Moody’s steps down Alaska’s credit outlook because of ‘political paralysis’ amid budget turmoil

Moody’s Investors Service announced Thursday it revised Alaska’s credit-rating outlook to negative, from stable, but the Dunleavy administration countered that the outlook can be revised again if the Legislature provides a balanced budget.

“Alaska’s credit position benefits from an ability to fund operations partly from earnings derived from the Alaska Permanent Fund,” the major credit ratings agency said. “Credit challenges, such as a narrow economy, comparatively large net pension liability, elevated exposure to climate change and high reliance on the state’s oil production industry, have been largely offset by sizable budgetary reserves. A new focus on distributing increased shares of Permanent Fund earnings to residents, combined with political paralysis or other factors that prevent a return to budget balance, may make the current fiscal approach unsustainable over time, particularly in the event of financial market downturns or the inability to sufficiently contain spending growth.”

The state’s Department of Revenue was informed Thursday of the change to the outlook amid the current standoff in the Alaska Legislature, involving the size of the Alaska Permanent Fund dividend, funding for the capital budget and other matters.

The rating’s service cited significant uncertainty over those issues as the Legislature holds its second special session of the year, the statement from Revenue said.

Alaska "remains a highly rated entity at AA from both Fitch ratings and Standard and Poor’s and an Aa3 from Moody’s Investors Services,” the Revenue statement said. “The Dunleavy Administration will make every effort to achieve a balanced budget and maintain these strong ratings.”

Moody’s earlier this month downgraded UA’s rating by multiple grades for general revenue bonds and lease revenue bonds, and the outlook for both is negative, the agency said in a report.

The university called the 41% state funding cut the university system faces, following a veto by Dunleavy in June, “unprecedented.”

Dunleavy said Thursday he’s working with the university on a “step-down approach" to the cuts.

Editor’s note: The original version of this story used the words “downgrade” and “upgrade” to describe the change to the state’s credit outlook. In the parlance of the financial industry, those words describe changes to bond ratings, rather than outlook. There was not a change to the state’s bond ratings, as the article originally explained and still does. While the words “downgrade” and “upgrade” have broader use in everyday language, the words were removed from this article and its headline to avoid confusion.

[Earlier: Moody’s downgrades University of Alaska credit rating, citing financial challenges]