PHOENIX - Standard & Poor's revised triple-A rated Alaska's outlook to negative and warned that it might no longer warrant the highest rating if the state's lawmakers fail to fix its structural budget imbalance.
S&P affirmed its AAA general obligation rating Tuesday, but also slapped negative outlooks on bonds issued by the Alaska Municipal Bond Bank and the Alaska Energy Authority. The state has nearly $900 million of GO debt, according to S&P.
The state approved a budget in June that averted a potential government shutdown, but did not address a roughly $3.5 billion deficit gap.
That gap exists based on the state's spring 2015 revenue forecast, which projected a 59% decrease from the previous year with revenues expected to drop to $2.2 billion from $5.4 billion in fiscal 2014. State revenues are strongly tied to oil prices, which have fallen sharply in the last year.
Extremely large budget reserves give the state a substantial budget cushion.
"The negative outlook reflects that the large structural deficit in the state's unrestricted general fund could render its overall fiscal position inconsistent with our 'AAA' rating," said Standard & Poor's credit analyst Gabriel Petek. "We expect that if lawmakers do not enact significant fiscal reforms to reduce the imbalance within the next year, the state's rating could begin transitioning downward. The rating migration lower would likely persist and accelerate if lawmakers continued to fail to act as the state's budget reserves (not including the permanent fund) approached depletion," Petek said.
Alaska has no state income or sales tax, but could choose to explore some kind of special tax and budget cuts in order to close the gap. It's possible, analysts have said, that oil prices could rebound and largely solve the problem, but prices have continued to trend even lower since the budget.
