Alaska

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The Week in Public Finance: Alaska Downgraded, Low Income-Tax Revenues and Congress Meddles in Online Sales Taxes Again

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BY  | JULY 21, 2017
The U.S. Capitol (FlickrCC/Geoff Livingston)

 

Alaska Downgraded Again and Again

Just weeks after it passed yet another budget that relied on rainy day savings, Alaska was downgraded by two credit ratings agencies.

First came Moody’s Investors Service, which downgraded Alaska to Aa3, citing the state's continued inability to address structural fiscal challenges and come up with a complete fiscal plan. Just days later, S&P Global Ratings dropped its rating to AA. Like Moody’s, S&P chastised Alaska lawmakers: A reliance on reserves, S&P analyst Timothy Little said, “coupled with the state's economic contraction since 2012 and the fallout of oil prices in mid-2015, have reached an [unsustainable] level."

The Takeaway: The downgrades, while not good news, should come as no surprise. Last month, S&P outright warned officials that it would downgrade the state if the governor and legislature failed to pass a sustainable budget that fully addressed its massive decline in oil revenues.

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The Week in Public Finance: Alaska Avoids Its Problems, More Health-Care Pain and Municipal Defaults Are Up

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BY  | JUNE 30, 2017The Alaska State Capitol in Juneau
The Alaska State Capitol, right, sits near the water in Juneau. (Flickr/Jasperdo)

Alaska Avoids Fixing Its Budget Problem (Again)

Facing a $2.5 billion budget gap, Alaska lawmakers have sent Gov. Bill Walker a budget that once again relies on one-time fixes and a massive withdrawal from the state’s rainy day fund.

Walker had proposed a compromise fiscal package that included a combination of revenue-raising measures and spending cuts, reforms to the state’s oil and gas tax credit program, modifications to the income tax, and reductions to residents’ annual dividend payments from the state's Permanent Fund. Instead, the $4.1 billion general fund spending plan passed by lawmakers caps Permanent Fund payments to $1,100 and relies on a $2.4 billion withdrawal from the state’s once-robust rainy day fund.

Walker has repeatedly warned lawmakers that they can't keep relying on the state’s reserves to fund its annual spending plans. But lawmakers have consistently done so anyway, making multibillion-dollar withdrawals for the past three budgets.

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The Week in Public Finance: Kansas' Experiment Ends, Alaska Still Has No Budget and Keeping Track of Debt

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BY  | JUNE 9, 2017

Kansas is rolling back its controversial 2012 income tax cuts after the Republican-controlled legislature this week succeeded in overriding a veto by GOP Gov. Sam Brownback.

The state is facing a $900 million budget shortfall and has struggled under budget deficits since the tax cuts went into effect. With the new legislation, the state’s income taxes will increase, although most tax rates will still be lower than they were before the 2012 cuts. The increases are expected to generate more than $1.2 billion for the state over the next two years. Opponents of the action call it a $1.2 billion take hike on Kansans.

On Thursday, the ratings agency Moody's Investors Service applauded the legislature's move, calling it "a significant step" toward achieving a sustainable budget.The action comes four months after lawmakers failed to override another Brownback veto preserving a tax loophole that lets scores of business owners pay no income tax.

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The Week in Public Finance: Unbalanced Budgets, Alaska's Tax Battle and Creditor Complaints

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A roundup of money (and other) news governments can use.
BY  | JULY 15, 2016

Unbalanced Budgets

Fiscal 2017 isn't starting off so well for some states.

In Mississippi, officials announced they need to withdraw up to $63 million from the rainy day fund to cover declining revenues that left it with an $85 million budget shortfall. The announcement came just two days after the legislature removed the state’s restriction on how much it can withdraw from the fund in any given year. It reduces the state’s savings to just 1.4 percent of its general fund budget. Both moves drew criticism from Moody’s Investors Services.

Pennsylvania this week was placed on a credit watch by Standard & Poor’s rating agency for passing a budget that failed to offer a spending plan for more than $1 billion of it. Lawmakers eventually agreed on a revenue plan, but it still requires borrowing more than $200 million from a separate state fund.

Moody’s also criticized Kansas this week for yet another shortfall. We recently mentioned that Kansas is one of four states in a recession, according to federal economic data. Its total tax revenue was more than 7 percent short of what it expected for fiscal 2016. The state has struggled to meet its revenue expectations ever since lawmakers approved income tax cuts in 2012 and 2013.

