Bond agency says state credit rating is 'stable,' while warning of continued dependence on volatile oil prices
Gov. Mike Dunleavy claims the decision by the the Kroll Bond Rating Agency to give the state a stable outlook and an AA rating “is a vote of confidence in the work we’ve done to manage the state’s finances.”
But what the agency really said is that the Alaska Permanent Fund contains nearly $80 billion and when the state borrows money through bonds the debts are “secured by a pledge of the full faith, credit and resources of the state.”
Most of that $80 billion can’t be spent by the state without a constitutional amendment, but the mere fact that the account exists provides a guarantee that all legal debts will be paid. Kroll says the AA rating means that those who hold the bonds face “minimal risk of loss due to credit-related events.”
The Legislature’s discretion in setting the amount of money taken from the Permanent Fund earnings reserve each year “provides flexibility with respect to managing the state’s finances.”
The portion of the Permanent Fund that can be spent by the Legislature at any time, and includes the source of money to pay dividends, the so-called “earnings reserve,” could be empty by 2026 or 2027, depending upon market returns. This looming pressure on what is now the major source of state government revenue is not mentioned by the bond rating agency.
There is far more reason for caution than celebration in the bond report, which warns that the “state’s operating budget remains exposed to oil price volatility, and longer-term, an overall shift to less carbon-intensive energy.”
The agency hasn’t quite caught up to the reality that the state is now heavily dependent on the volatility of stock markets, private equity investments, the bond market and other investments that are beyond the control of people in Alaska.
The Dunleavy press release, in which the governor and Revenue Commissioner Adam Crum come off as if they are ready for a victory lap, misrepresents the reality of state finances, which are not as rosy as they pretend.
Last spring, Dunleavy announced his revelation that depending upon the price of oil or any commodity is a foolish way to run state government.
“To simply ride oil in a do-or-die situation for the state of Alaska is folly. It’s probably not a good idea,” he said, which made him among the last elected officials in Alaska to have reached that conclusion.
The folly continues, with Dunleavy saying nothing about the special session for a fiscal plan that he mentioned last spring.
Dunleavy has a credibility problem when he talks about a fiscal plan because he has claimed for the last five years that all we needed were constitutional amendments to settle the dividend formula, cap state spending and require that any tax increases be approved by voters and the Legislature.
In 2018 and 2022 he pledged there was no need for any new taxes and that we could have giant dividends and no real cuts in services, though it was clear to any competent analyst that he was wrong.
Now, he says, it is “folly” to base a state budget on oil prices that are constantly rising or falling. It is reckless, as everyone who pays attention has long understood.
The same issue faced us in 2018 and 2022, but candidate Dunleavy lied to Alaskans about the folly of our situation.
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