Oklahoma ballot measure would allow bond-issuing infrastructure districts

Oklahoma would open the door to the creation of bond-issuing public infrastructure districts if voters approve a constitutional amendment on the Nov. 5 statewide ballot.

State question 833 would allow property owners to petition their municipality to create a PID as a way to finance roads, sidewalks, parks, and water and sewer services through the issuance of bonds backed by a property tax assessment applied only within the district.

It was placed on the ballot with the Republican-controlled legislature's passage of Senate Joint Resolution 16 in a 38-7 Senate vote in March and a 66-27 House vote in April. A simple majority vote is required for passage in the election.

Oklahoma Senate

Sen. John Haste, R-Broken Arrow, who sponsored the measure, said the districts would be "an additional tool in the tool belt" to spur housing development and support the state's growth.

"It allows a city not to have to utilize their own bonding capacity," he told The Bond Buyer. "This will help a developer or developers looking to add housing or it could be for business as well for the infrastructure to support a development because sometimes the city may not have the bonding capacity or the ability to do some of the infrastructure needs and things like roads or sidewalks, wastewater, that kind of stuff within a particular development."

Oklahoma ranked 12th among states for net domestic migration in 2023 with a net increase equivalent to 1.9% of its population, according to a Kansas City Federal Reserve report.

In a Facebook video post against the ballot measure, Democratic State Rep. Andy Fugate offered a scenario in which a developer who owns property could be the only entity pursuing a PID and bond financing for public infrastructure that he said was intentionally left undefined by amendment backers.

"Since only one person owns the land, that person can petition the city to make that square mile of public infrastructure district," he said. "That person then sells bonds to build public infrastructure like a park, tennis courts, a swimming pool, and a golf course, all conveniently inside that gated community. The new homeowners will have awesome infrastructure that's public to them."

To ensure their higher property tax bills as a result of the infrastructure improvements don't go even higher, homeowners would vote against funding requests like school bonds, according to Fugate. 

"This state question is an easy grift that profits a handful at the expense of the rest of us," said Fugate, who called SJR 16 the "triple crown of bad policy" during House debate on the measure.

Haste said 100% of the property owners would have to sign a petition to create a PID, which would then need city council approval for the district and its governing documents. The property tax assessment would be capped at 10 mills ($10 for every $1,000 of a property's assessed value) and the amount of bonds cannot exceed 10% of the district's future property value, he said, adding that prospective property owners would have to be advised of the PID's existence. If the amendment passes, SJR 16 authorizes the legislature to enact laws to implement PIDs.

"That's why part of the guardrails we already have in place are there based on what other states have done," he said. "But also additional things that are necessary will be run in legislation next year."

Similar districts have proliferated in states experiencing population increases and housing shortages as a way to have developments pay for their own infrastructure needs through bond sales that may or may not be rated by a major rating agency. 

Of the 2,423 metropolitan districts in Colorado, Moody's Ratings rates 69, which have more than $1.7 billion in combined outstanding debt. The ratings range from A2 to Ba3 with the majority rated A3 or Baa1. 

Metropolitan districts, which are subject to state and local government regulatory oversight, were launched in some cases with "eligible voters" authorizing billions of dollars of bonds backed by property taxes. In the early stages of a project, those voters typically include only the developer.  

A 2023 Colorado law requires district service plans to list maximum property tax levies and debt issuance and limits the interest rate on bond issues purchased by district developers.

Coloradans for Metro District Reform unsuccessfully pushed for a measure last year that would have prevented developers from buying bonds issued by districts they created. 

Some of the Colorado districts have faltered financially or faced an inadvertent threat from the ballot.

There have been 52 metro districts that have defaulted, according to Municipal Market Analytics' database, which was created in 2009, with 11 currently active defaults. 

A proposed constitutional amendment that would have imposed a 4% cap on statewide property tax revenue growth sparked concerns over its implementation and fears it would raise borrowing costs and lead to litigation, particularly against metro districts.

Under a deal with amendment backers that led to the initiative's removal from the Nov. 5 ballot, the Democratic-controlled legislature passed House Bill 1001 during an August special session called by Gov. Jared Polis. The legislation, which Polis signed into law Sept. 4, expands on the enactment earlier this year of $1.3 billion in tax relief through lower assessments rates and a cap on property tax revenue growth for 2024 and 2025.

In Texas, districts that finance water-related projects and in some cases other infrastructure like roads and parks, issued nearly $4.15 billion of tax-supported and $2.3 billion of revenue-supported debt in fiscal 2023, according to the state's Bond Review Board. Outstanding debt for municipal utility districts and other districts totaled $45.42 billion.

In an April report on Texas MUDs, Moody's said operating fund reserves were strong, while state oversight keeps debt burdens in line with tax base growth. Its ratings for 502 MUDs range from Aa2 to Ba1. 

"Median debt service as a percentage of expenditures declined for lower-rated MUDs as newly established districts had significant tax base and revenue growth from new development," the report said. "The positive trajectory of the sector is evidenced by the 99 upgraded districts in 2023."

The state has had occasional eye-popping initial voter-approved bond authorizations. A single vote by a property owner in Texas in the November 2023 election authorized the Legacy Municipal Management District in Webb County to issue $2.7 billion of bonds for water, wastewater, and drainage system facilities, nearly $3.8 billion of bonds for roads, $9.7 billion of debt refunding, and the ability to levy taxes to pay off the debt.  

The bonds will finance infrastructure for 13,000 acres of land owned by a family in the Laredo area that is targeted for residential, commercial, retail, and industrial use. 

Lund Farm MUD has more than $1.1 billion of bonds on the Nov. 5 ballot to fund infrastructure for a mixed-use residential development approved by the Elgin City Council last year.

In February, Rockwall County reportedly sued a MUD for holding an "invalid" single-voter election in November 2022 that authorized about $833 million of bonds.