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Moody’s downgrades Alaska’s credit rating again

  • Author: Annie Zak
  • Updated: July 14, 2017
  • Published July 14, 2017

A top credit rating agency this week downgraded Alaska's credit, the latest drop the state has seen as its financial problems drag on.

Moody's Investors Service downgraded Alaska's general obligation debt one notch, from Aa2 to Aa3, the agency said Thursday. Moody's also maintained a negative outlook for Alaska.

"The downgrade reflects the state's ongoing structural budget imbalance, a small economy with concentration in energy production, large fixed costs, and heavy pension burden," the Moody's statement said. Alaska "still has the means" to fix its fiscal problems, Moody's said, "and our baseline expectation remains that the state will do so before exhausting its still-considerable liquid reserves."

Alaska's credit rating has been sliding since early last year.

Moody's downgraded the state twice in 2016, and Fitch Ratings gave a downgrade last summer. Standard and Poor's lowered Alaska's top-flight rating in January 2016 and warned last month that the grade might fall again if state lawmakers do not adopt fiscal reforms.

Funding for Alaska's government depends largely on oil revenue. But the state's budget has suffered as oil prices have dropped dramatically since 2014.

When Alaska lawmakers passed an operating budget last month to avoid a government shutdown, they set aside the issue of adopting long-term fiscal reforms. Such a restructuring is now barely creeping forward, as lawmakers have struggled for the last month to negotiate a deal on oil taxes — one small piece of a larger deficit reduction plan.

Gov. Bill Walker said Friday that this most recent downgrade from Moody's was concerning but not surprising.

"When I took office, I made long-term fiscal stability a top priority of my administration and warned of the consequences of legislative inaction. We now see those consequences coming to fruition," he said. "Alaska has gone from the highest credit rating in the nation to the third lowest, better than only Illinois and New Jersey. We simply cannot afford to wait any longer to take our finances and budget issues seriously."

Moody's also issued a warning for the future.

"The negative outlook incorporates the large structural imbalance that the state has still not rectified, and the ongoing spending of the state's reserves," its statement said. "As the state's reserves diminish, its options to close the budget gap narrow and the consequences should it fail to do so intensify."

The agency also said Thursday it downgraded the state's lease revenue bonds from Aa3 to A1, and its moral obligation bonds from A1 to A2.

Reporter Nathaniel Herz contributed to this story.