S&P Global Ratings has placed its AA-plus general obligation (GO) rating, AA appropriation rating, and A-plus moral obligation rating on the state of Alaska's debt on CreditWatch with negative implications.

"The CreditWatch action reflects our view that the state could remain structurally imbalanced for fiscal 2018 based on the impasse for budget negotiations regarding adopting fiscal reforms," said S&P credit analyst Timothy Little. Without structural fiscal reform in the 2017 legislative session, S&P said it would likely lower the state debt ratings. Over the next 90 days, it expects the state will enact a fiscal 2018 budget.

The Alaska State Capitol, where the legislature is working to pass a budget.
The Alaska State Capitol, where the legislature is working to pass a budget.

"If Alaska uses a significant amount of its reserves again and remains structurally imbalanced, we would likely lower the rating," said Little, "but should it adopt a balanced budget with fiscal reforms that does not significantly rely on reserves, we may remove the state's ratings from CreditWatch without downward rating action."

The state legislature failed to adopt a budget during its regular session and first special session.

On June 16, the governor called for a second special session specifically to address the operating budget before the end of the fiscal year (June 30).

Given the limited scope of the second special session and an ongoing political impasse over adopting the governor's proposed fiscal reforms, it is unlikely significant fiscal reforms will be implemented as part of the 2018 budget, resulting in yet another year of structural imbalance, S&P said.

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