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The Week in Public Finance: Punishment for Illinois, Budget Battles and New Jersey's Win

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A roundup of money (and other) news governments can use.
BY  | JUNE 10, 2016

A Battle Over Illinois’ Downgrade

Illinois was downgraded this week to two steps above junk status by Moody’s Investors Service. The downgrade is largely due to the state’s inability to pass a budget for the past year and a half. A political stalemate has crippled lawmaking in the state and Illinois -- already the lowest-rated state -- is being docked now with a Baa2 rating. The state’s current budget gap has only worsened over the past year. The structural budget deficit, including what Illinois is supposed be spending on pensions but isn’t, amounts to 15 percent of total general fund expenditures, Moody’s said. A day after the Moody's downgrade, Standard & Poor's also downgraded Illinois.

Apparently unperturbed by the fact that its overwhelming debt is what got it into this pickle, Illinois plans to borrow a half-billion in bonds later this month. The downgrade will likely increase the interest rate Illinois will have to pay on those bonds and impact the state’s outstanding $26 billion in debt.

Not long after the downgrade, the world’s largest money manager said investors should boycott Illinois’ upcoming sale.

“We as municipal market pa

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The Week in Public Finance: Special Sessions, Chicago's Pension Deal and a Historically Giant Tax Break

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A roundup of money (and other) news governments can use.
BY  | MAY 27, 2016

Special Session Begins in Alaska

After failing to agree on a budget for the 2017 fiscal year, Alaskan legislators met this week to begin a special session. The state is one of a handful that has yet to pass a budget for the upcoming year, which starts in five weeks for most. But Alaska is arguably in the toughest position.

Lawmakers extended their regularly scheduled session but still failed to decide how or whether to enact fiscal reforms that would close its structural budget deficit. According to Standard & Poor’s, the continued “impasse risks a government shutdown starting on July 1 when the state's new fiscal year begins.”

The cause of Alaska’s woes is simple: The prolonged drop in oil prices has hammered its budget, which largely relies on oil revenue. To meet expenses, the state has drawn out of its substantial rainy day fund over the past two years. As a result, its top AAA credit rating was stripped away in January.

The solutions, however, are not so simple. Gov. Bill Walker wants to completely revamp Alaska’s revenue system, which includes implementing the state’s first income tax in more than three decades and significantly reducing the annual stipends that residents receive from oil revenue. Instead Walker wants to funnel more of that revenue into a new state investment fund to support the budget. Still, legislators disagree about how many -- if any -- of those proposals to adopt, and many still want to tap into the state's rainy day fund again to balance the budget.

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Q&A With Gov. Bill Walker on Fixing Alaska’s Finances

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The former businessman talks about betting his political career on fixing the Last Frontier’s finances.
BY  | MARCH 10, 2016

Alaska Gov. Jay Hammond and others knew all the way back in the ‘70s the dangers of relying financially on a finite resource. So when oil money began flowing into state coffers, Hammond and the legislature created in 1976 the Permanent Fund, which gets a share of the state’s oil revenues every year. The fund was seen as a source of income for when the oil ran out. Lawmakers can’t touch the initial investments -- just the earnings, which get divvied up and distributed annually to every resident who receives about $2,000.

“You have to remove the money,” Hammond said in 1980. “Put it behind a rope where you cannot utilize it for flamboyant expenditures.

Today Alaska still relies on oil revenues to fund most of its day-to-day operations, but nearly two years ago, oil prices began steadily declining. Since then, the state has withdrawn more than $6 billion from its substantial reserves and cut $1 billion in spending to close budget gaps. Last week, Moody’s Investors Service became the second ratings agency this year to strip Alaska of its AAA rating.

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How Oil States Are Dealing With Sinking Prices and Revenue

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The states most dependent on oil tax revenues have different ways of dealing with the industry slowdown.
BY  | FEBRUARY 4, 2016

Oil prices are now at their lowest level in 12 years -- below $30 a barrel. That's great news for consumers, but not for the states that depend on oil tax revenues.

The falling price of oil, which has declined more than 60 percent since June 2014, has some states scrambling. With no end in sight, states that are more dependent on the industry simply can't replace the revenue by withdrawing from their substantial rainy day funds.

Oil, natural gas and mining account for about 10 percent or more of gross domestic product in eight states: Alaska, Louisiana, New Mexico, North Dakota, Oklahoma, Texas, West Virginia and Wyoming. Last year, total tax revenues in the eight states declined by 3.2 percent, according to a new analysis by the Nelson A. Rockefeller Institute of Government. In contrast, the remaining 42 states reported a 6.5 percent increase in total tax revenues.

Although most of these states tend to budget conservatively, the good years for oil had an impact on their finances.