Alaska’s rating outlook got a boost from S&P Global Ratings Friday due to the passage of a budget that would reduce the state’s ongoing deficits.
The rating agency moved its outlook for Alaska to stable from negative.
S&P affirmed its AA rating on Alaska's general obligation bonds, its AA-minus rating on lease appropriation-backed debt, and its AA-minus rating on Alaska Municipal Bond Bank debt secured through continuing appropriations and a moral obligation pledge from the state.
It also raised its ratings for bonds issued by the Alaska Energy Authority and backed by a moral obligation pledge from the state to A-plus from A.
The state’s 2019 budget, approved by the legislature in May, draws upon the state’s Permanent Fund – a pool of oil and gas tax revenues invested over the years – to help fund operating expenses and reduce multi-billion dollar deficits.
“The outlook revision to stable reflects recent fiscal reforms that recognize the state's vast Permanent Fund Earnings Reserve Account (ERA) as unrestricted general fund revenue with provisions for its use," said S&P Global Ratings credit analyst Timothy Little in a press release.
The fiscal plan is the first to draw upon the fund which pays residents an annual dividend. The budget allows for a 5.25% draw and a $1,600 annual dividend to Alaskans.
Alaska still remains subject to economic volatility due to its exposure to volatile oil prices and the status of the fund’s investments, Little said.
However, the budget plan should allow for more sustainable draws in future budget and ease the pressure on the state’s reserves, which have been depleted in recent years, he said.
A rebound in oil prices over the past year should also help improve the state’s finances and build up its reserves, Little said.
Last month, Gov. Bill Walker, an independent, hailed the budget’s passage as “a landmark achievement” that will close 80% of a $3.7 billion deficit.