Budget & Tax

New fiscal rankings show Oklahoma’s strong fiscal condition

July 24, 2017

Jonathan Small, William Freeland

We recently published "An Analysis and Critique of the Recent S&P Bond Rating Downgrade of Oklahoma" in response to S&P's dubious bond rating action against Oklahoma (and the even more dubious analysis and commentary by many proponents of bigger government in Oklahoma who opportunistically used the ratings action to justify their never-ending calls for higher taxes).

In our study, we noted the landmark research of the Mercatus Center on state fiscal health and solvency—"Ranking the States by Fiscal Condition: 2016 Edition" by Eileen Norcross and Olivia Gonzalez. This research serves as the "gold standard" in exploring questions of this sort. We noted that Oklahoma ranked 8th overall, with the following ranks in the index’s underlying sub-components:

• Cash Solvency measures whether a state has enough cash to cover its short-term bills, which include accounts payable, vouchers, warrants, and short-term debt. Oklahoma ranks 13th.
• Budget Solvency measures whether a state can cover its fiscal year spending using current revenues. Did it run a shortfall during the year? Oklahoma ranks 16th.
• Long-Run Solvency measures whether a state has a hedge against large long-term liabilities. Are enough assets available to cushion the state from potential shocks or long-term fiscal risks? Oklahoma ranks 5th.
• Service-Level Solvency measures how high taxes, revenues, and spending are when compared to state personal income. Do states have enough “fiscal slack”? If spending commitments demand more revenues, are states in a good position to increase taxes without harming the economy? Is spending high or low relative to the tax base? Oklahoma ranks 15th.
• Trust Fund Solvency measures how much debt a state has. How large are unfunded pension liabilities, OPEB liabilities, and state debt compared to the state personal income? Oklahoma ranks 2nd.

Recently, Mercatus published an updated version of those state rankings which utilizes the most up-to-date available data on state fiscal positions. The 2017 results—Oklahoma now ranks 7th overall—bolster our conclusions: Oklahoma has a strong fiscal position which is underappreciated by S&P and even more severely underappreciated by those using the rating downgrade to call for crisis-necessitated tax increases. Consider the sub-components in the new (2017) edition:

• Cash Solvency: Oklahoma ranks 15th (previously ranked 13th).
• Budget Solvency: Oklahoma ranks 9th (previously ranked 16th).
• Long-Run Solvency: Oklahoma ranks 2nd (previously ranked 5th).
• Service-Level Solvency: Oklahoma ranks 13th (previously ranked 15th).
• Trust Fund Solvency: Oklahoma ranks 1st (previously ranked 2nd).

In short, the facts continue to support our analysis of Oklahoma's strong fiscal condition, cast doubt on any claims of notable risk for bond holders of Oklahoma state debt, and contradict calls for higher state taxes in Oklahoma.