Rating On Alaska's General Ob Bonds Raised To 'AAA' On Huge Budget Reserves And Forward-Looking Revenue Management



SAN FRANCISCO Jan. 5, 2012--Standard & Poor's Ratings Services raised its rating to 'AAA' from 'AA+' on Alaska's general obligation (GO) debt. At the same time, we raised our ratings on the state's appropriation-backed certificates of participation to 'AA+' and 'AA'. We also raised our rating on the state's moral obligation backed debt to 'AA' from 'A+'. The outlook is stable.


"Alaska's economy and state finances are highly resource dependent, with approximately 90% of its general fund revenues being oil-related," said Standard & Poor's credit analyst Gabriel Petek. "But, recognizing the volatility inherent in an oil-based economy, the state's financial management has adjusted by using methods to, in our view, significantly mitigate the downside effects of oil price declines. Before even reaching the point of needing to tap its formal budget reserves, the state has several layers of fiscal flexibility it could exploit. Among these are the state's unique practice of pre-funding around 20% of its annual operating budget and cash funding significant portions of its capital needs. In addition, despite a relatively below-average pension funded ratio, the state is ahead of the reform curve, having closed its defined benefit plan in 2006," added Mr. Petek.


The rating actions reflect our view that the state has now incorporated certain exceptionally strong fiscal practices into its budgetary process, which we believe have improved the state's overall fiscal flexibility. For instance, the governor's fiscal 2013 budget proposal would pre-fund, for a sixth consecutive year, significant components of the state's expected annual operating budget expenses. This is on top of the state's significant pay-as-you-go funding for capital projects and unusually high budget reserves. Taken together, these attributes provide Alaska with a uniquely high degree of fiscal flexibility that substantially mitigates the potential for revenue volatility due to the state's economic dependence on the oil extraction industry. In addition, the state does not levy a statewide sales or income tax. Reflective of its conservative approach, the state has consistently underestimated oil prices and -- partially as a result of this -- is on track to finish fiscal 2012 with a budget surplus of $2.1 billion, after cash funding its capital needs for the year.


RELATED CRITERIA AND RESEARCH


? USPF Criteria: State Ratings Methodology, Jan. 3, 2011
? USPF Criteria: Appropriation-Backed Obligations, June 13, 2007
? USPF Criteria: Moral Obligation Bonds, June 27, 2006
? State And Local Government Ratings Are Not Directly Constrained By That Of The U.S. Sovereign, Aug. 8, 2011
Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.

Media Contact:
Ola Fadahunsi, NewYork (1) 212-438-5095, olayinka_fadahunsi@standardandpoors.com

Analyst Contacts:
Gabriel Petek, San Francisco (1) 415-371-5042
David G Hitchcock, New York (1) 212-438-2022






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