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Thursday, May 23, 2024 | Back issues
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Alaska’s Fiscal Fears Deepen as Oil Prices Fall

ANCHORAGE, Alaska (CN) - While drivers across the nation may be cheering at the precipitous drop in oil prices, Alaska has been hit with credit rating downgrades and government hiring freezes and travel restrictions.

This past week, Gov. Bill Walker held a press conference to discuss more steps in a long line of measures recently enacted to reduce state spending and close a $3.5 million budget deficit. In addition to closures of courts and employee furlough days, Walker ordered a hold on government hiring and all unnecessary travel.

These latest belt-tightening actions came the same day as Alaska's credit rating was downgraded by both Standard & Poor's and Moody's. Prior to Walker's press conference and live video question-and-answer session for state employees on the latest measures, S&P lowered Alaska's general obligation credit to AA+ from its former top ranking of AAA.

Both S&P and Moody's blamed the Alaska's fiscal troubles on downward spiral of oil prices, which are expected to stay low for the long haul.

In its announcement, Moody's noted that just two years ago oil and gas production-related taxes funded nearly 90 percent of Alaska's general fund. But with the glut of oil and worldwide price declines those tax revenues pay just 60 percent of the Last Frontier's bills.

S&P pointed to similar numbers in its report, stating that the oil price crash has created a "large structural gulf between unrestricted general fund revenues and expenditures" and predicted that gulf will continue to widen as prices keep falling.

In August, S&P warned of a potential ratings drop if lawmakers didn't close the budget gap during the 2016 legislative session, which starts on Jan. 19.

The lowering of Alaska's credit rating is "concerning and premature given that the Legislature has not had time to act on a long-term fiscal plan," Walker told reporters.

Walker has been proactive and vocal on the issue since his administration's mid-December release of their "New Sustainable Action Plan," which would reduce spending by 21 percent from 2015 figures. Proposed 2017 funding for agencies is $544 million less than in 2015, according to the plan.

With last week's downgrade "this further underscores the need for [lawmakers] to do something about the deficit, whether by adopting my plan or another," Walker said. "Doing nothing is absolutely not an option."

Alaska's credit rating will likely keep dropping unless lawmakers enact "significant fiscal reforms" during this year's legislative session, S&P's report said. The state has enough savings to fix its fiscal problems "if it can assemble the necessary political will to adopt the necessary changes," according to S&P.

Many of the Walker administration's action-plan recommendations will not likely go over well with state residents, including calls for a state income tax or a decrease in Alaskans' annual share of oil and gas revenue - known as Permanent Fund dividends.

"As we approach the 2016 legislative session, I encourage every legislator and Alaskan to read the memos released by Standard & Poor's and Moody's in their entirety," Walker said. "I look forward to working with lawmakers to enact a complete fiscal package that protects the opportunities available to future generations of Alaskans."

While Alaska is the first state dependent on oil revenue to take a credit rating hit, others equally dependant may face a similar fate. Currently only nine states hold S&Ps top rating, according to Bloomberg news service.

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