State Brief: Alaska

The passage of Alaska’s 2019 operating budget marks an important shift in fiscal reform for the state. For the first time, the state approved a $2.7 billion transfer from the Permanent Fund Earnings Reserve Account (ERA) to the unrestricted general fund (UGF) for the year ($1.7 billion for operations and $1 billion to fund the state’s Permanent Fund dividend to residents). The state’s use of the ERA (SB 26) is limited to 5.25% of the Permanent Fund’s average balance at June 30 over the prior five years before dropping to 5% in 2021. Although the adopted legislation cannot bind future legislatures, the bill provides guidance for how the state intends to fund its operating deficit in the future. We also note improvement to the state’s 2018 and 2019 budgetary outlook largely due to increasing oil prices. While S&P Global Ratings places the odds of a national recession at 10%-15% within the next 12 months, the state’s economy typically has proven to be countercyclical to that of the country and contracted in 2012 to 2016 while most of the nation underwent economic expansion. Maintaining credit quality will depend on the state’s ability to grow and maintain its reserve levels.

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