Municipalities see trickle down effect from state’s lower bond rating
Some municipalities are already feeling the effects of the state’s downgraded bond rating. Standard and Poor’s lowered the state’s AAA bond rating Tuesday, pointing to sliding oil prices.
S&P credit analyst Gabriel Petek, who prepared the report, said it became clear the governor’s plan for fixing state finances wouldn’t be enough to maintain the supreme credit rating.
“Frankly, even if the Legislature came on board and adopted all of the governor’s proposals just as they are, there would still be a $427 million budget deficit in the upcoming fiscal year,” Petek said. “That’s information that we didn’t have back in the summer time when reviewed the state’s credit rating. ”
Petek said the state recently went out for a bond sale, which prompted the change in rating.
“We always want to make sure investors have our most current thinking whenever a state is issuing new bonds,” Petek said.
The change came at a bad time for the Fairbanks North Star Borough, which was looking at going through the Alaska Municipal Bond Bank for an education bond package.
“We were hoping to be going out to essentially right now, so this has added a sense of emergency to us getting these bonds out before the situation gets even worse,” said FNSB Mayor Karl Kassel.
Kassel said the borough is now considering whether to sell the bonds on its own.
Alaska’s capital city goes through the state for most of its bonds. The city recently finished bonding its cruise ship dock project, but Juneau Assembly member Jesse Kiehl said the state’s lowered bond rating could burn taxpayer dollars down the road.
“In the last couple of years the state has stopped sharing in the cost of maintaining schools,” Kiehl said. “If we have to do it all on a local tax payer dollar, we need the lowest interest rates we can possibly get. That all comes from people’s property taxes.”
Even if municipalities choose to bond projects independently, Deven Mitchell, executive director of the Municipal Bond Bank, said investors may still hold a dark cloud over their heads.
“Some investors might still say, ‘wow, I just saw Alaska got downgraded,'” said Mitchell. “I don’t have time to read and understand that credit and/or I want a little bit more yield out of it.”
Ross Risvold, with the Municipality of Anchorage’s Department of Finance, said he’s confident Anchorage’s diverse economy will keep its interest rates low when bonding.
“It’s a broad-based economy, it’s a great time to invest in the economy,” he said. “It’s a great time for Anchorage to invest in its infrastructure.”
S&P issued a negative outlook for Anchorage’s AAA rating in November. Risvold said the municipality is already taking steps recommended by the agency to maintain its superior grade.
State legislators are considering purchasing the Anchorage legislative office building, using bonds. Mitchell said the interest on those bonds will likely go up by $60,000 to $75,000 per year, due to the downgrade in the state bond rating.
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