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Curious timing on Fitch rating change

LOWERS RATING IN MIDDLE OF KEY HEARING

Hoffbeck and Richards

Commissioner of Revenue Hoffbeck makes a point to the House Finance Committee on June 14, 2016.

In the middle of House Finance hearings on a bright Tuesday morning in Juneau, State of Alaska Revenue Commissioner Randall Hoffbeck broke the news. To those in the room, it sounded as if he had just received word of it: Fitch Ratings downgraded $1.1 billion of State of Alaska general obligation bonds to AA+, and lowered the state’s credit outlook to negative.

Fitch was going to do this at some point, as it had announced earlier this year. After all, oil prices can be a tyrant to a commodity-based economy such as Alaska’s. But the company waited until June 14 when the commissioner of Revenue was testifying to a clearly doubt-laden House Finance Committee. Why?

Was a request made by the Walker Administration this week to have the report issued during the hearing, rather than on any of the other 364 days in the year?

After all, Fitch contracts with the State of Alaska to provide the rating; it is a client-contractor relationship worth about $16,000. If the Governor of Alaska made such a request, or if any in his administration did, it is the equivalent of using the bond ratings themselves to bully legislators into doing his will. It would be a form of manipulating the markets.

The history of Alaska’s slipping ratings goes back to the end of 2014, just about the time Gov. Walker was sworn into office. Standard & Poor warned Alaska, and then finally lowered its rating on Jan. 5, 2016. Moody’s followed in February.

But Fitch? Even though it cautioned it wasn’t far behind the two other agencies in downgrading Alaska, it waited until June 14, smack dab in the middle of a House Finance hearing.

The question that is being asked in lowered tones around the capital city is whether the governor of Alaska instructed his debt manager, Deven Mitchell, to request the report from Fitch, essentially timing the release. In fact, Mitchell is on record saying he requested the report for the Revenue Department; we just don’t know when.

TIMING IS EVERYTHING

Governor Walker expressed no surprise, for he knew this was coming: “This further underscores the need to pass a sustainable fiscal package this year. We have all the tools to solve the problem,” he said in a quickly cobbled statement. “I urge members of the House to create certainty and stability for all Alaskans by voting for the Permanent Fund Protection Act, which is the cornerstone of the plan for a sustainable future.”

The committee asked Hoffbeck, but he could not say what the impact of a credit downgrading was on the state or municipalities that borrow through bonds. There are too many factors; it’s far too complicated; it all depends.

Marcy Block, the director at Fitch who is responsible for the report, is on record saying the agency could change its rating again if the Legislature passes substantive legislation. She is not on record saying “if the governor makes budget cuts.”

It’s almost as if it was orchestrated to push the governor’s legislation. If so, Walker’s actions would be a betrayal of the public trust.

Written by

Suzanne Downing had careers in business and journalism before serving as the Director of Faith and Community-based Initiatives for Florida Gov. Jeb Bush and returning to Alaska to serve as speechwriter for Gov. Sean Parnell. Born on the Oregon coast, she moved to Alaska in 1969.

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