Morning Headlamp — Moriarty asks for “no harm” & two strikes for AK financial ratings

Another hit to Alaska’s credit ratings. Moody’s Investors Service said in a report it would downgrade the state’s general obligation rating to AA1, a step below the gold-plated AAA rating the agency had previously given Alaska. The downgrade reflects Alaska’s “unprecedented structural imbalance” as it struggles to rein in a $3.8 billion deficit. “Even with significant spending reductions, recurring revenues cannot keep pace with recurring expenditures, and the state would deplete its main budgetary reserves by fiscal 2019, absent significant changes in its financial framework,” Moody’s said. In January, Standard and Poor’s also downgraded Alaska’s general obligation credit. Fitch Ratings may soon join them. That ratings agency said on Tuesday it may downgrade the state’s top-notch credit rating for general obligation bonds if officials don’t properly address the turmoil, but it is leaving its AAA rating for Alaska bonds intact. Fitch Ratings said the warning stems from “uncertainty” over budget initiatives that would reduce draws on savings and diversify the state’s sources of revenue, and specifically mentions Gov. Bill Walker’s proposals to overhaul state finances. Walker is calling for an income tax, reduced spending, smaller Permanent Fund dividend checks and using Permanent Fund earnings to pay for most state services. Following January’s downgrade, Alaska now has accrued two negative outlooks from the three leading ratings agencies, with a third likely. Headlamp stresses frequently that these downgrades are not to be taken lightly. Private investment seriously weighs these reports during their decision making process about whether or not they will spend capital in Alaska.

“Do no harm.” Kara Moriarty of the Alaska Oil and Gas Association addressed state legislators yesterday and warned that industry tax increases will mean fewer jobs and a reduction in oil and gas production. “If you want the policy of Alaska to be to raise taxes on an industry that has negative cash flow, then that’s your prerogative,” said Moriarty. “But what we’re saying is that that policy will impact their investment and production.” “The bottom line is, do no harm,” she said. “Prices are already kind of doing that for us.” Armstrong Oil and Gas Chairman Bill Armstrong says other states have had stable oil and gas taxes. But Alaska has made several changes over the past decade, making it more difficult to invest.

Moriarty hit the nail on the head with her testimony yesterday. A tax increase will inevitably dig a deeper hole for an industry—the state heavily relies on—that is already hurting.  With the cost of producing North Slope oil already in the red due to sustained, low oil prices, raising taxes now would be a foolish policy move.

What’s the Money For, Governor? The Alaska House Finance Committee on Monday rejected Gov. Bill Walker’s $40 million budget request for the state’s proposed natural gas pipeline, reflecting what lawmakers said was their uncertainty about the $55 billion project’s next steps. “Let’s make sure we have a gas pipeline before we spend money,” Rep. Mark Neuman said in an interview. “Why do we have to be concerned about marketing at this point? We’re not there yet.” “We understand the House is looking for additional information on the Alaska LNG budget,” said Walker in an emailed statement. “We will be resubmitting our budget request for the project and anticipate it will be funded for fiscal year 2017.”

The Environmental Protection Agency inspector general’s office ruined an investigation into the agency’s decision to kill an Alaskan mining project before it could even apply for permits — that’s according to two newly-released reports. “Unfortunately, the EPA OIG’s report suffers from a number of significant deficiencies, including the fact that the EPA OIG chose to review and analyze emails and communications from only three EPA officials rather than reviewing the entire established record,” Texas Republican Rep. Lamar Smith sent in a letter to the IG’s office Monday with the two recent studies attached. Now Former Defense Secretary Cohen has a second report out, deriding the IG’s findings the EPA did nothing wrong in killing the Pebble Mine. Cohen argued “the IG Report left many questions open, and the record remains incomplete in material aspects.”


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First Reads

Fitch warns Alaska of potential credit downgrade if fiscal ship not righted
Alaska Dispatch News, Alex DeMarban, February 29, 2016

Energy lobbyist denounces Walker’s oil and gas tax changes
Alaska Public Radio Network, Andrew Kitchenman, February 29, 2016

Alaska House committee says no to Walker’s pipeline budget, for now
Alaska Dispatch News, Nathaniel Herz, February 29, 2016

Alaska’s fiscal bind is about much more than money
Alaska Dispatch News, Michael Carey, February 29, 2016

Moriarty warns of impacts from oil, gas tax credit bill
The Associated Press, Becky Bohrer, February 29, 2016

Moody’s downgrades Alaska’s GO bonds on oil slide
Reuters, Megan Davies, February 29, 2016

Congress: EPA IG’s Office Totally Botched The Pebble Mine Investigation
Daily Caller, Michael Bastasch, February 29, 2016

Sen. Dan Sullivan highlights military spending, oil prices in address to legislature
KTUU, Austin Baird, February 29, 2016

Judge rules in favor of polar bears: 187K square miles of Alaska land labeled ‘critical habitat’
KTVA, Lauren Maxwell, February 29, 2016