Alaska's Credit Rating Downgraded Twice in One Week

by | July 19, 2017

By Annie Zak

Credit rating agency Standard & Poor's lowered Alaska's credit rating on Tuesday and said the state's reliance on financial reserves to fund its budget cannot continue.

S&P Global Ratings dropped Alaska's general obligation debt rating from AA+ to AA, with a negative outlook. This is just the latest in bad credit rating news for Alaska. Its rating has been sliding since last year.

Another top rating agency, Moody's Investors Service, also downgraded Alaska less than a week ago.

S&P warned Alaska a month ago that a downgrade was coming if lawmakers didn't adopt fiscal reforms to fix the state budget, which relies largely on oil revenue.

"The rating actions reflect continued lack of agreement on fiscal reforms to return the state to structural balance," said S&P analyst Timothy Little, "and while we recognize the state's sizable reserve position is intended to offset volatile economic cycles, continued reliance on reserves, coupled with the state's economic contraction since 2012 and the fallout of oil prices in mid-2015, have reached an (unsustainable) level."

The Legislature passed an operating budget last month, and last week passed a last-minute oil tax deal to end cash payments to oil companies. But there's still no deficit reduction package to close the state budget's $2.5 billion shortfall.

"The continued reliance on budgetary reserves that have significantly diminished over the years places the state in a more vulnerable position," S&P said in its statement. "Deteriorated reserves and continued dependence on revenues from natural resources will only exacerbate budgetary pressures as the state's economy is likely to continue to contract."

S&P also said that if lawmakers fail to enact "significant fiscal reforms," the state's trend of downward ratings "will likely persist, possibly by multiple notches as its structural imbalance becomes more protracted."

This is the second downgrade from S&P in as many years for Alaska. In January 2016, the agency lowered the state's top-shelf AAA rating to AA+.

(c)2017 the Alaska Dispatch News (Anchorage, Alaska)