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State’s credit outlook downgraded Moody’s Investors Service says problem is oil and gas no longer pay for state government, forcing Alaska to rely on savings accounts by The Associated Press
A major New York bond rating firm said Aug. 27 that Alaska should reduce the gaping chasm between its income and expenses or expect to pay higher interest rates when it borrows money.
Moody’s Investors Service, one of the two major bond-rating agencies, downgraded the state’s credit outlook from stable to negative. The move did not affect the state’s current bond rating, which remained at a strong Aa2.
The Moody’s announcement on Alaska was part of the company’s annual state-by-state credit accounting.
The financial outlook for all 50 states is negative because of the fragile national economy, the report concluded, but some states are doing better than others.
Florida, Hawaii and Nevada were upgraded from negative to stable. Alaska and half a dozen others slipped this year, boosting the number of states with a negative outlook to 15.
State economy growing Ray Murphy, one of the financial analysts who wrote the Alaska report, said the state is financially healthy on most fronts. Its economy has grown 14 years in a row, it has record low unemployment, and last year Alaska enjoyed the nation’s fourth-fastest growth in personal income.
Home ownership is up, bankruptcies are down and the state’s savings accounts are sound. Alaska has little debt, and is the only state to have reduced its budget in the last five years.
The problem? Alaska’s dependence on oil and state savings accounts, Murphy said.
Oil taxes and royalty payments no longer pay for state government operations, forcing the Legislature to tap the state’s Constitutional Budget Reserve. Last year, the state drew about $800 million from that savings account, and it could be exhausted in two years.
“Our changed outlook is a signal to the market that there is significant stress in Alaska,” he said. “The current revenue structure is insufficient to fund the operations of state government.
“A significant solution has to be developed to address this problem, and we don’t know what that solution will be,” Murphy said.
Report no surprise to state Larry Persily, deputy commissioner of the Department of Revenue, said the Moody’s report came as no surprise, and he doesn’t expect it to have any significant immediate impact on the state’s finances.
But the next time Alaska sells a bond, Persily said, the rate will be affected by a host of factors, from the price of oil to the Dow Jones Industrial Average.
Dave Rose, who used to be director of the Alaska Permanent Fund Corp. and now is a private financial adviser in Anchorage, said he thinks a downgraded credit rating is next.
“It’ll cost us a little more” the next time the state sells general obligation bonds, he said.
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