The last credit rating agency to give Alaska a top credit rating has changed its mind.
On Tuesday, Fitch Ratings gave the state an AA+ rating as it prepares to issue $150 million worth of bonds later this month.
The downgrade means Alaska must pay a higher interest rate on its bonds, costing the state millions of dollars. While the state does not issue a significant number of bonds, other agencies rely on the state’s credit rating for their own borrowing.
These agencies include the Alaska Industrial Export and Development Authority, the Alaska Housing Finance Corporation, the Alaska Student Loan Corporation, and the Alaska Municipal Bond Bank, which issues bonds on behalf of city governments across the state.
The downgrade will thus affect cities and boroughs ─ which combined issue more bonds than Alaska ─ more than the state.
The precise cost of the downgrade will not be known until the state begins to sell its bonds on the open market in the last week of June.
Alaska’s newest rating is Fitch’s second-highest but a downgrade from the state’s previous AAA rating.
“The downgrade … reflects the substantial operating deficits recorded by the state in recent fiscal years and the modest reform efforts taken to date,” Fitch declared in a statement accompanying the downgrade.
The statement said Alaska still has significant savings, but “eventual depletion is expected absent revenue reform, sharp expenditure reductions, or a return to more robust oil prices; a scenario that Fitch’s views as unlikely through the medium term.”
“While today’s news from Fitch Ratings is concerning, it should not come as a surprise,” wrote Gov. Bill Walker in a prepared statement. “With no significant new revenue measures passed to date, Alaska will burn through its savings in just a few short years. This further underscores the need to pass a sustainable fiscal package this year.”
[House appears hostile to Permanent Fund bill.]
Fitch is the last of the three major credit rating agencies to downgrade Alaska from its former top ratings.
In March, Moody’s Investors Service gave Alaska an Aaa rating (its second-highest) and said it believed it would have to further downgrade the state unless the Alaska Legislature acted.
In January, Standard & Poor’s Ratings Services lowered Alaska’s rating from AAA to AA+, saying “that if lawmakers do not enact significant fiscal reforms to reduce the state’s fiscal imbalance during its 2016 legislative session, Alaska’s downward rating transition will likely persist.”
[S&P downgrades Alaska’s debt rating.]
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