How many more warnings from credit ratings agencies before legislators act?

Fairbanks Daily News-Miner editorial:

Once again, the credit rating of the state of Alaska has taken a hit. Moody’s Investors Service on Monday downgraded the state’s rating, making it three for three among ratings agencies in the downgrade department.

Fitch Ratings and Standard & Poor’s Ratings Services previously downgraded the state’s credit rating due to the inability of state leaders to do something about the massive budget deficit this year and the structural problem that will cause such deficits to persist for many years to come.

You can thank the Legislature, which did nothing to solve the problem, for this latest bit of bad news.

What exactly did Moody’s have to say? Here’s the text:

“Moody’s Investors Service has downgraded the state of Alaska’s general obligation rating to Aa2 from Aa1. The outlook remains negative. The downgrade recognizes the state’s political inability — at least for now — to address its severe fiscal challenges,” the statement reads.

“The Aa2 rating incorporates the state’s extraordinary structural imbalance, under which it is running deficits of more than $3 billion per year, as well as its outsized pension liabilities and the economic difficulties caused by low oil prices. The rating also reflects the extremely large available reserves Alaska has, which buy it several more years to figure out what its fiscal future will look like. Our baseline assumption remains that the state will come to a political compromise to achieve a sustainable fiscal structure before coming close to depleting its reserves.”

That’s a strong rebuke.

Even though the statement includes a hopeful — perhaps too optimistic — assumption about political compromise, it nevertheless goes on to give the state a negative outlook.

“The negative outlook incorporates the uncertainty about Alaska’s inability so far to achieve a more sustainable fiscal identity through political solutions. As the state spends down its reserves — which are still enormous — the risks to the state’s long-term credit profile will intensify.”

In other words, Alaska needs to solve its fiscal problem soon or risk further and greater damage to its credit rating.

The other ratings agencies have expressed similar concerns about Alaska’s fiscal situation during the past year.

Why should we care about the credit rating? Because it’s the credit rating that influences the interest rate Alaska must pay when it goes to a bond house for the issuance of bonds to raise money for capital projects. In short, a lower credit raising increases the cost of borrowing money, thereby increasing the cost of a project or possibly causing the project to be downsized a bit to fit its budget.

Hearing such bad news repeatedly gets a bit tiring.

Alaska legislators have failed to solve the problem despite having it in front of them this year for the full regular session, an extended period of the regular session, and several special sessions. And it’s not like they had to come up with a plan for a starting point of discussion; Gov. Bill Walker did that for them late last year when he proposed a comprehensive deficit-

reduction package. The governor proposed a rollback of oil tax credits; more budget reductions; increased taxes on motor fuels, cigarettes, alcohol and some industries; a personal income tax; and a restructuring of the Alaska Permanent Fund to make it a sustainable revenue source to help pay the cost of government.

Monday’s public scolding of Alaska by Moody’s Investors Service shouldn’t be a surprise to our legislators or the Alaska public. But how many more warnings do we need to hear?

Although our senators and representatives didn’t create the fiscal problem, caused primarily by the collapse in oil prices, they are directly responsible for the repeated cautions from the ratings agencies about the cost of inaction in finding a solution.