Alaska credit rating receives stable outlook
A major credit rating agency last week raised Alaska’s outlook from negative to stable, citing changes in how it will use Permanent Fund earnings to cover some of the state’s operating budget.
On Wednesday, Gov. Bill Walker signed the legislation – Senate Bill 26 – which allows the state to use a portion of the fund’s overall market value for state spending.
This change drove Standard & Poor Global Ratings to raise its outlook but not the AA rating, which determines Alaska’s creditworthiness.
“The outlook revision to stable reflects recent fiscal reforms that recognize the state's vast Permanent Fund Earnings Reserve Account (ERA) as unrestricted general fund revenue with provisions for its use,’ the June 8 S&P report said.
The state has been hit with a series of downgrades these last several years when chronically low oil prices created a budget deficit pushing $3 billion, forcing the state to burn through savings in order to cover the gap.
A few hours before signing the bill, plus the three budgets approved by state lawmakers, Walker cited the improved outlook in a statement.
“This is independent confirmation of something we already knew: Alaska’s economy has turned the corner,” Governor Bill Walker said. “There is still work to do, but I thank every member of the Legislature who took bold action to steer our state back onto a responsible financial path.”
S&P still noted that the state’s reliance on volatile global oil markets and market returns in placing it in a position distinct from other states.
“While the state has reformed its finances, we recognize the uniqueness of the state's revenue profile that makes it subject to economic volatility more than its peers, either from the price of oil or investment returns of its Permanent Fund,” the report stated. “The reliance on such economically sensitive revenues will likely make it more prone to future fiscal pressure.”
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