Legislative Agency Warns of Risk to State’s Credit Status

Wednesday, a legislative agency reports that the state’s credit status will be at risk if the oil tax reductions proposed by the governor become law.

One of the most controversial issues expected during next year’s legislature is a bill introduced by Governor Parnell that would reduce oil taxes from the current levels by as much a two Billion dollars a year depending on oil market prices.

Anchorage Democrat Bill Wielechowski, the chairman of the Senate’s State Affairs Committee,  says he non-partisan Legislative Research Service found that the substantial decrease in revenue that would follow the tax cut could be seen by credit agencies as a negative factor.

“These are the governor’s numbers.  And the governor’s numbers show that we will be losing Billions of dollars.  The governor’s numbers show that within the next decade, the state will be broke.  According to this non-partisan legislative research report – the research they’ve done – it is very likely put downward pressure on our credit rating.  The loss of our credit rating will have a severe impact all across Alaska,” Wielechowski said.

As an example, Wielechowski says that by lowering the credit rating by one level – from triple-A to Double A-plus – the price for the Susitna hydroelectric project alone would increase by more than $300 million in higher interest on bonds for the project.  He says Alaska needs the revenue – to build infrastructure projects – and to protect jobs that Alaskans already have.

“$2 billion into the Alaska economy every year creates thousands and thousands of jobs across the state.  And if you take that money out of the capital budget – which is going to have to happen if you pass the governor’s bill – you’re talking about losing probably thousands of jobs all across Alaska,” Wielechowski said.

Economist Gregg Erickson is Editor at Large for the Alaska Budget Report which reported in February on the connection between the governor’s tax cut and the state’s credit standing.  He is not willing to project the effects of credit ratings on job growth.

He says the Parnell administration recognized that the reason for high credit ratings was the savings and income from the current oil tax regime. However, in the Budget Report’s story,  the administration denied any possible negative effects of a lower income.

“But, of course, their denial which they issued in an e-mail to me was totally devoid of any backup at all.  They just said it.   It’s been remarkable how little analysis did to support its proposed policy.  And it’s no surprise,  given the lack of analysis,  that they haven’t made much progress with it,” Erickson said.

The Parnell administration did not reply to requests for a response to the Legislative Research report – or to Wielechowski’s comments.

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