House Approves Debt Reduction Fund

 Members of the Oklahoma House of Representatives voted today to use future “spillover” funds to shore up the state’s pension systems.

            When revenue collections exceed projections, the Oklahoma Constitution provides for the extra cash to go into the state’s “Rainy Day” fund. Once Rainy Day fund deposits equal 15 percent of the certified amount, deposits exceeding that total are considered “spillover” that can be and have historically been appropriated for a wide range of uses.

            Senate Bill 1264, by state Sen. Dan Newberry and state Rep. Randy McDaniel, creates the Oklahoma Debt Reduction Fund and would require that a significant portion of spillover funds be automatically directed to the reduction of pension liability debt.  Once all pensions systems are funded at 80 percent or more, the same share of spillover funding would then be dedicated to reducing the state’s other indebtedness. 

            “Reducing our pension liability debt is critical to ensure the long-term sustainability and strength of the state,” said McDaniel, R-Oklahoma City.  “This legislation ensures that we take care of our past obligations before new spending proposals are considered.”

            “We must reduce our debt to assure our state’s long-term economic health,” said Newberry, R-Tulsa.  “When debt grows, it creates pressure to increase taxes. I would prefer that Oklahoma grow jobs.  This legislation is an important part of that effort.”

            Senate Bill 1264 would ensure that 30 percent of any spillover funding is applied toward the reduction of pension liability debt.  Once a system’s pension liability is funded at 80 percent or more, the same percentage of spillover funding would be dedicated to reducing the state’s bonded indebtedness. 

Although Rainy Day Fund spillover is not a routine occurrence, it has happened in recent years, including in Fiscal Year 2008 when lawmakers had roughly $150 million in spillover funding.

            House passage of Senate Bill 1264 occurred the same week it was reported that the Medicare and Social Security trust funds will be exhausted by 2024 and 2033.

McDaniel said pension reform will protect Oklahoma from the financial problems many other states and the federal government now face.

“This legislation will make debt reduction a higher priority. It requires us to first pay current obligations before committing to new spending programs,” McDaniel said. “By retiring debt more quickly and limiting the growth of government, we can ensure greater stability for Oklahoma in the future.”

Senate Bill 1264 passed the Oklahoma House of Representatives on a 76-12 vote.