OKLAHOMA CITY — The state’s ongoing budget crisis could hit local taxpayers’ wallets for years when they need new school projects, roadways, or infrastructure improvements in their counties, cities and towns, officials said.

Earlier this week, Moody’s Investors Service — a business that helps determine states’ credit worthiness — downgraded Oklahoma’s credit outlook to “negative” because of the ongoing struggles to close the $215 million budget gap.

“They basically said that because of our inability to be able solve our problems as a state and put our state on a path of sustainability going forward that they were giving us this negative rating,” said Gov. Mary Fallin.

Moody’s analysts’ report cited lawmakers’ ongoing budget stalemate, the continued push to fix the budget using one-time savings and the Legislature’s inability to pass a comprehensive revenue measure as reasons for the downgrade.

“The nearly six-week-long impasse underscores the economic and institutional weaknesses that have led to persistent structural imbalance since 2015,” the service’s credit analysts wrote in its analysis.

The negative rating is a warning that Oklahoma needs to change direction, said David Blatt, executive director of the Tulsa-based Oklahoma Policy Institute.

“Stop the reliance on one-time funding and draining reserves and using all our cash, which are practices we have done for too long,” Blatt said.

“The market is sending the state the signal that they want us to fix the budget and put our house back in order,” he said. “If we don’t change direction, it will have real ramifications.”

The state Legislature wrapped up its seventh week of special session Thursday with no budget deal in sight. Earlier in the week, state representatives narrowly rejected a comprehensive budget plan that would have raised more than $400 million in new revenue by increasing taxes on beer, cigarettes, gasoline and oil and gas producers.

In the short term, the new revenue would have helped fill the $215 million budget hole that lawmakers created by passing an unconstitutional cigarette tax. Next year, it would have given teachers a $3,000 pay raise and public employees a $1,000 raise.

Despite the downgrade, many lawmakers said they still want to use one-time funds to plug the hole, and the state House has advanced several stop-gap measures that would raid state savings accounts to fill the gap. Many agencies would then see cuts.

The downgraded rating is “not good” and will hurt every entity that needs to borrow money, Fallin said this week, as she continued to urge lawmakers to come up with a bipartisan budget package.

“It hurts our schools, it hurts our counties, our cities, our state, transportation department, higher ed, whoever may go out for a bond issue,” she said. “It costs us more money, and it certainly hurts our ability to be able to fund some of the core services that we need.”

Oklahomans are already braced for deep cuts to Medicaid reimbursement rates, the elimination of all outpatient mental health treatment services and the end of popular social service programs, including in-home care for vulnerable and lower-income Oklahomans. Those were supposed to be funded by the revenue generated by the cigarette tax rejected by the Oklahoma Supreme Court.

Now local borrowers could potentially face additional expenses, said Shawn Hime, executive director of the Oklahoma State School Boards Association. While local entities have their own credit ratings, those are often closely linked to the state’s because the Legislature appropriates a big chunk of the funding, he said.

“If the state’s bond rating goes down, it will have a direct impact on local schools,” he said. “It’s not good news for taxpayers because fewer taxpayer dollars will go directly for construction of buildings, technology or transportation. Instead, they will go to pay for financing and interest rates.”

He said school boards across the state are watching closely.

“Right now, it’s a wait and see,” he said. “(We’re) still hoping that the state can get their act together so that it doesn’t further impact our schools.”

Janelle Stecklein covers the Oklahoma Statehouse for CNHI’s newspapers and websites. Reach her at jstecklein@cnhi.com.

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