Analysis: Oklahoma Court decision may tighten bond issue standards – time will tell

OKLAHOMA CITY – Critics of recent Oklahoma state bonding practices are cheering an important state Supreme Court decision that limits the reach of state bonds aimed primarily at financing purely local improvements. While significant in its own right, the decision might lead to tighter standards across the board for incurring state debt. 

The outcome gains resonance because the Court, viewed by many activists as more liberal than the rest of the state government, in a unanimous ruling boosted at least one brand of fiscal conservatism, namely the reluctance to incur unnecessary state debt. 

Senator Patrick Anderson of Enid — a Republican who drew the ire of some Tulsa-area Republicans as he led opposition to the bond issue at the heart of the case – is applauding the ruling. He argued for more than a year that state bond funding for a final plan to improve the Zink Dam on the Arkansas River in Tulsa was an unconstitutional “gift” from the state to municipal governments. 

Anderson commented, “In the future, I would hope that policy makers will pay closer attention to the state Constitution.” Anderson and other legislators believe worthy projects should be funded on a “pay-as-you-go” basis, and that localities should bear the cost for municipal projects, without state debt. 

However, that argumentation may bump up against the desire of state leaders to advance a couple of unrelated high-visibility projects with state bonds. 

Standards for approved bond issues with state backing have evolved steadily toward more and more frequent devolution of authority from the Legislature to various agencies. This trend drew Anderson’s critical scrutiny long before the particulars of the Tulsa projects drew his attention. 

After revisions to the Arkansas River projects, Anderson and others asserted the plan explicity violated state constitutional limitations, including the ban (Article 10, sec. 14) on the state assuming “the debt of any county, municipal corporation, or political subdivision of the state.” A subsequent provision (sec. 15) declares “the credit of the State shall not be given, pledged or loaned to any individual, company, corporation, or association, municipality, or political subdivsion of the state,” with rare exceptions. 

In the Tulsa case, the court’s senior member, Justice Yvonne Kauger, said those constitutional provisions mean exactly what they say. That gives Anderson an important tool in future arguments with legislative leaders and collegues.

Four years ago the Legislature enacted a measure (73 O.S.Supp 2009, sec 336) authorizing the Oklahoma Capitol Improvement Authority (OCIA) to issue bonds worth $25 million to construct two low-water dams on the Arkansas River in Tulsa, the state’s second largest city, and to make improvements to the Zink Dam. That project envisioned several enhancements along the River Parks in the community, with local resources providing most of the total spending.

The state bonds were to finance part of the improvements, and the Legislature would also provide annual appropriations to the state Department of Central Services to cover the costs of annual lease payments to the local River Parks Authority. In briefs filed in late summer of this year, supporting the project were the city and county of Tulsa, along with the cities of Sand Springs and Glenpool, as well as the Tulsa Metro Chamber of Commerce. 

Challenging the project were state Sen. Patrick Anderson of Enid, C.L. Elliott, former chairman of the Council of Bond Oversight, and Jerry Fent, a private attorney in Oklahoma City. 

Anderson contended, in a brief before the High Court and in a separate local lawsuit, that the proposed state bonds were originally intended to be combined with federal resources to create the low-water dams, resulting in thousands of jobs and a multi-billion economic impact statewide.

However, when federal funds were unavailable, the OCIA administratively shifted the ground, seeking to use the state bonds to raise the level of Zink Dam. Such a limited project, in the eyes of critics, was without statewide benefit.

As a practical matter, constitutional provisions aside, critics like Anderson pointed to purely local improvements like those in Oklahoma City in the acclaimed “MAPS” (Metropolitan Area Projects), saying the local community, not the state, should bear the cost for such programs.

Senator Anderson also objected that the state government would have no actionable interest in the completed projects, which would be fully controlled by local entities.

In the end, Justice Kauger did not address all the issues Sen. Anderson raised, but her rather strict scrutiny of the constitutional language touching bonds might imply tough sledding for some future bond proposals. 

For now, Justice Kauger limited herself, and the Court, to the constitutionality of the state bonds in financing a local project. She cited a 1984 decision in which the Court applied “the principle of equity” – namely “that what may not be done directly should not be allowed to be done indirectly.”

Kauger concluded this way: “The proponents of the bonds go to great lengths to attempt to show that the bond issues will provide the State of Oklahoma not only with economic benefits, but cultural and ecological benefits as well. In reality, the bonds appear to be nothing more than a gift to the City of Tulsa and surrounding communities from the State. This type of gift is precisely what is prohibited by the (Oklahoma Constitution). … Accordingly, the proposed bonds are unconstitutional.” 

The case had many layers, including one agency’s reversal – under pressure – of a decision to forbid the repurposed bonds.

After reassignment of the Arkansas River projects to the Zink Dam was proposed a year ago, the Council on Bond Oversight – in theory the state agency that is supposed to give go-aheads for bonds – voted unanimously (on Jan. 26, 2012) that the shift should require new legislative approval.

However, the state Capitol Improvement Authority bluntly directed the Council to change its position. At an emergency meeting of the Council on February 9, the shift in position occurred. At that time, Anderson asserted “this was the first time in state history” the council had reversed itself on a bond issue. Anderson then sought an attorney general’s opinion, saying he believed the shift in the bonds’ purpose was unconstitutional. Ultimately, Attorney General Scott Pruitt asked the state Court to tackle the case, leading to this winter’s decision from Justice Kauger.

Critics of the Kauger decision include Tulsa Mayor Dewey Bartlett, Jr., who questioned the court’s finding that the dam improvements would be a “gift” to Tulsa from the state. He contends that rationale might call into question bridge and road projects, as well.

However, Elliott, former chairman of the bond oversight council, said the bond was improperly structured from the “git-go.” He believes the river improvements are “meritorious” – but did not possess sufficient state benefit to be justified under the state constitution.

In an editorial after Kauger’s decision in late November, The Oklahoman, the state’s largest newspaper, gave a practical defense to the result, saying that the growth of anti-bond sentiment at the state Capitol means advocates of any debt must scrupulously observe existing constitutional provisions: “If lawmakers must worry that money will be diverted to new uses after approval, future bond projects of all kids will get even less support.” 

While the Zink River case limits the ability of agencies to essentially redesign bonds (or to grant such authority to other arms of the government) without legislative approval, Anderson and other fiscal conservatives are still studying ways to limit a growth in use of bonds by sub-sets of the government. Anderson decried a May decision by the Council to allow issuance of roughly $150 million worth of bonds by the Regents for Higher Education, the Water Resources Board and Economic Development agencies. 

As for what this means for the state capitol improvements and/or the Indian Cultural Center – time will tell, perhaps during the legislative session that begins Feb. 7

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