Moody's revises Alaska's outlook over 'political paralysis,' focus on large PFD payouts

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ANCHORAGE (KTUU) - Moody's Investors Service has downgraded Alaska's outlook from "stable" to "negative," in large part blaming the state's political gridlock and particularly highlighting the ongoing fight over the permanent fund dividend.

Read the full report from Moody's here.

The move follows one of similar nature from almost two weeks ago, in which Moody's marked a solid downturn in Alaska's economic outlook by downgrading the credit score of the entire University of Alaska system three notches - from A1 to BAA1 - making UA the second lowest-rated flagship in the entire United States, ahead only of Puerto Rico.

"I think they're saying the state needs to get its act together in this political environment," said State of Alaska Department of Revenue Commissioner Bruce Tangeman, "and bring in the things the ratings agencies care about: balanced budgets, capital budgets, and the PFD is obviously important to Alaska."

The outlook downgrade, according to Moody's, is a reflection of what the group considers a risk of deterioration of financial metrics or governance practices.

A release from the company early Thursday evening also said that "new focus on distributing increased shares of Permanent Fund earnings to residents, combined with political paralysis or other factors that prevent a return to budget balance, may make the current fiscal approach unsustainable over time, particularly in the event of financial market downturns or the inability to sufficiently contain spending growth."

Moody's added that if the state can find a way to continue to fund resources "through economic cycles," the rating could improve. Alaska's vulnerability to climate change, it said, narrow economy, and large net pension liability previously were previously counteracted by sizable budget reserves.

In a press release from the state, the Department of Revenue emphasized that despite the outlook downgrade, the state's credit rating is still strong.

"Alaska remains a highly rated entity at AA from both Fitch ratings and Standard and Poor’s and an Aa3 from Moody's Investors Services," officials wrote. "The Dunleavy Administration will make every effort to achieve a balanced budget and maintain these strong ratings."

At the same time, Tangeman said he isn't fed up with the ratings - citing previous discussions with creditors and perceived stability thus far - but is instead worried about what's actually happening in both the capitol and across Alaska.

"I am concerned with what's happening in the state," Tangeman said. "I think that's what the agencies are looking at. It's a shot across the bow: We better get out act together and get our jobs done."

The Department of Revenue also emphasized that a balanced budget can only be achieved through an agreement by the legislature.

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