Bonds

Bill barrage in Oklahoma Legislature seeks to rein in turnpike authority

The Oklahoma Turnpike Authority is the target of several bills in the state legislature that would change its bond and other practices in the wake of a controversial $5 billion plan to build toll road extensions.

Measures filed by Republican and Democratic lawmakers come as the turnpike authority awaits an Oklahoma Supreme Court decision on the validity of $500 million of revenue bonds to begin funding the 15-year project. 

Opponents say they were blindsided by a project that they estimate would cut through hundreds of properties and put thousands more next to unwanted highways, damaging quality of life and property values.

OTA said bills seeking to amend provisions of its enabling act to restrict its management of the turnpike system were “not uncommon.” 

“OTA’s approach has always been to work with and provide information to legislators to help explain any adverse impacts of proposed amendments, including how credit rating agencies and bondholders could view potential enactments,” the agency said in a statement. 

Rating agency analysts said the bills underscore increased political risk for the turnpike, although it is uncertain if any of the measures would pass. 

“There is clearly a lot of negative noise around the turnpike,” said Anne Tricerri, a Fitch Ratings analyst.  ”At this point though, my opinion is things are relatively stable and it’s just a lot of pushback against this program.”

Gov. Kevin Stitt officially unveiled ACCESS Oklahoma, for Advancing and Connecting Communities and Economies Safely Statewide, in February 2022, calling it “a bold investment in our future that provides needed corridor connections and expansions while making travel easier and leading to more economic development across the state.”

Hundreds of property owners in the project’s path who were caught unawares filed lawsuits against the turnpike authority in Cleveland County District Court in May, with one resulting in a December ruling finding the agency willfully violated the state’s Open Meeting Act by not referencing ACCESS projects on its January and February 2022 meeting agendas.

A lawsuit filed by Pike Off OTA and others, claiming the bond financing and building of the turnpike’s South Extension, East-West Connector, and Tri-City Connector projects violate state statute, was dismissed by the district court in December on the basis that the Oklahoma Supreme Court has exclusive jurisdiction over turnpike bonds.

Randy Carter, a spokesman for Pike Off OTA, said the group is actively working towards the veto-proof passage of several turnpike-related bills in the legislative session that began Feb. 6, including measures addressing eminent domain changes and requirements for extensive environmental studies. 

“We will be supporting any bill that calls for performance and or investigative audits of the OTA,” he added. 

Democratic lawmakers in the Republican-controlled legislature have filed bills requiring legislative approval to modify toll rates and prohibiting the use of revenue from existing turnpikes to finance new toll roads, as well as mandating a state audit of OTA.

State toll road agencies usually have the flexibility to adjust tolls and typically pledge system-wide revenue on their bonds, according to rating analysts.

“Generally speaking, when you have a tolling operator that doesn’t have autonomy to adjust rates and charges, that could be credit negative,” said Joseph Pezzimenti, a S&P Global Ratings analyst.

The Oklahoma Turnpike Authority, which has 13 turnpikes spanning 630 miles, pays off its bonds with system-wide toll collections as well as a portion of the state’s motor fuel tax revenue if needed.

It had $1.7 billion of bonds and notes outstanding as of Sept. 30. OTA bonds are rated AA-minus by S&P and Fitch and Aa3 by Moody’s Investors Service — all with stable outlooks.

So far in the legislative session, House Bill 2263 sailed out of the House Transportation Committee Feb. 14 in a unanimous vote.

The legislation would strip the governor of his sole ability to appoint the six-member OTA board, giving two appointments each to the governor, House speaker, and Senate President Pro Tempore. It also would reduce board member terms to six years from eight years and prohibit members from voting on any issue in which they have a direct financial interest.

Republican State Rep. Danny Sterling, the bill’s sponsor, said it allows lawmakers to have a say in who represents their constituents on the OTA, enhancing oversight and removing “the ability for any one branch of government to have the appearance of unduly influencing the authority regardless of intentions.”

“As legislators we owe protection to the citizens of Oklahoma to ensure their voices and concerns can be heard on any infrastructure changes that impact their community, homes, businesses, livelihood, and economic prosperity,” he told the committee. 

Sterling, who represents an area affected by the ACCESS project, also introduced HB 2264, which would require several steps before OTA could seek debt approval from the Oklahoma Council of Bond Oversight and makes state Supreme Court validation of bonds mandatory instead of being up to the agency’s discretion.

The steps consist of conducting studies on the economic feasibility and alternatives for proposed projects; obtaining approval from any city, county, and state and federal agency impacted by the project; providing written notice to property owners in the path of the project; and conducting one or more public hearings in each of those cities and counties. 

Sterling’s HB 2262 would impose a five-year sunset for previous or future legislatively authorized turnpike projects that have not commenced construction.

A measure he introduced last year calling for OTA to produce a study on the extensions for state officials at least a year before issuing bonds and to enable the legislature to modify the location of turnpikes stalled in a conference committee.  

Other Republican-sponsored bills include SB 864, which would place a moratorium on all turnpike projects until a feasibility study is conducted; SB 199, which would create a joint legislative task force to study the OTA’s functions, activities, policies, procedures, and expenditures, as well as any related issues; and HB 2606 and SB 970, which would subject turnpike projects to a special election by affected property owners.

The turnpike was the focus of so-called interim studies in the Oklahoma House and Senate last fall with lawmakers hearing from turnpike proponents and opponents.

At a Senate hearing, Tim Gatz, Oklahoma’s transportation secretary and turnpike executive director, said the ACCESS project is predicated on recognized needs that would otherwise have to be paid for with taxes instead of toll revenue.

The state’s high court held oral arguments Nov. 28 on $450 million of new and $50 million of refunding second senior turnpike revenue bonds. If approved, the turnpike authority would have to reapply to the Council of Bond Oversight because its conditional approval of the debt expired Feb. 5, according to Alexandra Edwards, deputy state treasurer for debt management.

An OTA spokeswoman said the agency “will ensure that it has complied with all state law requirements for the issuance of indebtedness prior to selling any bonds.”

In its Supreme Court brief, the turnpike authority said it has been issuing bonds for turnpike projects since 1950 and has received validation for bonds on 12 occasions from the court, which never has disallowed any of its debt.

After launching a request for proposals in mid-June, OTA selected Wells Fargo as senior manager and Stifel, Nicolaus & Company; Morgan Stanley; BOK Financial; and Raymond James as co-managers for the initial debt issuance.

New debt to finance the ACCESS project will challenge OTA’s credit profile, Moody’s said in a November report. 

“Ultimately, the credit impact will depend on how leverage and financial metrics are managed as OTA balances the pace of toll rate increases and new debt issued,” the report said.

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