Fitch does the downgrade on Alaska - Must Read Alaska
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Sunday, September 22, 2019
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Fitch does the downgrade on Alaska

HONG KONG ALSO DROPS A NOTCH

Fitch Ratings downgraded Alaska’s general obligation bond rating from AA to AA1 on Thursday, as it warned it would do months earlier if spending continued to exceed revenue.

The message from Fitch is that the State doesn’t have its fiscal house in order. The Legislature has continued since 2013 to appropriate more than the revenues can support, digging deeper and deeper into savings accounts.  Political realities prevented this governor, and the previous one, from cutting spending as much as needed to avoid a downgrade.

Gov. Bill Walker, before leaving office, added hundreds of millions of dollars to the state budget before pronouncing it “balanced.” It was up to Gov. Michael Dunleavy to bring a dose of courage needed to make the cuts.

Fitch and other ratings agencies don’t much care if Alaska cuts its budget or raises taxes; it just wants to see the books balance.

House Bill 2001, the operating budget that included  $156 million in budget restorations, reduced one third of the state’s deficit with a reduction of $650 million in total state spending. But it came at a political price that was born primarily by the governor, not by the bipartisan Legislature — he’s now the focus of a recall campaign led by Democrats.

On the bright side, Fitch said the State’s rating outlook is stable. In 2017, it said the outlook was unstable.

The AA+/Aa1 rating signifies that the issuer or carrier has strong financial backing and cash reserves, according to Investopedia. But it means it will cost the State more to borrow money for general obligation bond projects.

SAME RATING DOWNGRADE AS HONG KONG

Like Alaska, Hong Kong suffered the same rating fate, as it was downgraded by Fitch last week from AA+ to AA.

“Ongoing events have inflicted long-lasting damage to international perceptions of the quality and effectiveness of Hong Kong’s governance system and rule of law, and have called into question the stability and dynamism of its business environment. These features are integral to Fitch’s assessment of the territory’s creditworthiness, and while still strong in a global context, are at risk of being further eroded as a result of enduring social strife,” the agency said.

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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.

Latest comments

  • Reading the narrative of the Fitch downgrade, a couple of comments from experience.
    Political subdivisions subscribing to rating agencies services make annual presentations to the analysts assigned. It is a mistake to let second tier bureaucrats do this presentation. The Governor should make the presentation and therefore have input into its content. In this case there would be no one better than Governor Dunleavy to avoid a spin. I smell a spin in the reasons spelled out for the downgrade and suspect the analysts in the Dept. Of Revenue working with these very young technocrats in New York and San Francisco have a similar view. The Governor should ask for a copy of the last presentation and insist that he see the draft of the next to Fitch and the other agencies. Sorry for the cynicism but there are so many ways you can be undermined when you are trying to change a government that has been going another direction for so long. Watch the left blame the Governor for this downgrade when in fact it was his predecessors and the current and previous legislatures that are the cause.

    • A voice of experience…

  • WE finally have a governor that will work to turn this out of control ship around…Alaska has unlimited potential and it will take a bit of time to get it unlocked up and producing again…getting spending under control and Government down sized is the right first step…

  • Ordinarily, an entity with over $63 billion in reserves would not experience a downgrade even under circumstances of financial and political turmoil. But Alaska, bless her, has managed to invest, effectively, not a penny of the $63 billion in Alaska. Nor can any portion of the $48 Billion in PF principal be pledged as collateral for in-state investments. Alaska certainly has problems, but most of them are of our own making.

    • So the PF Corporation should “invest” in grain terminal or goofball projects like the Knik Arm Causway?

      • That is a straw man argument. There is a historical difficulty in attracting investment capital to Alaska. Decent and prudent investment opportunities exist in Alaska. The current investment philosopy avoids all Alaskan investments and lets Goldman Saks funnel Alaska’s capital to their buddies. We can do much better.

        • There is zero basis for your contention.
          Good ideas, properly presented attract capital.
          The invest in Alaska crowd using PF funds are seeking special treatment and in effect a subsidy because they are promoting sub-standard projects.

          • I seek no special treatment for anyone or any proposal. The fact that effectively zero dollars of the PF is invested in Alaska speaks volumes; the PF corporation is declaring, per your test, that there are no good investments to be made in Alaska. Alaska is not using our financial resources to bring about investments in the state. Goldman Saks is deriving more benefit from Alaska’s billions than Alaskans.

