DALLAS - Oklahoma lawmakers adjourned last week without approving a proposal to allow Oklahoma's land commission to pledge its assets to provide a low-cost guarantee for local school debt.

Carol Ford, director of the Oklahoma Commissioners of the Land Office, said that lawmakers agreed to take up consideration of the proposal, House Bill 1577, next February when they return to session.

While lawmakers supported lowering the cost of debt sales for school districts, Ford said the measure faced the prospect of defeat because the Oklahoma House did not have enough time before adjournment Friday to study amendments made in the Senate.

"They got into such a hectic mess in the last few weeks that I decided that rather than take a chance it might be killed, we thought we would hold it over," Ford said.

Jim Joseph, the state's bond adviser, agreed. "They [lawmakers] basically ran out of time to work out the bugs," he said.

Ford said she will redraft the measure to resolve questions raised by lawmakers and to build support among school districts that would use the program and among education groups that could lobby for it.

She said her goal is to have the legislation enacted by March, a month after the spring session opens.

Under the proposal, Oklahoma voters would be asked to amend the state constitution to allow the commission to use most or all of its $648 million in assets to guarantee debt issued by districts that now largely sell unrated paper.

The voluntary program was to be closely modeled after the triple-A-rated Texas Permanent School Fund, which is often described as one of the strongest credits in the municipal bond market. Districts would be charged a nominal fee to cover the cost of operating the guarantee.

"I don't think the [guarantee] concept itself was opposed," Joseph said. "Some people questioned whether the program was needed, but that was expected."

He said that some legislative opposition was raised over amendments that would have broadened the land commission's discretionary investment powers - an issue that was not directly related to the guarantee proposal.

Ford said that under the current state constitution, her agency can invest only in securities ranging from county-issued municipal bonds to government-backed securities. The board only invests in the latter, which she said limits the earnings potential of the land funds.

"We wanted to get the ~prudent man' standard for investing our money," she said. Ford said that such a standard, common for pension and other state funds across the nation, would have allowed the land office to invest in instruments such as Ginnie Maes. She said that such flexibility would have increased the return on state investments by as much as 2%.

However, some lawmakers argued that the school guarantee program would require two constitutional amendments to be placed before voters, rather than the one that Ford's office had proposed. One amendment would broaden investment powers and the other would make it constitutional for the assets to be pledged.

Ford said she will continue to discuss the program informally with Standard & Poor's Corp., which rates 18 local guarantee programs in 15 states. While rating analysts would not speculate on how the Oklahoma program might be rated, Ford believes the program would secure a triple-A rating for schools.

The failure to pass the program this spring disappointed some in the state's bond industry, who had said the program would mean lower borrowing costs and easier market-ability for school debt. Last year, about half of the $138.8 million of debt sold was unrated and 83% of the issues were less than $10 million, according to Securities Data Co.

Tom Thompson, president and chief executive officer of T.J. Thompson & Associates, an Oklahoma City bond dealer, said the program would save money for larger school districts. Smaller issuers already get very competitive rates because their bonds are bank-qualified.

"Those small districts already get triple-A [interest] rates now because they have strong support from their local banks," Thompson said. Congress allows banks to deduct 80% of the cost of carrying bonds sold by issuers who sell less than $10 million a year in tax-exempt bonds.

At the same time, Thompson said the program would help districts that would otherwise have to buy credit enhancement to secure a top rating. "I viewed this program as really helping the larger schools who are not bank-qualified," he said.

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