LOS ANGELES - Alaska lawmakers passed a one-year budget to avoid a government shutdown, but have yet to solve the deeper problems threatening to eradicate the state's savings and further lower its bond ratings.

Pending the signature of Gov. Bill Walker, the $4.1 billion unrestricted general fund budget will take effect July 1 and prevent a damaging shutdown of government services. But what the eleventh-hour compromise legislation, a $179 million cut from the 2017 budget, does not do is fix the budgetary imbalance that caused negotiations to drag on so long in the first place. The budget draws some $2.4 billion from Alaska’s once robust constitutional budget reserve, cutting it in half and threatening to wipe out the savings altogether in another year.

Alaska Gov. Bill Walker delivers his State of the State address in January 2017.
Alaska Gov. Bill Walker, shown in January, said the budget deal does not solve Alaska's underlying fiscal problems. Alaska Office of the Governor

The legislature appropriated a $1,100 annual dividend for every eligible Alaskan out of the state’s nearly $60 billion Permanent Fund, a long-running practice that has already seen some cuts in an effort to save money. Walker praised lawmakers for compromising to avert a government shutdown, but warned that the structural deficit still needs to be solved immediately.

Alaska’s once unanimous triple-A ratings have been cut multiple times by the three largest rating agencies over the past two years, and S&P Global ratings announced last week that it was placing the state on review for possible further downgrade. Walker amended his instructions to lawmakers working in a special session, directing them to focus on reforming the state’s system of tax credits for oil and gas companies.

“We must immediately address the subsidies we can no longer afford,” Walker said. “It is the next critical component of a much needed compromise fiscal plan, and it must be addressed this year.”

Legislative leaders said that neither side was satisfied with the outcome, but that keeping Alaska open for business was more important than continued wrangling over whether or not to institute a sales tax.

“The Senate and House worked together to deliver a reduced budget in time to avoid the high costs of a government shutdown,” said Senate president Pete Kelly, R-Fairbanks.

“The compromise budget we passed tonight prevents a government shutdown and funds the essential state services that help drive our economy," said House speaker Bryce Edgmon, D-Dillingham. "Fisheries will continue uninterrupted, our airports will stay open, and troopers will stay on the beat. However, the job is only half done."

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Kyle Glazier

Kyle Glazier

Kyle Glazier is a reporter covering market trends, infrastructure, and the Far West region for The Bond Buyer.