In an effort to restrain Oklahoma's state bond indebtedness, Sen. Josh Brecheen filed Senate Joint Resolution 10 this year. The Senate overwhelmingly approved the proposed constitutional amendment Wednesday which would prohibit state annual debt service payments from exceeding 4.5 percent of the average of the general fund revenue for the preceding five fiscal years. Oklahoma's current ratio of net tax-supported debt as a percentage of the five year average of unrestricted revenue stands at approximately 3.4 percent.
"Oklahomans have made it clear time and time again that debt related spending should be minimized not only on the federal level but also on the state level," said Brecheen, R-Coalgate. "This bill accomplishes that goal and has tremendous potential in bridging the philosophical divide concerning the debate over state bond indebtedness, which has drained the legislature of time and energy for the past several years."
"Thanks to input provided by recognized experts, this bill establishes a framework designed to be neither overly restrictive nor generous and, based on rating agency commentary, would likely preserve our AA2 bond rating through emergency override provisions purposely included,” said Brecheen. “Those of us in the state legislature who have opposed new bond debt issuance might be convinced to vote differently if such a valid limitation was established."
Currently, Oklahoma's net tax supported bond debt stands at $1.5 billion. Approximately $185 million will be appropriated by the legislature to service this outstanding liability in 2013.
"Forty percent of our annual debt service payments go toward paying down interest. Those dollars lost to interest payments will never be spent in the classroom, used to renovate a structurally-deficient bridge or appropriated to protect the public," said Brecheen.
"Although Oklahoma currently has a low state debt to revenue ratio, ranking in the bottom 20 percentile among the 50 states, we should ensure this position is maintained. Movement towards excessive debt is a trend line all too commonly seen among governing bodies and is reflective of our cultural acceptance of it over the years,” said Brecheen. “We need to ensure Oklahoma is protected from such faulty influence in the years ahead. With this measure every Oklahoma voter and legislator can leave a sound legacy by implementing a policy that will alleviate the temptation of excessive indebtedness in the years ahead.”
“Today as a legislative body we work under a budgeting framework established by previous generations of Oklahomans. The framers of our current Constitution knew political pressure could sometimes result in unnecessary spending, therefore, they provided constitutional limitations to keep legislators from succumbing to such pressure,” explained Brecheen. “This budgeting framework wisely establishes caps and back stops on various funds so the appropriations process in lean years does not jeopardize budgets in the years to follow.”
Examples under state constitutional provisions where legislative appropriations are currently limited include:
1) a provision prohibiting legislators from spending any more than 12 percent above the previous fiscal year's budget (adjusted for inflation)
2) a provision allowing for only 95 percent of the Oklahoma Board of Equalization's certified general fund estimate to be appropriated.
3) a provision prohibiting legislators from spending any more that 3/8 of the Rainy Day Fund and ONLY if collected revenues fall short of the Equalization Board estimate.
4) a provision capping deposits into the Rainy Day Fund at 15 percent of the previous years’ certified revenue.
"This bill subscribes to the same philosophy embraced by those great Oklahomans who preceded us. The restraints they established have aided us greatly during lean years," said Brecheen
SJR 10 would exclude debt from the Master Lease Program and the Water Resources Board from being considered in the legislation’s equation as they are tax-backed but not tax supported and, therefore, not serviced by annual state appropriations. The measure also allows the Legislature to increase the debt limit if they declare an emergency. A decrease in the five-year average of the general fund revenue would not cause the Constitution to be violated.