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Bond rating groups take new look at pensions

Alaska officials say state's top rating likely to remain unchanged

Posted: February 8, 2011 - 12:24pm

One of the nation’s top bond rating firms says it will begin considering unfunded pension liabilities of states when it sets ratings, but Alaska officials say that shouldn’t affect the state’s hard-won triple-A rating.

Unfunded liabilities are the differences between what states expect to need to provide retirement benefits in future years, and how much they expect to have saved to pay for those costs.

Alaska’s unfunded liability is currently estimated at $9.7 billion, according to the Alaska Retirement Management Board.

Now Moody’s Investors Service is saying that it will begin considering future costs, such as pension liabilities, as if they were bonded or other debt when it calculates state credit ratings. It recalculated each state’s debt burden to include post-employment pension and health care obligations, even if the states themselves don’t do that.

Alaska has a Moody’s rating of Aaa, the agency’s highest. Alaska is one of only a handful of states with such a rating.

State Debt Manager Deven Mitchell said despite the new Moody’s policy, he doesn’t expect Alaska’s valuable credit rating to be lowered.

Even with the size of the state’s debt, “I think we compare (favorably) to other states,” he said.

A state press release about the ratings upgrade last fall said it was the first time in the state’s history it had the top rating. It will likely save the state tens of millions of dollars in interest, the release said.

Mitchell said during extensive discussions Alaska’s bond rating team had with Moody’s, it fully disclosed the unfunded liabilities and the company’s analysts were fully aware of it.

And Mitchell said while Alaska has a substantial amount of unfunded liability, it has long recognized that obligation in its financial statements and made the amount public.

More importantly for Alaska, it also has cash to guarantee it can pay back any money it borrows.

“The state has ample unrestricted reserves,” he said.

Moody’s noted Alaska has the nation’s sixth highest per capita liability, but also noted the state’s large financial reserves, strong financial management and conservative fiscal decisions.

There are a few other states with the ability to immediately pay off their unfunded liability if they chose, but only Alaska could do it without dipping into funds such as the Permanent Fund, he said.

• Contact reporter Pat Forgey at 523-2250 or patrick.forgey@juneauempire.com.

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