PHOENIX – Standard & Poor's downgraded Alaska Tuesday, citing persistent low oil prices that have reduced the state government's revenues for more than a year.
The rating agency cut the state's general obligation bond rating to AA-plus from AAA, and lowered Alaska's appropriation-backed debt to AA from AA-plus. S&P also lowered the rating to A-plus from AA on some bonds that were issued by the Alaska Energy Authority and are backed by a moral obligation pledge from the state. The Alaska Municipal Bond Bank's $1 billion of debt fell to AA from AA-plus.
"The rating actions reflect our view of the state's 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," said Standard & Poor's credit analyst Gabriel Petek.
All the bonds have a negative outlook.
"The negative outlook continues to reflect our opinion that if lawmakers do not enact significant fiscal reforms to reduce the state's fiscal imbalance during its 2016 legislative session, Alaska's downward rating transition will likely persist," S&P said.
Alaska and other oil- and gas-rich states that rely on the energy industry to provide employment and royalty revenues have faced major challenges as the price of oil has fallen to a fraction of its once more than $100-per-barrel price, falling below $40 this week.
Alaska now faces a $3.5 billion deficit, and Gov. Bill Walker has been adamant that the legislature needs to make major changes because budget cuts alone cannot right the ship.
Early last month, Walker introduced a $4.8 billion budget package that would retool the state's oil and gas tax credit system, cut hundreds of millions of dollars of spending, and impose an income tax for the first time in more than three decades.
In a report released Tuesday, Moody's Investors Service warned that the governor's plan will be politically challenging because it entails both a reduction in the dividend payments Alaskans receive from the Alaska Permanent Fund each year, as well as a new tax.
Moody's continues to rate Alaska Aaa, with a negative outlook.
"The income tax was chosen for its progressive nature and to capture revenue from out of-state workers," Moody's said. "Alaskans received a record dividend payout last year of $2,072 per person and the new proposal, based on current forecasts, would sustain a dividend of about $1,000 annually for the near future. Nonetheless, there will be opposition by many Alaskans, whose wallets' would take a hit from both a new income tax and a reduced dividend."
Alaska's legislature is set to reconvene Jan. 19.
"The proposed income tax would generate approximately $200 million in annual revenue, while adjustments to other taxes would yield another $260 million," Moody's said in the report. "The budget proposal also cuts $100 million from agency budgets in fiscal 2017 following significant reductions that started in fiscal 2013."
Gov. Bill Walker said S&P was hasty in downgrading the state.
"The action taken by Standard & Poor's to lower Alaska's credit rating is concerning and premature given that the legislature has not had time to act on a long-term fiscal plan," Walker said in a statement. " However, this further solidifies the need to address our state's fiscal challenges in the immediate future.
