Some of Gov. Mike Dunleavy’s proposed budget cuts and property tax repeal bills could negatively impact credit quality for municipalities, according to a report by Fitch Ratings credit agency.

The report was provided by a legislative staff member. Fitch's San Francisco-based director Andrew Ward said the report is part of an unpublished draft.

Credit ratings are vital to the local government's borrowing power and lower credit ratings make it more expensive to finance projects.

Fitch cited Dunleavy’s proposal to change property tax laws featuring oil and gas facilities — Senate Bill 57 and House Bill 59. The state and municipalities with oil and gas property, such as a pipeline, levy taxes based on the state assessment. Oil companies can deduct their local taxes against the state taxes. Under these bills, the state would receive all of the revenue, leaving municipalities to make up the losses.

The North Slope Borough, relies heavily on these property taxes, weighed in sharply against SB 57 in a joint statement with the Arctic Slope Regional Corp.

“For decades, we have supported safe and responsible natural resource development on the Arctic Slope because of the economic benefits the industry brings to our communities,” said borough Mayor Harry K. Brower Jr. “As written, Senate Bill 57 makes us question that support. Is this what the governor is intending to do with this legislation – pit the Iñupiaq people of the Slope against industry?”

“This is revenue our region has relied on for 40-plus years to dramatically improve our quality of life – it supports everything from public safety in our communities to even reliable power and heat. These are services, let’s not forget, that are not provided by the state,” said Rex A. Rock Sr., ASRC's president and CEO. “Trying to balance a state budget on the backs of the Iñupiat people across the Arctic Slope is a wrongsided attack on our region.”

So does the Fairbanks North Star Borough and Valdez, but Fitch says the North Slope Borough takes the biggest hit. Fitch estimates the borough could lose $372 million — about 93 percent of its 2018 property tax revenues.

“Fitch believes the borough is unlikely to be able to reduce spending to match revenues available under the governor's plan,” the report said.

Fitch did not forecast any rating changes, because the “prospects for passage are highly uncertain.”

Fitch also identified drastic cuts to the University of Alaska system, Department of Health and Social Services and public education as a concern.

The report said: “Reductions in formulaic school funding could put the onus on borough policymakers to partially backfill some district revenue losses and could crowd out spending on other services, creating budget stress for borough governments.

“Cuts in overall state and local government spending could also have negative impacts on employment and economic activity. Government is the first or second largest employer in many Alaska boroughs.”

Ward said Fitch's final draft could change substantively.

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