S&P Lowers State’s Credit Rating to AA+

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Amid rising budget shortfalls and falling oil prices in Alaska, Standard&Poors released its credit rating for the state of Alaska, lowering the state’s credit rating from AAA down to AA+ on Tuesday.

In the report, the CFA of Standard&Poors, Gabriel Petek, said that the ratings actions reflect their 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. 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.”

But, Petek also stated, “On the other hand, the state’s large reservoir of financial assets provides it with options that we believe have the potential to stabilize its credit quality. Governor Bill Walker’s fiscal 2017 budget proposal illustrates one approach to potentially reducing the effect of oil price volatility on state finances. However, the politics of enacting what amounts to an austerity-based overhaul of state finances render its prospects uncertain.”[xyz-ihs snippet=”adsense-body-ad”]

Saying the state’s credit quality is under negative pressure, and even with the 2017 governor’s budget proposal, the state would still be left with a 9% or $427 million structural gap. Although that gap would fall to just $28.2 million under Governor Walker’s 2018 budget plan, S&P says that even though the state has sizable budget reserves still available, the fiscal trajectory remains “unsustainable.”

The state anticipates that there will be only 504,900 barrels of oil produced a day in 2017 and 400,000 barrels per day by 2022, down from the 1988 peak of 2 million barrels a day. That coupled with spot oil forecasts of $49.58 per barrel, places the state in an ever downward spiral in respect to revenue from the state’s main earner.

In a statement following the S&P report, Alaska’s governor, Bill Walker said, “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. However, this further solidifies the need to address our state’s fiscal challenges in the immediate future. As noted in S&P’s release today, Alaska has significant financial assets that, if properly utilized, can help build fiscal stability for our state. I agree with S&P that the stakes are high for Alaska to enact a sustainable fiscal package, but it’s important to do what is right for our state’s future versus what may be politically appealing. As we approach the 2016 legislative session, I encourage every legislator and Alaskan to read the memos released by Standard & Poor’s and Moody’s in their entirety. I look forward to working with lawmakers to enact a complete fiscal package that protects the opportunities available to future generations of Alaskans.”[xyz-ihs snippet=”Adversal-468×60″]