BORROWING WILL BECOME SLIGHTLY MORE COSTLY FOR STATE
One press release you did not see from Governor Bill Walker today was announcing this item: Moody’s downgraded the State of Alaska’s general obligation rating from Aa1 to Aa2. The outlook remains negative.
It was the second time this year.
“The downgrade recognizes the state’s political inability – at least for now – to address its severe fiscal challenges,” the company said in a statement.
With the government running deficits of more than $3 billion per year, and with pensions owed to defined benefit recipients (Tiers 1-3), the state is structually imbalanced now that oil prices are low, Moody’s said.
Moody’s also recognized that Alaska has huge reserves: “extremely large” is how the company describes Alaska’s reserve funds, which can buy the State a few more years. The company made an assumption that Alaska will achieve sustainability before running through its piggy bank, also known as the Alaska Permanent Fund.
Moody’s also downgraded the state’s lease-appropriation bonds and its “moral obligation” bonds.
During the Sean Parnell Administration, the state had a AAA rating from all three bond agencies, but oil prices were high and the governor and legislature made big payments into the pension system.
Gov. Bill Walker, governing during a time of low oil prices, failed to adapt state spending to income, and has not been able to bring his Democrats in the Legislature to the table to make realistic budget cuts.
UNDERSTANDING MOODY’S RATINGS
- Aaa: This is “triple-A,” the highest rating Moody’s assigns as the highest mark for creditworthiness.
- Aa: This is “double-A” and is the next highest tier, indicating very strong creditworthiness.
- A: This is called “single-A” and is the third highest tier of above average creditworthiness.
- Baa: Known as “B double-A”. This is the lowest tier that is still ‘investment grade.’ This points to average creditworthiness.
In each rating level, Moody’s also adds a number from 1-3, with 1 being better and 3 being weaker.