Oklahoma oversight panel approves bonds for OU, OSLA

Journal Record, The (Oklahoma City), Dec 19, 2008 by Marie Price

The Oklahoma Council of Bond Oversight approved $65.8 million in bonds Thursday for several projects at the University of Oklahoma and $175 million to be issued by the Oklahoma Student Loan Authority.

State Bond Advisor Jim Joseph told the panel that the OU request included $57 million in tax-exempt, fixed-rate revenue bonds and $8.69 million in taxable, fixed-rate revenue bonds.

The council was told that if the long-term bond market is unfavorable, OU may issue bond anticipation notes to secure immediate funding while it waits for market conditions to improve.

Legislation approved in 2006 gave OU, Oklahoma State University and the State Regents for Higher Education the authority to issue bonds secured by pledging each entity's general revenue, excluding appropriated funds and certain restricted monies.

Joseph said OU was the first to take advantage of the new authority.

Among projects to be funded with the OU bonds is a steam and chilled water plant for a utility system, which calls for a total of $26.3 million in tax-exempt and taxable bond funds.

Other projects include renovation of several residence and instruction buildings, a data center, research campus infrastructure and parking.

Capital West Securities, OU's financial advisor, estimated combined annual debt service on the bonds at $4.75 million.

Senior bond analyst Tim Martin explained that the student loan authority was seeking approval of $175 million in taxable and/or tax- exempt bonds. Proceeds from the bonds will be used to refund some of the authority's outstanding auction-rate securities and to fund acquisition of student loans.

Martin said the authority has asked for the bonds to help stabilize its portfolio and debt due to the recent disruption in the credit markets.

Officials said the disruption has caused funding costs in the student loan industry to exceed the current lenders' yield on student loans.

OSLA has relied on variable-rate demand obligations (VRDOs) and auction-rate securities to fund student loans.

However, Martin told the council that concern over bond insurers and rating downgrades has significantly increased the funding costs on VRDOs issued by the loan authority, and liquidity in the auction- rate securities market has been volatile.

The OSLA also secured approval to refund $20.94 million in variable-rate demand obligations with a taxable five-year note.

The council was told that security for the proposed bonds will come from loan repayments, a federal interest subsidy and federal special allowance payments.

Led by Chairman Ted Fisher, the panel ended its meeting with a discussion of the state's budget status.

Fisher, a former state senator, noted that the constitutional rainy day fund has topped out, at about $597 million, and said the state ended last fiscal year with an $82 million surplus, which puts it in a better position than many states to weather the current national economic crisis.

Joseph, however, said state officials expect a downturn.

Fisher asked whether the state could withstand a budgetary hit.

State finance Director Michael Clingman said that depends on its depth, but said the state may be in pretty good shape for the remainder of fiscal 2009.

The State Equalization Board meets Monday to certify revenue for fiscal year 2010, which begins in July.

Oklahoma Tax Commission officials predicted earlier this week that lawmakers may have about $250 million less to allocate next year.

State Treasurer Scott Meacham said Wednesday that the state may face a tough budget year. He said the Tax Commission estimate is not the final number.

Meacham said the state's ultimate budget picture could be worse, but he does not expect the drop in revenue will be severe enough to mandate agency budget cuts and state-employee furloughs.