 Despite Healthy Economy, Moody's Concerned by Legislative Inaction August 28, 2002
"Alaska's economy is strong but this report underscores what I have long said, that the biggest threat to our economy and jobs is the inability to make progress on a long-term budget plan," Knowles added. "I have repeatedly pushed the Republican-led Legislature to make the tough choices necessary to balance our budget and maintain the public services needed to keep the economy strong. Today's report from Moody's is a clear indication of how the financial markets will view our lack of resolve on a long-range budget plan. The next Administration and Legislature must heed this call." In revising Alaska's outlook to negative, Moody's report notes that the state's economy is fundamentally healthy. "Alaska's economy is in its 14th consecutive year of economic growth, with record low unemployment and the nation's 4th fastest growth in personal income in 2001," the report notes. "Alaska home ownership is up, bankruptcies are down, business start-ups are up, and Alaska's saving accounts, including the $23.1 billion Permanent Fund, are sound." But in revising their outlook downward, the rating agency cites the deadlock in the state over how to address sizable budget gaps projected in the future. "Since the state Legislature has rejected the governor's proposals to enact a modest broad-based tax or tap the excess earnings of the Permanent Fund, these budgetary shortfalls have been primarily offset through substantial draws on the state Constitutional Budget Reserve Fund (CBRF)," states the report. But, it also notes the CBRF will run out by October of 2004 or July of 2005, depending on various assumptions. "The potential near-term eventuality highlights the need for the state to develop a long-term solution to its structural imbalance," the report states. "While the State of Alaska has tax capacity, the state has not yet begun the transition to budget structural balance that will be necessary after the exhaustion of the CBRF." A lower bond rating would cost the state when it borrows money to pay for needed state improvements and Knowles said he welcomed the report for injecting a dose of economic reality into the political debate over the state's finances. "This report says it will cost the state real money if we don't change our ways," Knowles said. "I'm glad that Alaska's need for a fair, balanced fiscal plan can no longer be used as a political weapon by critics who respond to every honest proposal to raise revenues with worn-out, partisan attacks." According to a news release from the Office of the Governor, "during his Administration, Gov. Knowles has consistently advocated a long-range budget plan to keep the state economy healthy. Three times he has proposed long-range plans to balance state budget and he helped negotiate a compromise last session only to see that plan blocked by the Senate." Alaska is one of 15 states to currently post a negative outlook by Moody's, which is an initial level of concern that is much less serious than a "credit watch." In retaining the state's favorable bond rating, Moody's said, "Our issuer rating of Aa2 is predicated on the assumption that the state will ultimately make the hard decisions necessary to fund state expenditures, but we expect the state finances to be under serious stress in the near future as these structural budget problems persist." Other ratings agencies are more bullish on Alaska. Just last week Standard and Poor's reaffirmed Alaska's AA rating and said the state's creditworthiness was "strong and stable." Alaska's economy has grown in every single year of the eight-year Knowles-Ulmer Administration and since taking office, the Knowles/Ulmer Administration has worked hard to maintain a stable business environment and grow Alaska's economy. "More than 65 percent of Alaskans now own their own homes, up nearly 10 percent in a decade, and the second highest home ownership rate in the nation," Knowles said. "And bank deposits, another sign of economic confidence, jumped nearly 30 percent." According to the news release, the value of the Permanent Fund reached a record high in 2000, producing a record dividend that injected over $1 billion into Alaska's economy, supporting about 15,000 jobs. The Constitutional Budget Reserve, the rainy day account legislators use to cushion against oil prices fluctuations, will be larger when the Knowles-Ulmer Administration leaves office than when it began: $1.8 billion. Further,
the release noted that AIDEA projects generated more than 2,700
construction jobs and nearly 2,000 permanent jobs in eight years.
Source of News Release:
|