Alaska received an improved ratings outlook to stable from negative by Fitch Ratings as surging energy prices bolstered the state’s financial resilience.
The boost to the oil-dependent state’s coffers should enable it to replenish budgetary reserves, Fitch said in the Wednesday report on the outlook revision. The state's A-plus issuer default rating and general obligation bond rating were affirmed.
“Alaska’s budgetary outlook has improved significantly on surging global energy prices, ending at least temporarily a lengthy period of lower energy prices and fiscal stress that began in late 2014,” Fitch analysts wrote.
S&P Global Ratings revised its outlook on Alaska to positive from stable on March 31 and affirmed its AA-minus rating on the state’s GO debt. It assigned an A-plus long-term rating to Alaska Municipal Bond Bank’s $40.85 million of GO bonds.
The S&P revision “reflects our view that there is at least a one-in-three change we could raise our rating on Alaska’s GO debt over our two-year outlook period,” analysts wrote.
The Alaska-North Slope price per barrel benchmark has moved sharply higher in recent months spurred by post-pandemic economic recovery and by the war in Ukraine, Fitch analysts wrote. Prices were forecast at $61 per barrel in 2022 and $62 for fiscal 2023, but are now forecast at $92 and $101, respectively, Fitch said.
The state government's finances are almost entirely dependent on oil, a position that creates a long-term roller coaster ride for its budget as the commodity's prices rise
Those rising oil prices mean revenues are now beating budget projections for both years in the state’s two-year budget.
The Alaska Department of Revenue raised the state’s two-year forecast of oil revenues by $3.6 billion on March 15, causing lawmakers to
State revenue is expected to be $6.96 billion, an increase of $1.2 billion from the state’s prior estimate, for the current fiscal year ending June 30. The forecast for fiscal 2023, which starts July 1, is for $8.33 billion, up $2.4 billion from December’s forecast.
Fitch also affirmed Alaska state appropriation, lease revenue and Alaska Municipal Bond Bank Authority bonds at A.
Fitch also cited the change in the percentage of market value formula adopted in 2018 that has created a consistent approach to drawing resources from realized earnings of the Alaska’s massive Permanent Fund held in the Permanent fund Earnings Reserve account.
“The state projects it will maintain out-year unrestricted combined reserves at about $20 billion for the foreseeable future, or approximately four times fiscal 2022 estimated unrestricted expenses, assuming future ongoing spending grows no more than inflation,” S&P analysts wrote.
Fitch’s underlying rating “reflects the state’s unique economic and budget profile with strong gap-closing capacity, supported by reserves that remain sizable, but most are somewhat limited in their direct availability, and a moderate long-term liability burden.”
