OCPA Releases Analysis, Critique of Standard & Poor's (S&P) Recent Oklahoma Bond Rating Downgrade

Study finds that S&P’s recent downgrade of Oklahoma should be considered with a healthy degree of skepticism.

OKLAHOMA CITY—The Oklahoma Council of Public Affairs (OCPA) released today an analysis and critique of S&P’s recent downgrade of Oklahoma state government debt.

“Standard & Poor's recent downgrade of Oklahoma should be met with a healthy degree of skepticism,” OCPA president Jonathan Small said. “S&P has a mixed track record of accuracy, objectivity, and impartiality in bond ratings.”

Earlier this year, S&P Global Ratings lowered its rating on the state of Oklahoma’s general obligation (GO) bonds and appropriation debt backed by the state’s credit enhancement reserve fund one notch to ‘AA’ from ‘AA+’. At the same time, S&P lowered the rating on the state’s appropriation debt to ‘AA-’ from ‘AA’.

“Although the lowered rating is something we should keep an eye on, it is not the end-of-the-world scenario that some bureaucrats and tax advocates want us to believe,” Small said. “These rating agencies have been incorrect in the past and, worse, they have been systematically biased.”

In the downgrade, S&P cites recent revenue shortfalls, which they categorize as “persistently weak revenue collections.”

“The implied remedy to ‘persistently weak revenue collections’ is simply raising taxes. It’s very suspicious when a rating agency downgrades your state and then proposes that all you need to do to fix it is raise taxes,” Small said. “Oklahomans deserve an honest conversation about taxes and spending; we don’t need a sky-is-falling lecture from S&P and tax consumers.”

Though S&P hits Oklahoma primarily for a revenue shortfall, 30 other states face a similar circumstance, according to data from the National Association of State Budget Officers (NASBO) and summarized by MultiState Associates.

“It’s bizarre for S&P to focus on Oklahoma’s revenue situation when shortfalls are part of a broader national trend in state revenue collections,” Small said. “This is important context to consider regarding S&P's downgrade of Oklahoma and the state’s broader fiscal picture.”

OCPA’s study argues that rather than raise taxes on Oklahoma families and businesses, state policymakers would be wise to seek to bolster economic competitiveness, thereby boosting the underlying economy and enhancing future tax revenues.

The state’s economy has underperformed in recent years, particularly due to low energy prices depressing the state economy’s overall performance and thereby reducing tax revenues. The study points out that Oklahoma needs to diversify its economy by fostering substantive growth in industries outside the energy sector.

“It’s no secret that Oklahoma is hurting because Oklahomans are hurting. The downgrade has increased pressure to raise taxes in the state,” Small said. “But raising taxes on individuals, families, and businesses that are already struggling to make ends meet is not the best answer.”

“More and more, the rating agencies are being used as weapons against taxpayers, such as in Oklahoma, Kansas, and Illinois,” Small continued. “In Illinois, a rating agency recently tacitly endorsed Illinois' 32 percent personal income tax increase and couldn't bring itself to focus on Illinois' unreformed, massive spending problem and significant out-migration due to its ever-climbing tax burden and strangling economic and regulatory environment.”

The study is authored by Small and William Freeland, an independent public policy analyst, research economist, and data scientist with a decade of experience in public policy research and advocacy.

About the Oklahoma Council of Public Affairs The Oklahoma Council of Public Affairs (OCPA) is a public policy research organization focused primarily on state-level issues. OCPA conducts research and analysis of public issues in Oklahoma from a perspective of limited government, individual liberty, and a free-market economy.