S&P sees impact if Alaska unable to reach budget deal in special session

[NEW YORK] Alaska may face pressure on its credit rating if the legislature is unable to reach a budget deal that includes fiscal reforms during its special session, Standard and Poor's Global Ratings said on Thursday.

Alaska Governor Bill Walker this week announced a special legislative session starting Monday to tackle a variety of bills including measures aimed at closing the state's US$3.5 billion budget deficit.

In January, S&P lowered the state's general obligation debt rating to AA-plus from AAA with a negative outlook amid a structural deficit due to a sharp decline in the state's oil-related tax revenue.

Mr Walker, who was critical of S&P's January downgrade, noted that the bond market was watching the state legislature closely.

"The bond market again made comments about the impact if we don't do anything," Mr Walker said during a press conference on Thursday. "It's one more warning shot from the bond market, so we really do need to fix this."

Lawmakers have been unable to agree on a host of controversial proposals including whether to reduce or eliminate the state's oil and gas tax-credit program, which has an estimated cost of US$775 million for fiscal 2017, and whether to implement the first income tax in 35 years.

S&P said that in order to materially close the structural budget gap, Alaska will have to reduce annual dividend payments to residents from its Permanent Fund, a royalty fund that is popular with residents.

"The politics of reaching an agreement on some combination of fiscal reforms that would stabilise the state's budget outlook is proving every bit as difficult as we anticipated in January," S&P said.

If no budget agreement is reached during the special session, the government could shut down on July 1 when the state's new fiscal year begins, S&P said.

REUTERS