, the impact of today's prices won't be seen for another few months," Miller said.
There were concerns among some Oklahoma lawmakers that the fall in oil prices would prevent tax cuts adopted by the 2014 Legislature. However, the state Board of Equalization declared on Dec. 18 that revenue growth would be sufficient to trigger income tax cuts in fiscal year 2016.
"The estimate to be considered of $60.7 million more than last year shows the continued strength of our economy," Hickman said after the meeting of the BOE. "The growth is not only enough to trigger a cut in the state income tax from 5.25% to 5%, it is more than enough to cover the $48 million that Oklahoma taxpayers will get to keep in 2016."
The estimates approved by the board project revenues that could be enough to also trigger a deposit of almost $37.8 million in the state's Rainy Day Fund. Despite that, the legislature could face budgetary challenges as the projections approved today are 0.3% or $25.6 million less than what was certified for last year's budget.
The recent drop in oil prices, as well as lower prices in agricultural commodity markets, could continue to put pressure on state revenues, officials said.
"The Oklahoma economy is stable, and I am hopeful the current geopolitical circumstances that are driving down the price of oil are temporary," Hickman said. "Even though our economy is strong, all entities which receive state tax dollars should be making preparations now in their current budgets for fewer dollars in next year's budget, just like Oklahoma families and businesses do every day."
Oklahoma's personal earnings growth rate has been among the fastest in the nation over the past five years, in large part due to the energy industry, according to data released from the U.S. Commerce Department this month.
North Dakota, Oklahoma, and Texas have had the highest percentage earnings growth since the recession ended in the second quarter of 2009, according to the December Commerce report. Those states also have seen increases for earnings in energy sector jobs, said David Lenze, an economist for the Commerce Department's Bureau of Economic Analysis.
Energy sector earnings topped $16 million in Oklahoma during the third quarter of 2014, up from about $7 million in the second quarter of 2009, which economists mark as the end of the recession, according to Bureau of Economic Analysis data.
According to those numbers, Oklahoma has seen more than a 128% increase in energy sector earnings since the end of the recession.
Over the 12-month period ending in November, Oklahoma added 2,500 new energy sector jobs, a 4.2% increase, according to data from the Oklahoma Employment Security Commission released this month.
For the third quarter of 2014, Oklahoma ranked No. 10 in the nation for personal income growth, at a rate of 1.1%. That compares to a 1% growth rate nationally.