Budget gaps are shrinking at the Oklahoma state Capitol.

DALLAS - Oklahoma will refund more than $300 million of revenue bonds in a pair of deals beginning this week.

The state expects net present value savings of nearly $15 million on a $221.4 million advance refunding pricing Tuesday, March 25, after a retail order period on Monday.

This week's bonds and an $88 million refunding next week will bear the name of the Oklahoma Capitol Improvements Authority.

Citi is book runner, with director Matthew Johansen as lead banker. Co-managers are BOSC, Inc., Baird, and Wells, Nelson & Associates.

Lynne Driver of the Floyd Law Firm is bond counsel.

State Bond Advisor James Joseph anticipates savings of $14.9 million on the new issue.

"Interest rates have remained favorable in 2014 and we're hoping the appetite for munis continues," Joseph said. "The OCIA is a strong credit and we believe there will be good demand from both retail and institutional investors."

The state bond advisor provides analysis and advice on bond issues in the state and assists the governor and legislature on matters relating to capital planning, debt issuance, and debt management. The advisor's staff also represents the interests of the state before the bond rating agencies and credit enhancement providers.

The 2014A bonds refund the outstanding series 2005 A-F bonds where the intended source of repayment on the bonds is from five separate state agencies from their budget allocations.

With this deal, Oklahoma will carry $1.16 billion of appropriation-backed debt issued by the Oklahoma Capitol Improvement Authority and $714 million issued by the Oklahoma Development Finance Authority.

Oklahoma Gov. Mary Fallin chairs the OCIA, which issues debt for construction projects and refinancing.

This week's bonds carry ratings of AA from Standard & Poor's and Fitch Ratings with stable outlooks.

The $88 million coming to market April 3 on behalf of the University of Oklahoma brought an unusual dustup over possible threats to the state's credit rating.

State Sen. Patrick Anderson, R-Enid, warned that the refunding designed to save $10 million on bonds issued in 2010 could bring a downgrade because the OCIA would be required to find that the state was in "financial distress" in order to authorize the refunding.

"If OCIA goes forward with this plan and declares that the State of Oklahoma is in 'financial distress', it will have a devastating impact on our state's bond rating and could cost Oklahoma taxpayers millions," Anderson said in a prepared statement.

Alexandra Edwards, senior bond analyst with the bond advisor's office, disagreed, saying that no restructuring would cause the rating agencies to downgrade the state's credit.

Amanda Paliotta, vice-chancellor for budget and finance for the Oklahoma State Regents for Higher Education, said that the regents needed to restructure the debt to cover a fiscal 2015 gap of $10 million. That could be provided by appropriations from the Oklahoma Legislature currently in session. But Paliotta said that refinancing the debt for present value savings of about 11.6% or $10.9 million was preferable.

In its March 21 report, Standard & Poor's showed no alarm about the state's credit, affirming its AA-plus general obligation rating with a stable outlook.

"The state's significantly improved, but still below-average pension funded levels and practice of underfunding its actuarial required contribution together with Oklahoma's exposure to fluctuations in oil and gas prices constrain the rating," wrote primary credit analyst John Sugden.

Other caveats included a potential revenue shortfall based on lower than expected sales tax and income tax estimates.

"In our view, absent corrective measures, weaker-than-estimated year-to-date revenue collections driven by a weaker economy and policy decisions made in 2010 could place increased pressure on Oklahoma's finances and reserves in fiscal 2014 and fiscal 2015," Sugden said.

Year-to-date revenue collections through February 2014 totaled $3.5 billion and fell $174 million, or 4.8%, short of estimated amounts while coming in $8.3 million, or 0.2%, above actual prior-year collections.

Income tax revenues, the state's largest revenue source, are running $80 million, or 5.3% below projections and 6.2% below collections the same period last year.

Sales tax revenues are $56.3 million, or 4.2% below estimates, although still exhibiting positive growth of 1.6% relative to last year.

"Given the large government presence in Oklahoma (21.6% of employment), including three military bases, lower income tax and sales tax revenues could likely be the result of sequestration and the partial federal government shutdown," he said.

If certified funds are insufficient to cover appropriations, the constitution requires that appropriations be reduced proportionately. In addition, the office of management and enterprise services is statutorily required to monitor revenue collections and, if warranted, to make reductions in appropriations to avoid a deficit.

The legislature can also make selective spending reductions to balance the budget. Alternatively, the state could also rely on a combination of spending reductions and reserves to offset any revenue shortfalls.

Gov. Mary Fallin's 2015 executive budget totals about $7.04 billion, an approximately $88 million, or 1.3%, reduction from the fiscal 2014 adopted budget.

The state attributes the revenue reductions not to economic factors, but to policy decisions.

The governor proposed cuts of 5% out of most agency budgets, or about 1% of the state total budget, while making targeted increases in funding for a few priority areas.

Fallin again proposed a 0.25% reduction to the personal income tax to 5% from 5.25% in response to a state Supreme Court ruling that a bill last year that combined a tax cut with a bond proposal violated the state constitution's ban on "log rolling," by dealing with separate subjects in one bill.

The reduction in personal income tax, if approved, would be effective for the Jan. 1, 2015 calendar year and reduce overall revenues by $47 million in fiscal 2015 and $71 million in fiscal 2016, according to the state's estimates.

Instead of cash funding renovations to the State Capitol, the governor proposed bonding for those repairs and included increased funds for debt service in her budget.

A Senate-approved proposal to issue $160 million in bonds to pay for repairs to the Capitol is waiting for a vote in the House, which has passed a related resolution.

The House bill would require a statewide vote on whether to issue $120 million in bonds to repair the nearly 100-year-old building.

The House has also passed Fallin-backed measures to replace traditional pensions for new state employees with 401(k)-style retirement plans and a companion measure to give many state workers their first raise in seven years.

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