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3rd ratings agency downgrades Alaska credit as lawmakers debate budget proposals

  • Author:
  • Updated: August 24, 2016
  • Published June 14, 2016

JUNEAU — Alaska on Tuesday morning lost its only remaining top-ranked credit rating, with Fitch Ratings downgrading the state one notch from AAA to AA+.

The announcement from Fitch occurred after the two other big ratings agencies, Moody's and S&P, gave the state similar downgrades earlier this year, and it came as House lawmakers held a hearing to critique a deficit reduction proposal that could fix the state's budget problems.

Fitch's downgrade, the agency said in its own report, reflects Alaska's substantial budget deficit combined with "modest reform efforts" taken by lawmakers to match state spending with its "stressed" revenue structure.

Alaska has long depended on taxes and royalties from oil production to pay for government services, and the state's current multibillion-dollar deficit stems from the recent crash in oil prices. Fitch described the rating outlook as "negative."

"We had put them on rating-watch negative earlier this year in February, and we were waiting to see what the outcome would be in the budget session," said Marcy Block, a Fitch analyst. "And now in the current special session, we have not seen the full Legislature enact sufficient measures to stem the tide. There will be another very large draw on reserves in the upcoming fiscal year."

Lawmakers this year have been debating measures that would sharply reduce the deficit, including a proposal from Gov. Bill Walker to restructure the Permanent Fund to generate revenue for state government instead of solely for residents' dividend payments.

A rewritten version of Walker's proposal, Senate Bill 128, passed the state Senate last week.

In a hearing Tuesday morning, members of the House Finance Committee traded attacks on Walker administration officials presenting the legislation, and offered pessimistic assessments of the bill's chances.

"Everybody knows the votes are not there for this bill as written," said Rep. Les Gara, D-Anchorage.

Alaska Dispatch News reporter Annie Zak contributed to this report.

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