Anchorage Municipality’s bond ratings get negative ratings due to overspending and declining available reserves

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View of Anchorage. Image-Frank K-Creative Commons Attribution 2.0 Generic license.

Anchorage, AK – On Tuesday, S&P Global Ratings lowered municipal general obligation (GO) and certificate of participation (COPS) obligations from an “AAA” rating to an “AA +” rating. S&P also downgraded its outlook on all Anchorage Municipality GO bond ratings from “stable” to “negative”. The downgrades reflect a significant decline in the municipality’s available reserves, which is expected to worsen in fiscal year 2021. S&P Global Ratings states that “if the municipality is unable to restore reserves to their balance targets of funds in 2022 and 2023, we could lower the valuation. “

The opinion of S&P Global Ratings on the general solvency of the municipality is due to the risk of appropriation.

S&P Global Ratings Says: “Capital expenditures from the 2018 earthquake, declining COVID-19 revenues and cost and labor shortages associated with construction in Alaska, and delayed repayments from the The Federal Emergency Management Agency (FEMA) forced the municipality to dip into its reserves. . Officials hope to increase fund balances in 2022 and 2023, but face many challenges in restoring reserves. “

Fitch Ratings also assigned an “AA +” rating on Tuesday to the general obligations of the Municipality of Anchorage. The stable outlook comes with a warning based on spending that was incurred beyond federal aid during the pandemic.

These additional costs resulted in a negative fund balance of $ 40 million at the end of 2020 for the entire municipality.

The Fitch Ratings report states that “additional upfront costs to deal with disasters were incurred in fiscal 2021, which will reduce the municipality’s financial cushion and increase fiscal risk. Fitch expects the municipality to take all necessary steps for FEMA repayments, but delays or inability to be repaid could prolong a diminished financial cushion and could put negative pressure on the rating.

A downgrade in the municipality’s general bond rating would significantly increase the interest costs associated with borrowing in the capital market.

This could make future borrowing by the Municipality of Anchorage more expensive, with increased costs having a direct impact on taxpayers.

From 2016 to 2020, public spending increased in the MOA by about 20%. The MOA’s unallocated fund balance increased from excess of $ 11.2 million in 2016 to a total deficit of $ (40) million in 2020. During the same period, the population of the Municipality of Anchorage increased from 299,330 to 285,400.

“I believe the government should start adjusting unsustainable spending to reflect the population declines that have occurred in the MOA over the past few years,” said Mayor Dave Bronson. “Now is the time to act to eliminate the level of uncertainty that Anchorage residents and taxpayers have felt for years. This is why this proposed budget is a call to action for us. I will continue to seek government spending cuts and tax relief for everyone in Anchorage. We do not want our children and grandchildren to have to pay the debts incurred today.

The S&P Global Ratings report says the Municipality of Anchorage can return to a stable scenario if it restores reserves through a combination of FEMA reimbursements or spending cuts, and it could revert the outlook to stable.

The Fitch Ratings report indicates that budget management in times of economic recovery has been historically sound, with the municipality’s reserve safety margin rapidly rebuilding. And that good fiscal practice includes things like “frequent course corrections to restore long-term structural fiscal balance”.

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