Standard & Poor’s downgraded Alaska’s general obligation debt Tuesday to double-A-plus from its top triple-A. Lower oil prices and a wider budget gap were cited. It also lowered other Alaskan credits and is keeping a negative outlook on all the issues.
S&P credit analyst Gabriel Petek wrote: The rating actions reflect our view of the state’s credit quality as oil prices have continued to slide, falling below forecasts from earlier this year, causing an already large structural gulf between unrestricted general fund revenues and expenditures to widen further.
S&P says Alaska has the resources to solve the problem and called on legislators to implement reforms — or else.
If lawmakers do not enact significant fiscal reforms to reduce the state’s fiscal imbalance during its 2016 legislative session, Alaska’s downward rating transition will likely persist. Furthermore, it’s possible that the downward rating migration could accelerate if lawmakers continue to fail to act as the state’s budget reserves (not including the permanent fund) approach depletion. On the other hand, the state’s large reservoir of financial assets provides it with options that we believe have the potential to stabilize its credit quality.