Moody's Investors Service said it has downgraded the state of Alaska's general obligation rating to Aa2 from Aa1.
The outlook remains negative.
The downgrade recognizes the state's political inability - at least for now - to address its severe fiscal challenges, according to the rating agency.
The Aa2 rating incorporates the state's extraordinary structural imbalance, under which it is running deficits of more than $3 billion per year, as well as its outsized pension liabilities and the economic difficulties caused by low oil prices, Moody's said.
The rating also reflects the extremely large available reserves Alaska has, which buy it several more years to figure out what its fiscal future will look like. Moody's baseline assumption remains that the state will come to a political compromise to achieve a sustainable fiscal structure before coming close to depleting its reserves.
Moody's said it also downgraded the state's lease-appropriation bonds to Aa3 from Aa2 and its moral obligation bonds to A1 from Aa3. These bonds continue to be rated one and two notches lower than the state's general obligation rating, respectively.
