My Turn: Explaining the numbers could be improved

Posted: Sunday, September 08, 2002

We have a different interpretation of the rating action taken by Moody's Investors Service on the Alaska general obligation credit than what we have seen in your newspaper. Moreover, news reports and especially the Anchorage Daily News editorial (reprinted in the Juneau Empire) missed the very points we think are important.

Rating agency messages are not directed at candidates running for office but at the administration now in place. If this rating action seeks anything, it is that a constructive fiscal plan that has a reasonable chance of being accepted should come from the administration.

During the 1980s more than one governor had an established planning office. While we acknowledge that not even the cabinet gave any credence to the work of those planners, the credit rating agencies thought it was well that the planning was being done. Moody's has not been shown any plan.

Moody's reveals a broader understanding of Alaska fiscal issues than what has been mentioned in the media. In discussing declining petroleum output, they cite "the need to reduce the demand for governmental services as that resource dwindles."

We have some advice for the outgoing administration in its dealings with the credit rating agencies:

• Invite rating agencies to talk with legislators. Legislators and the rating agencies have not met for many years. Past meetings were helpful to Alaska and the agencies.

• Give legislators credit for not adopting large budget increases when those increases were requested. Moody's cited Alaska's budget restraint as a unique and positive attribute. No good can come to Alaska from telling a credit rating agency that working with the Legislature is impossible. Since the Legislature had no opportunity to speak with rating agencies, a concern about the lack of planning is not a statement about the Legislature.

• Make sure credit analysts understand that much more petroleum has been produced than originally forecasted. Prior production forecasts have tended to be conservative. Underscore that despite the operating deficit shown with current accounting practices, petroleum revenues are saved every day and placed in the Permanent Fund.

• Communicate regularly with credit rating agencies using knowledge of the many Alaska credits the rating agencies must review.

• Do the math for the raters; debt service coverage ratios, revenues matched against obligations, and capacities to generate revenue from sources not now used in Alaska. Separate the costs of core governmental services from state expenditures that are not essential to state government.

• The market for public debt is broad but shallow. The state should talk with every municipality, agency and authority issuing public debt so that all issuers hear of any rating agency concern heard by any Alaska issuer.

• If there are municipal credits that draw unusual concern, work with those credits and with legislators to help those issuers lower their issuance costs and debt.

Liquidity of $25 billion to $30 billion and ongoing savings should and apparently do alleviate most concern about Alaska on Wall Street. While rating agencies have downgraded or expressed concern over the general obligation of many other states, this one change in Moody's outlook for Alaska is the only departure from systematically positive statements. We believe that the credit outlook for Alaska is fine but can always be better explained.

Brian Andrews is an Alaska investment advisor and Tom Boutin is a financial advisor in Alaska public finance.

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