Others are tracking the Legislature’s work
AS the Legislature wrestles with ways to fill a $215 million budget hole created by sloppy lawmaking, others are watching — and not just Oklahomans who have grown accustomed to, and weary of, the distressing goings-on at NE 23 and Lincoln.
In New York City, the nation’s largest bond rating agencies are looking askance at our Legislature’s continuing practice of using one-time funds and other gimmicks to repair holes in the state budget has. That’s not good.
Moody’s Investor Service recently issued a “credit negative” warning for Oklahoma’s credit rating. The development got buried somewhat because it came as legislation designed to bring an end to the special session was being noisily defeated, tweaked, and defeated again.
Moody’s said the Legislature’s “inability to pass a comprehensive and permanent solution is credit negative.” In other words, it sets up the possibility that Moody’s could downgrade the state’s credit rating. Standard & Poor’s has already done that, in March lowering Oklahoma’s rating on general obligation bonds and appropriation debt to AA from AA+.
The lower a state’s credit rating, the more expensive it becomes to borrow money. For years, the rating agencies have criticized Oklahoma for not investing enough in itself, for instance by not approving bond issues to pay for infrastructure upgrades. Now the mess that is the state budget is a point of considerable concern.
State Treasurer Ken Miller highlighted the Moody’s commentary in his latest economic report. Moody’s noted that the special session impasse highlighted the “economic and institutional weaknesses that have led to a persistent structural budget imbalance since 2015.” Among the institutional concerns, Moody’s said, was the 75 percent supermajority needed to approve tax increases.
Oklahoma voters placed that threshold in the state’s constitution and don’t seem inclined to change it. Thus, lawmakers are charged with balancing the budget with available revenue. A downturn in the economy, driven largely by lower energy prices, helped produce the large budget gaps in recent years, and lawmakers have addressed those by drawing down the state’s Rainy Day Fund and using one-time funds.
The Legislature’s rejection of various tax increase proposals leaves the likelihood of more of the same to try to cover the existing budget hole. Those proposals, Moody’s noted, do “nothing to address the ongoing structural imbalance, which increases the difficulty of drafting a 2019 budget.” Shrinking cash reserves only figure to compound future budget challenges, the agency said.
In March, Standard & Poor’s said it could lower ratings further if the state doesn’t come up with “meaningful structural reforms that align revenues and expenditures and that do not materially depend on onetime budget solutions.”
It also said at that time that it could raise Oklahoma’s rating if economic indicators and state revenues improved and if reserves grow due to structural changes. Miller noted that the state’s economy and revenues are on the uptick, but “there is no meaningful fix for the structural imbalance in sight and reserves continue to be depleted.”
Put simply, lawmakers must make spending and revenue align. The state can’t afford for lawmakers to continue to ignore that fact.