If anything surprises us about Fitch Ratings’ downgrade of Alaska’s credit rating, it’s that the decision took this long.
Fitch was the last of the three major credit rating agencies to downgrade Alaska’s score (from AAA to AA+). Until a few months ago, the state had the highest marks possible. The downgrade, as you’ve probably guessed, is in response to Alaska’s multibillion-dollar budget deficit and lawmakers’ sluggish response to close the gap with anything but savings.
[http://juneauempire.com/state/2016-06-14/legislature-balks-states-credit-rating-continues-fall]
Make no mistake: Alaska still has a good score across the board, receiving the second-highest rating possible by Fitch, Standard & Poor’s and Moody’s Investors Service.
The announcement was made just two weeks before the state is to issue $150 million worth of bonds. The downgrade in Alaska’s credit rating is expected to cost it about $375,000. For municipalities looking to fund large projects through the Alaska Municipal Bond Bank, as well as state agencies such as the Alaska Industrial Export and Development Authority, the Alaska Housing Finance Corporation and the Alaska Student Loan Corporation, the cost will be much higher.
Each of those agencies relies on Alaska’s credit rating to get better loans, and while the state doesn’t borrow much money, those agencies do.
The downgrade also will increase the cost of building a liquefied natural gas pipeline, something needed to put new revenue into state coffers to replace a dwindling supply of North Slope oil. The state decided to buy out TransCanada’s share of the pipeline less than a year ago because its credit rating was so strong. The case for a buyout still makes sense, but not as much as it once did.
Fitch officials said they were waiting to see how lawmakers addressed the state’s budget deficit before deciding whether to downgrade Alaska’s credit rating, and so far they haven’t been impressed.
“The downgrade … reflects the substantial operating deficits recorded by the state in recent fiscal years and the modest reform efforts taken to date,” Fitch said in a statement.
Saying the budget reform efforts were “modest” might be too kind. The Legislature has been tackling the state’s multibillion-dollar budget deficit for three years now. The state’s expenses and its revenues are still billions of dollars apart. The greatest issue has been that while the state reduced expenses, the price for oil continued to drop and the addition of new revenue has been too little, too late.
There’s still time for the Legislature to act swiftly to get the state back on the right track. Responsible and meaningful budget reforms are long overdue, especially when it comes to the topic of new revenue.
This newspaper has pleaded with lawmakers for years now to rip off the Band-Aid and make the necessary steps to end the lingering cloud of uncertainty hovering over our state. Instead, we’ve watched this issue be passed from one year to the next.
Alaskans are the ones who pay for this inaction, and the next check will be due in a few weeks.