        • OK JMARK: You say Goldman Saks is benefiting from investing in Alaska and somehow displacing benefits that you think should accrue to Alaska. How does that work in your world? Because they control the Permanent Fund investment portfolio? Make your case here. Let hear why Goldman is benefiting and how.

          And then because you seem so very certain about all the splendid investment opportunities that exist in Alaska that should be pursued using public funds, please inform us about your top three unfounded investments that will pencil out nicely and that we should fund pronto before the Goldman Saks folks pick up the project.

  • Unlike Hong Kong, Alaska’s downgrade came without riots. Even though the Leftistnistas have tried to cause physical conflict. See Special Session II.

  • To insinuate this has nothing to do with our current administration is laughable. While I enjoy the content on this blog, the Dunleavy can do no wrong bent is a disservice to those who read this and take it for gospel. This should be the Mead show, instead we’re stuck with the I’ll give you $6700 guy. What a joke!

    • I don’t see how it’s Dunleavy’s fault. The Republicans in the legislature caved and the Democrats/state agencies got largely everything they wanted. Dunleavy got meager cuts and a $1600 PFD. Yet it is his fault Fitch cut our bond rating? How so?

  • The Governor has said the dividend should be what the current statute stipulates as opposed to a political poker chip in budget negotiations. He has also said that he thinks the public should vote if the structure of the PF is to change. That’s pretty straight forward and democratic for me. I do not believe that people reading Must Read Alaska take anything for gospel. Each of us has a right to our opinion however.
    Finally we have a Governor who goes to Juneau and does exactly what he promised as opposed to the bait and switch of his predecessors.

    • I believe there are currently two opposing statutes on the books for how the dividend is handled, one would presume the most recent would hold more weight. As far as the public voting on what there “thanks for living in Alaska check” will be, honestly that scares me as well as it should you.
      I’ll leave you with a quote from a time long past, “A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury.”
      –Alexander Fraser Tytler
      (15 October 1747 – 5 January 1813)

      • It’ll all work just as soon as the next D. POTUS turns us into Minneapolis/St. Paul North and floods is with a couple hundred thousand paper Americans…..

      • It’s stunning. I really wonder how many of the governor’s supporters know that there are two laws.

  • In a “Constitutional Republic” as the “Constitution of the United States” guarantees to every State in Article IV, Section 4, all the land and it’s resources belong to We The People in “Allodial Ownership” and therefor tax free. When the Government owns the Land and Resources it is a Socialistic Government. A “Constitutional Republic” is not to support the Government on the Resources of We The People”, but instead it is to support the Government by “Appropriations made by Law” pursuant to Article I, Section 9, but no direct taxes on We The People who are Sovereigns because we are who wrote the Constitution.
    Seymour Marvin Mills Jr. sui juris

  • Seymour: that sui juris stuff doesn’t work with the IRS or law enforcement.

    • They always gotta try.

      • Yeah, lots of luck.

    • Agreed.

      • With what?

  • “The Legislature has continued since 2013 to appropriate more than the revenues can support . . . [the governor has been prevented] from cutting spending as much as needed to avoid a downgrade.”
    .
    Good lord. This takes the cake. I’m truly stunned. I guess the governor’s supporters are just hoping people don’t read the report itself which cites the _budget cuts_ and the negative impact that cuts to core services have on an economy as the driver of the down downgrade.
    .
    Don’t believe me! Don’t believe MRAK. Believe your own eyes. From the report:
    .
    “Fitch believes the substantial reductions to health care and higher education could have implications for future growth of the state’s already limited economy and may potentially increase the state’s susceptibility to volatility in the natural resources industry.”
    .
    “The state’s reliance on one-time resources, primarily reserve fund draws, to address large remaining revenue shortfalls, is expected to remain a core feature of its budgets as prospects for growth in its petroleum-based operating revenue system are constrained.”
    .
    “the governor has proposed several amendments to the state’s constitution that if enacted, could weaken the assessments related to its budget control and/or expenditure flexibility and consequently impact the state’s rating further.”
    .
    .
    .
    TL;DR the report is _highly_ critical of the governor, places the blame on a *revenue shortage* and blames the focus on a narrow, resource based economy over a modern economy (which would require _investing_ in education, not education cuts)

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