SAN FRANCISCO — Moody's Investors Service revised its outlook on Alaska's Aaa rating to negative from stable, citing plunging oil prices.
"The negative outlook signals that this year's rapid oil price decline, and expected prices below prior forecasts in coming months, will lead Alaska to substantially reduce financial reserves by the end of fiscal 2016," analysts said in a report released Tuesday.
Alaska's state government is almost entirely dependent on oil tax revenues, though it has used them to build enormous budget reserves.
The action affects nearly $840 million of Aaa-rated general obligation bonds, $290 million of Aa1-rated lease bonds, and $870 million of Aa2-rated state moral obligation bonds.
The moral obligation bonds were issued by the Alaska Municipal Bond Bank and by the Alaska Energy Authority.
Accumulation of large financial reserves during a period of elevated oil prices left Alaska positioned to manage the potential fiscal challenges associated with its reliance on petroleum, analysts wrote.
At the end of fiscal 2013, the state's two main reserve funds held more than $16.3 billion, or 2.7 times fiscal 2014 unrestricted general fund operating appropriations.
"A rapid reserve-depletion scenario-especially in the absence of feasible plans to rebuild reserve funds, to diversify tax revenue streams or to impose strict cuts on expenditures-would be consistent with a lower credit rating," the report said.
Moody's said the large size of the state's financial resources in relation to its annual expenditures has offset the fact that Alaska is far more vulnerable than any other U.S. state to the global political, economic and other factors affecting oil supply and demand, as well as to local conditions influencing production.
"But just as the state has benefitted from high oil prices in recent years, prices well below previous expectations could lead the state to substantially reduce its financial reserves, eroding a key support to its Aaa rating," analysts said.
Moody's could lower Alaska's rating if oil prices stay low relative to prior assumptions, petroleum production volume quickly declines, or if the state uses non-recurring measures beyond financial reserve expenditures to achieve budget balance.
It could also be lowered if there is a possibility that financial reserves will be fully depleted in the near term.
Alaska carries a AAA rating from Fitch Ratings, which said in a report released last week that the decline in oil prices would not have any immediate impact on the credit rating. Standard & Poor's also rates Alaska AAA.
