PHOENIX - A jump in oil prices and strong market performance have combined to stanch the economic bleeding in Alaska, leading to some good news from analysts.
Moody's Investors Service announced this week that it had changed Alaska's outlook to stable from negative. It affirmed its Aa3 rating on the state's general obligation bonds, the A1 rating on its lease revenue bonds, the A1 rating on the Alaska Municipal Bond Bank, and the A2 rating on the state's moral obligation bonds.
The good news follows a long few years of mostly bad news for the nation's 49th state, which has suffered multiple downgrades amid low oil prices and legislative struggles to produce budgetary reform.
"There have been two notable developments since we downgraded Alaska to Aa3 from Aa2 in July," Moody's said Monday. "Taken together, the leap in oil prices and the strong performance in the securities markets effectively eliminated Alaska's deficit (meaning total reserves are no longer declining) in fiscal 2017 (ended 6/30/2017), and a deficit for 2018 now appears unlikely."
Alaska North Slope West Coast crude oil is now around $63 per barrel, Moody's noted, which is a 30% jump since the date of the downgrade. Although oil remains well below the peak of earlier in the decade, the current price is the highest in more than two years.
Alaska's October revenue forecast shows a 36% increase in unrestricted revenue for fiscal 2018, driven by $440 million of additional unrestricted petroleum revenue, Moody's pointed out. The $1.3 billion of projected petroleum revenues is still far below historical figures, which were as high as $8.8 billion as recently as fiscal 2012.
The investment performance of the Permanent Fund, a pool of oil revenue money that Gov. Bill Walker has touted as a key tool to righting the state’s fiscal ship, was another positive. The fund has climbed to $63.3 billion as of Nov. 24, noted Moody’s up almost 6% since the end of June.
Alaska has a debt portfolio of about $1.25 billion, and still faces problems. Walker has been unable to sell the legislature on his comprehensive fiscal reforms, and the state has the second-highest pension burden relative to personal income, trailing only Illinois.
Moody's said it could upgrade the state if Alaska shows an ability to fund operations from recurring resources even during downturns, but could downgrade the state if existing resources prove insufficient or if the pension situation worsens.