S&P puts Alaska back on credit watch negative

JUNEAU — A stopgap budget deal in the Alaska Legislature would avert a statewide shutdown, but it would still have consequences, a national credit rating firm warned June 20.

In a new report, Andrew Little of S&P Global Ratings wrote, “If Alaska uses a significant amount of its reserves again and remains structurally imbalanced, we would likely lower (its) rating.”

S&P is one of America’s “big three” institutional credit rating agencies. Just like your personal credit score, a higher rating means lower borrowing costs. Governments with better credit ratings are perceived to be at lower risk of default or delayed payments. In return, they tend to pay lower interest rates.

In a prepared statement, Speaker of the House Bryce Edgmon said the Alaska Legislature “must do more than just pass the FY18 budget this year. We need new and more diversified revenues for Alaska.”

The coalition House Majority led by Edgmon has continued to push for a long-term fix for Alaska’s $2.7 billion annual deficit, even as a government shutdown looms.

The predominantly Republican Senate Majority, meanwhile, has said the Legislature’s priority should be a stopgap budget that uses savings to fund state services for one year. Members of the majority now say Alaska’s deficit is a problem for later.

S&P’s report suggests it favors the House’s angle, if not its exact plan, for solving the deficit.

“As noted in our prior reports, without structural fiscal reform in the 2017 legislative session, we would likely lower the state debt ratings,” Little wrote.

As late as December 2015, Alaska had top marks from all three credit rating agencies. In January 2016, citing declining oil revenue and the lack of a fiscal plan, S&P lowered Alaska’s rating one notch.

Moody’s Investment Services followed suit in February 2016, and Fitch Ratings in June 2016.

Moody’s doubled down with a second downgrade in July 2016, but the other two rating agencies have not yet followed suit.

According to a January 2017 presentation by S&P, 15 states have a AAA bond rating. Thirteen have an AA+ rating (the second-highest), and 13 have an AA rating (third-highest). Illinois has the lowest bond rating of any state, six steps below AAA.

Gabriel Petek, the person in charge of S&P’s state ratings, wrote in an April column published by the Congressional newspaper The Hill that “U.S. states have entered a new era characterized by chronic budget stress.”

Alaska isn’t alone in facing a credit rating crunch: Since January 2016, S&P has issued 11 state credit rating downgrades and just two upgrades, Petek wrote.

Updated: 
06/21/2017 - 12:27pm

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