As the Reserve Fund depletes from the 2018 earthquake, Anchorage’s credit rating drops

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Minnesota Airport’s outer drive slopes down after an earthquake in Anchorage, Alaska, on November 30, 2018. (Nat Herz/Alaska’s Energy Desk)

The city of Anchorage may have to pay more interest on its bonds after a major agency downgraded the city’s credit rating.

S&P Global Ratings lowered Anchorage’s rating from AAA to AA+ last week, citing reduced funds available in the city while recovering from the 2018 earthquake and coronavirus pandemic. The S&P report also notes rising construction labor costs and above-average risks from climate change and future earthquakes.

Low credit ratings mean the city will pay more on its debt. But Nolan Clauda, ​​an economist at the University of Alaska Anchorage, said it’s hard to say exactly how much.

“The difference between an AAA rating and an AA+ rating in terms of how much you are going to pay interest is likely to be very small in the scheme of things,” Clauda said, “that probably isn’t something that taxpayers would notice.”

The report notes that the city could improve its rating if it recovers some of the earthquake-related spending covered by the Federal Emergency Management Agency, but warns that the trend toward a gradual population decline could reduce the tax base.

The bond rating downgrade became a political flashpoint last week after Susan Laveran, president of the Anchorage Association, suggested that the Bronson administration could have intentionally under-represented the city’s financial position to gain an advantage in the city’s budget discussion, according to the Anchorage Daily News.

Mayor Dave Bronson has been pushing for budget cuts. In a press release issued Tuesday before the budget vote, Bronson argued that the credit rating downgrade demonstrated the need to reduce spending.

“I believe the government should start to properly quantify unsustainable spending to reflect the decline in population that has occurred in the Department of Agriculture over the past several years,” Bronson said in the statement. “Now is the time to act to eliminate the level of uncertainty that Anchorage residents and taxpayers have been feeling for years.

Bronson said city spending has increased 20% in the past five years, even as the city’s population has declined.

Clauda said that number is misleading.

“In fact between 2016 and 2020, the municipal budget was almost completely flat if you exclude inflation,” he said.

1/ I keep hearing her say that Money from Anchorage’s spending is constantly increasing. Once you adjust for inflation (a must when looking at several years of spending), here’s the picture you get. #ANCgov pic.twitter.com/x9bDvcyBra

– NolanKlouda November 24, 2021

The S&P report, as well as the Fitch Ratings report, which also gave the city an AA+ rating, do not mention concerns about governance or unsustainable spending by the city. But the S&P report warns that if the city is not able to refill its reserve fund within the next two years, its rating could fall further.

The association eventually passed a budget that refinanced many of the programs Bronson had cut.

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