Oil prices continue to lurk at less than $40 per barrel, and despite hope for a legislative salve, Standard & Poor\u2019s is lowering the state\u2019s debt rating. <\/p>\n
S&P lowered Alaska\u2019s general obligation debt from AAA status to AA+ and lowered the state\u2019s appropriation-backed debt and Alaska Municipal Bond Bank\u2019s debt from AA+ to AA. It also lowered bonds issued by the Alaska Energy Authority to A+ from AA.<\/p>\n
Standard & Poor\u2019s said in release the state\u2019s widening budget deficit tied to oil prices spurred the decision. <\/p>\n
\u201cThe rating actions reflect our view of the state\u2019s credit quality as oil prices have continued to slide, falling below forecasts from earlier this year, causing an already large structural gulf between unrestricted general fund revenues and expenditures to widen further,\u201d said credit analyst Gabriel Petek in a release. <\/p>\n
S&P noted that in the state\u2019s fall revenue forecast update, the price per barrel anticipated for the fiscal year that started last July 1 was revised downward from $66.03 to $49.58 per barrel, translating to a downward revenue adjustment of about $600 million. <\/p>\n
\u201cWith just $1.6 billion in unrestricted revenue for the year, the state\u2019s updated fiscal gap has ballooned to an estimated $3.55 billion,\u201d S&P wrote. \u201cMore recent spot price trends have fallen even further, to below $40 per barrel as of mid-December, implying an even larger fiscal gap.\u201d<\/p>\n
Standard & Poor\u2019s also said it expects Alaska\u2019s credit rating to continue its fall if the Alaska Legislature does not \u201cenact significant fiscal reforms to reduce the state\u2019s fiscal imbalance\u201d during the upcoming 2016 session.<\/p>\n
\u201cIn the event policymakers continued to take no action, the current initial rating change most likely represents the first step in a downward migration that would likely accelerate as the state\u2019s reserve balances approached depletion,\u201d the report concludes. \u201cIf lawmakers succeed in putting the state on what we view as a glide path to a sustainable fiscal structure, with its strong reserve balances still intact, we could revise the outlook to stable.\u201d <\/p>\n
Gov. Bill Walker said Standard & Poor\u2019s is too hasty in downgrading the state\u2019s credit, but takes it as a spur to decisive actions. Lawmakers, he said, will have to buckle down in the upcoming months.<\/p>\n
\u201cThe action taken by Standard & Poor\u2019s to lower Alaska\u2019s credit rating is concerning and premature given that the legislature has not had time to act on a long-term fiscal plan,\u201d Walker said in a press release. \u201cHowever, this further solidifies the need to address our state\u2019s fiscal challenges in the immediate future. As noted in S&P\u2019s release today, Alaska has significant financial assets that, if properly utilized, can help build fiscal stability for our state.\u201d<\/p>\n
Walker has introduced a plan involving a combination of higher industry taxes, a state income tax, reduction in oil tax credits and a conversion of the Permanent Fund Earnings Reserve into a funding stream for the annual budget as a means to close the fiscal gap.<\/p>\n
\u201cGiven that lawmakers have yet to coalesce around either the governor\u2019s proposal or some alternative, we therefore continue to evaluate the state\u2019s creditworthiness largely according to its existing budgetary framework,\u201d S&P wrote. <\/p>\n
\u201cThrough this lens, and in light of the unrelenting oil price declines, the state\u2019s fiscal structure is deeply misaligned and its reserves, while still significant, are declining at a fast rate. <\/p>\n
\u201cThe stakes are high for the state to enact a package of fiscal reforms that would help stabilize the state\u2019s credit quality at a high rating level.\u201d <\/p>\n
S&P also weighed in on the administration\u2019s idea to sell pension obligation bonds and finance its $13 billion share of the Alaska LNG Project.<\/p>\n
\u201cPart of the administration\u2019s medium term fiscal strategy involves using pension obligation bonds in an effort to drive down the budgetary cost of funding actuarially sound annual contributions,\u201d the agency wrote. \u201cOn the economic development front over the longer term, we understand the state is interested in seeing its estimated 30 trillion cubic feet in natural gas reserves get developed. And lacking a mechanism for delivering the gas to market, state officials are contemplating partially debt-financing a natural gas pipeline. <\/p>\n
\u201cBoth propositions make less economic sense, however, in a scenario where the state\u2019s credit rating is significantly lower and its cost of capital materially higher.\u201d<\/p>\n
\u2022 DJ Summers is a reporter can be reached at daniel.summers@alaskajournal.com.<\/p>\n","protected":false},"excerpt":{"rendered":"
Oil prices continue to lurk at less than $40 per barrel, and despite hope for a legislative salve, Standard & Poor\u2019s is lowering the state\u2019s debt rating. S&P lowered Alaska\u2019s general obligation debt from AAA status to AA+ and lowered the state\u2019s appropriation-backed debt and Alaska Municipal Bond Bank\u2019s debt from AA+ to AA. It […]<\/p>\n","protected":false},"author":107,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_stopmodifiedupdate":false,"_modified_date":"","wds_primary_category":4,"footnotes":""},"categories":[4],"tags":[230],"yst_prominent_words":[],"class_list":["post-14810","post","type-post","status-publish","format-standard","hentry","category-news","tag-state-news"],"_links":{"self":[{"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/posts\/14810","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/users\/107"}],"replies":[{"embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/comments?post=14810"}],"version-history":[{"count":0,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/posts\/14810\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/media?parent=14810"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/categories?post=14810"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/tags?post=14810"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/yst_prominent_words?post=14810"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}