PHOENIX - Alaska suffered another downgrade Tuesday, even as its leaders were hailing financial progress in the legislature.
S&P Global Ratings slashed various Alaska debt by a notch, lowering the state’s general obligation debt rating to AA from AA-plus, its appropriation-backed debt to AA-minus from AA, and moral obligation Alaska Energy Authority debt to A from A-plus.
S&P removed Alaska from CreditWatch, where it had been placed June 20 for review for the downgrade. S&P's outlook is negative.
"The negative outlook continues to reflect our opinion that if lawmakers fail to enact significant fiscal reforms to reduce the state's fiscal imbalance during the 2018 legislative session or fiscal 2019 budget, Alaska's downward rating transition will likely persist, possibly by multiple notches as its structural imbalance becomes more protracted," Little said.
S&P’s downgrade follows a virtually identical set of downgrades from Moody’s Investors Service Friday.
S&P warned in June that further downgrades were likely if Alaska’s legislature failed to correct a $3 billion structural budget deficit that is rapidly consuming the state’s constitutional budget reserve. Lawmakers failed to meet that challenge last month, only narrowly averting a state government shutdown with a last-minute compromise operating budget that did not fix the fiscal imbalance.
"The rating actions reflect continued lack of agreement on fiscal reforms to return the state to structural balance," said S&P analyst Timothy Little. “And while we recognize the state's sizable reserve position is intended to offset volatile economic cycles, continued reliance on reserves, coupled with the state's economic contraction since 2012 and the fallout of oil prices in mid-2015, have reached an unsustainable level."
S&P’s announcement came only hours after Alaska Gov. Bill Walker applauded the legislature for wrapping up its second special session Monday with a compromise bill eliminating cashable tax credits for oil companies. A legislative fiscal analysis estimated it would save the state just over $1.3 billion through fiscal year 2027, a relatively small savings that Walker nonetheless said was “a meaningful step to help shore up our financial situation.”
“However, the work is not yet finished," Walker said in a statement. “Alaskans deserve a complete fiscal plan and economic stability for the future. I urge lawmakers to continue with this spirit of compromise and collaboration, and pull together to fix Alaska.”
Fitch Ratings assigns Alaska GO bonds its AA-plus rating, with a negative outlook. It downgraded Alaska from AAA in June 2016, citing “substantial operating deficits recorded by the state in recent fiscal years.”