DALLAS – Beset by a slumbering energy economy, Oklahoma City is counting on its top bond ratings to attract investors to $90 million of general obligation paper selling competitively March 28.
The sale comes the same day that Oklahoma County, of which Oklahoma City is the seat of government, offers $22.7 million of limited tax general obligation refunding bonds rated Aa1 by Moody's Investors Service.
While Moody's has no outlook on the county because of the small amount of debt outstanding, its outlook on the city's Aaa rating is negative.
"The negative outlook reflects the ongoing challenge to achieve structurally balanced budgets as sales tax collections continue to underperform," Moody's analyst Adebola Kushimo wrote. "Sales tax collections have yet to rebound from persistently negative monthly trends."
After overshooting projections in the post-recession energy boom, Oklahoma City's sales tax receipts declined in fiscal year 2016, falling 1.9% compared to the same period in 2015. The city's fiscal year begins July 1.
Oklahoma City Chief Financial Officer Craig Freeman said that sales tax revenue for the current fiscal year is down by 4%.
If sales tax revenue does not rebound by June 30, it will mark the first two-year drop in sales tax since the cataclysmic 1986-87 fiscal years, said Leslie Lukens Martin, senior municipal credit analyst for Cavanal Hill Investment Management.
"While the fiscal 2017 budget assumed 1.6% growth in sales tax revenues, actual collections through the first eight months of the fiscal year reflect a 4.2% decline from the same period of the prior year, or $7.2 million short of original budget projections," Lukens said.
Sales tax revenue provides 60% of Oklahoma City's operating revenue. But the bonds pricing next week are backed by property taxes, which have shown continued growth.
S&P Global Ratings, which raised Oklahoma City to AAA in the recession year of 2009, showed no signs of backing off that rating, with a stable outlook in a March 13 report.
"In our view, Oklahoma City's debt and contingent liability profile is strong," S&P analyst Jennifer Garza said.
"Total governmental fund debt service is 10.6% of total governmental fund expenditures, and net direct debt is 104.7% of total governmental fund revenue," she wrote. "Overall net debt is low at 2.7% of market value, and approximately 68.4% of the direct debt is scheduled to be repaid within 10 years, which are in our view positive credit factors."
Oklahoma City derives credit strength from being Oklahoma's capital and largest city.
"The city continues to benefit from the stabilizing influence of government sector, including federal, state, and local agencies, which collectively represent slightly less than an quarter (estimated 151,800 employees) of the total population," Garza wrote.
Oklahoma this year will celebrate the centennial of the state Capitol building, which is being repaired through a $245 million state bond program. The most recent $70 million issue from the Oklahoma Capitol Improvement Authority brought an S&P downgrade of the state's general obligation rating to AA from AA plus.
Inside the Capitol, Oklahoma lawmakers are struggling to cover a nearly $1 billion revenue shortfall.
At the federal level, Tinker Air Force Base and the Oklahoma City Air Logistics Center have an estimated 24,000 total civilian and military employees.
"While the economy has historically been supported by oil and gas activities and ancillary services, concerted efforts to diversify the base has, in our view, partially insulated the city from the sector's continued weakness," Garza said.
A series of bankruptcies and consolidations in the energy sector have left the city with a 25% office vacancy rate, according to recent reports.
To attract more visitors, the capital city last year christened Riversport Rapids, an aquatic center and whitewater rapid course on the Oklahoma River near downtown. The center was funded using the city's MAPS3 sales tax program, which finances projects without issuing debt.
The one-cent sales tax, originally approved in 1993 for the Metropolitan Area Projects Plan (MAPS), was extended as MAPS-For-Kids in 2001 and as MAPS3 in 2009. The 2009 vote called for outlays of $777 million for several projects, including a $288 million convention center expected to break ground this year.
"We've always considered the new convention center to be a community space that serves as Oklahoma City's living room," Oklahoma City Mayor Mick Cornett said in a prepared statement last month. "The preliminary report shows it all coming together, and the next steps are the final design and requesting bids from contractors."
Other MAPS3 projects include a $131 million streetcar line, a downtown public park and state fairgrounds improvements.
Downtown has also seen private investment with the construction of two hotels and redevelopment of two existing hotels. Plans call for renovation of the downtown area with improvements to streets, sidewalks, parks, and plazas.
Residential and mixed-use developments have also been completed recently in downtown, or are under construction, including the 300 for-rent apartments at Legacy at Arts Quarter, several hundred for-sale residential units north of Bricktown, and the renovation of several office buildings to residential buildings in the core of downtown.
"Despite the persistent slump in oil prices, the city's economy has remained resilient," said Kushimo, the Moody's analyst. "Year-over-year change in employment has been positive in each month except two (October and November 2016), where the contraction was less than 1%, since oil prices began their descent in the summer of 2014."
Next week's bond sale was authorized by voters in 2007 with passage of $835.5 million of general obligation authority. Freeman said the city expects one more sale from the 2007 authorization as it lays the groundwork for the next GO bond proposal in the fall.
To stay up to date on infrastructure needs and maintain a steady mill levy, the city typically markets its GO bonds in the spring of each year, Freeman said.
Next week's deal comes in the wake of the Federal Reserve Bank's third rate increase in as many years after holding overnight lending rates to near zero for nearly a decade.
Freeman said that rate hike was already factored into the deal under the guidance of financial advisor Dennis Waley, managing director of Public Financial Management.
Co-bond council are Public Finance Law Group and Williams Box Forshee and Bullard.
Bids on the bonds are due at 8:30 a.m. on March 28. Closing is scheduled for May 10.
Oklahoma City has had very good demand," Waley said. "We are very pleased that we have had multiple bidders in the past."