If Oklahoma voters amend the state constitution so that any tax
increase would be subject to voter approval, the state's general
obligation bond rating could suffer, bond analysts said.
"I'm not personally taking a position on whether this is
something the state should do or not, but it could have some impact
on our credit rating," said Stan Provus, Oklahoma State Bond
Pending in the Oklahoma Supreme Court is an initiative petition
for a state question to subject all tax increases to a popular vote.
Timothy Tattam, vice president of Standard & Poors, a New York
City bond rating firm, said, "When you have another barrier for
approval of something, obviously it's going to make it a bit harder
to get that approval. It's going to raise some doubt and make it
more difficult to plan for, and that can't be considered positive in
the evaluation of credit."
The unfettered ability for lawmakers to raise taxes affects the
state's credit rating because in issuing general obligation bonds,
the state gives a full faith and credit pledge, Provus said.
According to the Oklahoma Constitution, legislation must be
enacted to authorize the debt, indicating how the proceeds will be
used and how a direct annual tax will be collected to pay for the
"In Oklahoma, our outstanding general obligation bond issues are
really double-barrel bonds," Provus said. "They are directly backed
by the cigarette tax. We currently pledge 13 cents of 23 cents a
pack to general obligation bonds."
The second barrel is the state's full faith and credit pledge,
which Provus said essentially commits its unlimited taxing power.
"Should that cigarette tax not be sufficient, we are pledging to
service our debt with other tax sources of the state," he said. "If
that hypothetically means raising taxes to get that money, you are
obligating yourself to do it.
"I don't want to be perceived as arguing against this tax
initiative," he said.
"The voters have to decide what's best for them, sometimes
regardless of credit ratings."
Provus said it was unclear to him how a law that said voter
approval was needed to raise taxes would work in the context of
existing full faith and credit pledges on bond issues.
"Cigarette taxes have been declining here over the last several
years, and if you found you really needed to raise additional
revenue and you had to raise taxes to do that, you're pledging to the
bondholder that you're going to do it," he said.
"On the other hand, if you have to go to the voters, that to me
would dilute a full faith and credit pledge. In a sense, you'd be
drawing back on your earlier promise.
"I guess it's not clear to me in this current context how any
law that required voter approval for any tax increases would work. …