Alaska’s credit ratings placed on negative CreditWatch
June 22, 2017
S&P’s announcement comes days after Governor Walker called the 30th Legislature into its second special session to focus initially on passing an operating budget so that government services can continue past July 1 of this year.
The Standard & Poor’s (S&P) report cites the lack of a budget for fiscal year 2018, continued reliance on savings to pay for government services, and a lack of new revenues as reasons for the negative outlook. The move means Alaska’s AA+ general obligation (GO) bond rating is in danger of being lowered yet again if a complete fiscal plan is not adopted this year.
The CreditWatch action reflects S&P's view that Alaska could remain structurally imbalanced for fiscal 2018 based on the impasse for budget negotiations regarding adopting fiscal reforms. As noted in prior S&P reports, without structural fiscal reform in the 2017 legislative session, S&P would likely lower the state debt ratings.
Over the next 90 days, the S&P expects Alaska will enact a fiscal 2018 budget. If Alaska uses a significant amount of its reserves again and remains structurally imbalanced, S&P would likely lower the rating. However, if Alaska should adopt a balanced budget with fiscal reforms that does not significantly rely on reserves, S&P may remove the state's ratings from CreditWatch without downward rating action.
“[Monday's] announcement from S&P is both concerning and disappointing - but not surprising,” Governor Walker said. “The agency’s analysts note that we are continuing to drain our savings at an alarming rate, and have not yet enacted a fiscal plan. It is critical that we pass an operating budget for next year, and adopt a fiscal plan that does not continue our over-reliance on savings. I remain hopeful that we will be able to pull together and pass a budget and complete fiscal plan to secure Alaska’s future, and demonstrate that we take our finances and budget issues seriously. Alaskans are depending on us.”
Much like a credit score affects an individual’s ability to buy a house or car, the ratings from the S&P and other agencies impact the state’s ability to build a stronger Alaska through infrastructure and other capital projects. The negative CreditWatch indicates that S&P is concerned about Alaska’s fiscal stability, and if the ratings are lowered, could cost the state millions of dollars in additional interest payments.
In addition to the GO bond, S&P also placed Alaska’s AA appropriation rating and A+ moral obligation rating on negative CreditWatch.
Speaker of the Alaska House Rep. Bryce Edgmon (D-Dillingham) released a statement in response to news that S&P Global Ratings placed the State of Alaska on its CreditWatch and indicated that Alaska’s credit rating would likely be lowered without the passage of significant fiscal reforms this year.
Edgmon said, “[Monday's] action by a respected credit rating agency shows the need for lawmakers to move beyond short-term fixes and embrace long-term fiscal solutions, which is exactly what the members of the Alaska House Majority Coalition have been fighting for since the start of the legislative session,” said Speaker Edgmon.
In a report issued today, S&P Global Ratings noted that because of the limited scope of the call for the Second Special Session, which so far is restricted to the Fiscal Year 2018 Operating Budget, it will be unlikely that significant fiscal reforms can be put in place. This could result in another year of structural deficits and the continued overreliance on Alaska’s savings and reserves.
“We must do more than just pass the FY18 budget this year. We need new and more diversified revenues for Alaska,” continued Speaker Edgmon. “If we continue to kick the can down the road, not only will our credit ratings and borrowing costs suffer, so will our broader economy and Alaska jobs. The time to act is now.”
Timeline of Alaska’s Credit Ratings
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Reporting & Editing by Mary Kauffman, SitNews
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