To protect its credit rating, Alaska must bridge financial gap

Posted: Tuesday, April 22, 2003

All Alaskans happily should note that the $461.9 million in general obligation bonds for roads and schools authorized in last year's general election were gobbled up last week by hungry bidders who look at Alaska like Emeril eyes a Cajun dish.

But there also is another clear message in the sales. If Alaska is to protect its credit rating for future bond sales, it is running out of time to get its financial house in order.

The sale was the first for general obligation bonds in Alaska since 1983, and three top credit rating agencies -- Standard & Poor's Corp., Fitch Ratings and Moody's Investors Service -- weighed in on Alaska's credit worthiness.

They liked the idea of reducing the draw this year on the $2 billion Constitutional Budget Reserve, the fund used by the Legislature to makes ends meet. They liked the Alaska Permanent Fund. They also liked the fact that Alaska's Legislature has reduced the state budget in recent years, that the state's debt burden is low, that its narrow economic base is expanding and that job growth is on the rise. They liked Gov. Frank Murkowski's effort to cut the budget, increase revenues and to reduce the draw on the CBR this year to about $393 million.

Standard & Poor's gave the state an AA rating with a stable outlook. Fitch Ratings also assigned the state an AA rating. All of that is great, but Moody's cast a shadow with its Aa2 rating and it retained the negative outlook it first assigned Alaska in August 2002.

Why is Moody's put off? Because of the budget gap and the state's over-reliance on the oil industry, whose revenues to the state are sliding.

''Based on current state estimates relative to the timing of final reserve balance depletion, the state must begin to take meaningful steps towards achieving fiscal balance to avoid any further negative downward pressure on its credit rating,'' Moody's says.

It also notes Alaska has not yet taken steps necessary to fix the gap, ''However, our rating of Aa2 is predicated on the assumption that the state will ultimately make the hard decisions necessary to fund state expenditures.''

If Alaska is to protect its credit rating for the future, the underlying message appears to be that the Legislature must carry out its budget-cutting, reduce the draw on the CBR, close the budget gap and find new ways to balance the state's budget.

If lawmakers find they cannot agree with Murkowski's suggested cuts to the budget, or his revenue-enhancing measures, they should at least come up with their own cuts to hold to a minimum the CBR withdrawal for this year. It is important to Alaska's future fiscal health.

The task is thankless, but crucial.

-- The Voice of the (Anchorage) Times

April 15

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