DALLAS – Oklahoma's deteriorating state finances, underscored by a revenue failure in December, spurred a downgrade from S&P Global Ratings to AA from AA-plus.
"While the revenue failure alone, in our view, is nominal relative to previous revenue failures, collectively the state's financial position has deteriorated to a point that further precludes the state from building up reserves in subsequent fiscal years," S&P analyst Oscar Padilla wrote about Wednesday's downgrade.
The state's appropriation debt rating was lowered to AA-minus from AA.
S&P restored the state's stable outlook after the downgrade.
Oklahoma carries negative outlooks on its Aa2 rating from Moody's Investors Service and AA-plus rating from Fitch Ratings.
The downgrade comes as the Oklahoma Legislature looks for revenue and spending cuts to cover an $878 million shortfall in the fiscal year beginning July 1.
In her Feb. 6 State of the State speech, Gov. Mary Fallin called for revenue raising measures that would end the series of one-time fixes used in recent fiscal years.
"The state is experiencing recurring revenue shortfalls as a result of the structural revenue deficit and the reliance on the use of one-time funds to balance the FY-2017 budget," Fallin told lawmakers.
On Feb. 21, Oklahoma's Board of Equalization approved $6.02 billion in revenues for fiscal year 2018 appropriations, which is $701.5 million, or 10.4%, less than was appropriated for the current fiscal year.
"The numbers are bad this year and next," said state Finance Secretary Preston Doerflinger. "We need new recurring revenue sources. If we don't change our path, then we will be doing incredible harm that could set our state backward for decades."
General revenue fund revisions for the remainder of fiscal 2017 reflect revenues falling below the 5% threshold, at 5.7%, or $296.4 million, requiring a budget reductions equivalent of 0.7% to restore balance.
In February's revenue estimate, general revenue funds were projected to be down $64.9 million from December's estimate.
Fallin's fiscal 2018 budget proposes no one-time revenues to achieve structural balance but hinges on broadening the sales tax base by applying the levy to services and increasing motor fuel taxes and cigarette taxes, among other revenue enhancers. The budget would also eliminate corporate income taxes and the sales tax on groceries.
"Given the state's reliance on nonrecurring measures to balance the fiscal 2016 and 2017 budgets, coupled with shrinking reserve balances, we nevertheless believe the state is vulnerable to further revenue declines to levels well below current estimates," Padilla noted.
"In the event budgetary performance were to weaken beyond current estimates, we could lower our ratings with the outlook horizon," he said. "In the absence of meaningful structural reforms that align revenues and expenditures and that do not materially depend on one-time budget solutions or measures that carry significant implementation risk, we could lower the ratings."