Standard & Poor\u2019s Jan. 5 downgrade of Alaska\u2019s credit ratings, which caught many state leaders by surprise, was triggered by upcoming bond sales, according to an analyst from the ratings agency.<\/p>\n
Gabe Petek, Standard & Poor\u2019s primary Alaska analyst, said in an interview that the agency had a duty to revisit the state\u2019s ratings because of general obligation bond sales scheduled for late January and February.<\/p>\n
\u201cIf you\u2019re selling debt we can\u2019t just sit back and let it go forward without updating our viewpoint,\u201d of the state\u2019s credit, Petek said.<\/p>\n
In August, Standard & Poor\u2019s revised the State of Alaska\u2019s credit rating outlook from \u201cstable\u201d to \u201cnegative,\u201d citing the state\u2019s budget deficit growing toward $3.5 billion annually as the main reason for the change. An associated report acknowledged the state\u2019s significant existing savings \u2014 currently a sum of about $15 billion \u2014 but also said legislators must act quickly to address the pessimistic trend of the fiscal situation in what Standard & Poor\u2019s at the time called a \u201ccontentious\u201d state political climate.<\/p>\n
The agency officially downgraded Alaska\u2019s formerly sterling \u201cAAA\u201d credit rating to \u201cAA+\u201d for general obligation, or GO, debt Jan. 5. Along with that came single-level downgrades to state appropriation-backed debt and Alaska Energy Authority bonds with a moral obligation pledge from the state to \u201cAA\u201d and \u201cA+,\u201d respectively. A collective negative outlook accompanied the ratings.<\/p>\n
At a press briefing immediately following the Standard & Poor\u2019s downgrade Gov. Bill Walker said his initial reaction was \u201cgive us a chance\u201d to address the state\u2019s long-term budget issues during the regular legislative session that begins Jan. 19. He added at the time it was his understanding a bond sale pushed the issue.<\/p>\n
Walker put forth an aggressive plan to balance the state budget over several years in early December \u2014 a proposal to revamp how the state manages its money through the Permanent Fund, change how resident dividends are paid and increase personal and industry taxes.<\/p>\n
Whether it is done using the governor\u2019s plan or another method, there is near unanimous consent among legislators that a major fiscal structure change is coming, and soon, for Alaska.<\/p>\n
Senate Finance Committee co-chair Anna MacKinnon, R-Eagle River, said in a Jan. 5 statement that she was disappointed by the decision to downgrade the state\u2019s credit rating so soon after changing the credit outlook and before the session. The agency\u2019s rationale, as MacKinnon put it, in August was that the Legislature needed to stabilize the budget situation.<\/p>\n
The specific GO bond sales scheduled for Jan. 20 that Petek said pressed Standard & Poor\u2019s to revisit Alaska\u2019s credit rating are for bond approvals dating back as far as 2005. Those bonds, totaling $38.5 million, are for projects in the Kenai Peninsula and Kodiak Island boroughs and the small Southeast Alaska city of Klawock approved as part of a 2005 bond resolution. Refinancing of a bond for the City of Seward is also included in the package.<\/p>\n
Fitch Ratings on Dec. 23 announced a rating of \u201cAA+\u201d with a stable outlook for the GO bonds, which nearly aligns with Standard & Poor\u2019s overall rating downgrade for general state bonds.<\/p>\n
Alaska Municipal Bond Bank Authority Executive Director Deven Mitchell said another state GO bond sale for statewide transportation projects is scheduled for the end of February.<\/p>\n
Voters approved those bonds in 2012 as part of a $460 million package.<\/p>\n
Public infrastructure projects are long-lived, Mitchell said, so the state bond bank regularly asks the Department of Transportation when it needs funds for various projects.<\/p>\n
Alaska\u2019s credit rating downgrade also comes at a time when the Walker administration is proposing a $500 million multi-year GO bond package to fund essential and capital projects along with pension bonds to stabilize the state\u2019s retirement payment obligation.<\/p>\n
Mitchell said the downgrade could result in interest rate hikes of about 0.1 percent on future bond sales. Walker equated that to roughly an additional $1,000 per year payment on each $1 million the state borrows.<\/p>\n
In several years the state could also look to bond for at least part of its share \u2014 at least $13 billion \u2014 of construction costs on the Alaska LNG Project. However, the state\u2019s credit rating and fiscal situation will have ample time to change for better or worse before then.<\/p>\n
The state\u2019s financial group made a pitch to Standard & Poor\u2019s analysts in an early August meeting just prior to the negative ratings outlook report for a ratings adjustment after the upcoming legislative session to give Alaska\u2019s leaders a chance to stabilize the state\u2019s fiscal situation, according to Mitchell.<\/p>\n
\u201cThat\u2019s been the state team\u2019s discussion point with the analyst. If you look back 18 months to August of 2014, the price of oil was over $100 per barrel. The state was looking at a balance with a draw on the (Statutory Budget Reserve), but we were going to have growth in the net position of the state because of investment earnings that were going to float a savings in funds like the (Constitutional Budget Reserve), the Earnings Reserve of the Permanent Fund and so we went from that kind of very strong position to a year later trying to deal with a price of oil that had dropped below $50 per barrel and now obviously it\u2019s below $40 per barrel,\u201d Mitchell said. \u201cAnd it just takes a long time, it\u2019s kind of like you\u2019re in a ship and you want to turn around you can\u2019t just start going the other way; it takes a while to get turned around.\u201d<\/p>\n
Petek said the timing of the ratings are not tied to the legislative cycles and that Standard & Poor\u2019s does not try to persuade or pressure political leaders into any decisions. Its reports specific to Alaska simply lay out the state\u2019s bind, he said.<\/p>\n
Since the August ratings outlook adjustment the state\u2019s revenue forecast has declined along with oil prices, further exacerbating Alaska\u2019s fiscal issues, Petek noted.<\/p>\n
\u201cThe problems have gotten larger; that\u2019s one thing, and the state is going to sell debt into the market,\u201d he said. \u201cAnd we just have a very strong interest in making sure there\u2019s no uncertainty as to what our views are when they\u2019re going to go and sell debt so it kind of forced the issue in a way.\u201d<\/p>\n
Petek added that Alaska, at \u201cAA+\u201d remains in a \u201creally strong\u201d position \u2014 equal to or better than about half of the other states around the country. It is a rating agency\u2019s responsibility to assess based on a state\u2019s immediate situation and not to predict what politicians will do, he said, and currently Alaska\u2019s fiscal house is deteriorating.<\/p>\n
\u2022 Elwood Brehmer is a reporter for the Alaska Journal of Commerce. He can be reached at elwood.brehmer@alaskajournal.com.<\/p>\n","protected":false},"excerpt":{"rendered":"
Standard & Poor\u2019s Jan. 5 downgrade of Alaska\u2019s credit ratings, which caught many state leaders by surprise, was triggered by upcoming bond sales, according to an analyst from the ratings agency. Gabe Petek, Standard & Poor\u2019s primary Alaska analyst, said in an interview that the agency had a duty to revisit the state\u2019s ratings because […]<\/p>\n","protected":false},"author":107,"featured_media":26635,"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-26634","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","tag-state-news"],"_links":{"self":[{"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/posts\/26634","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=26634"}],"version-history":[{"count":0,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/posts\/26634\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/media\/26635"}],"wp:attachment":[{"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/media?parent=26634"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/categories?post=26634"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/tags?post=26634"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/yst_prominent_words?post=26634"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}