According to two international ratings agencies, the Municipality of Anchorage has some significant financial problems, but is generally in stable economic shape.
That determination may have had little to no financial impact on the city’s latest bond sale, which saw strong interest from buyers.
Mayor Suzanne LaFrance’s administration said this week that despite a minor downgrade from rating agency S&P Global, the municipality was able to sell $147 million worth of bonds that will pay for projects voters approved in recent years, including upgrades to roads, parks, schools, public facilities and emergency response services.
“The successful sale of these bonds allows for continued investment in our community,” LaFrance said Tuesday in a statement about the sale.
Roughly $81.3 million of those bonds are for general government, with the other $66.1 million for Anchorage School District bonds. Owing to strong interest among bidders, the municipality locked in both series of bonds at a rate of 3.734%.
“I was really happy, I think it was a really competitive rate. And there were a lot of people bidding, they were really aggressive,” said Alden Thern, who has served as the city’s chief fiscal officer since May 2023, first in Mayor Dave Bronson’s administration and now in LaFrance’s.
On Friday, S&P released an analysis of the city’s financial health, explaining its decision to downgrade Anchorage’s rating from AA to AA-. It follows a downgrade in November of 2022 by the agency from its prior AA+ status. A separate rating agency, Fitch, held its score stable at AA, but knocked the municipality down a slot from its previous AA+ status less than two years ago. Despite the recent demerits, both companies view Anchorage’s long-term financial prospects as “stable,” and described a similar set of issues prompting concerns.
“The downgrade reflects recent weakening of Anchorage’s financial position, which was, in part associated with management’s lack of proactive adjustments to the budget to manage the declines,” S&P analysts noted in their report. “We note the management team has seen turnover recently, with Anchorage now on its fourth CFO in four years.”
The report notes several factors behind its concerns, most of them related to financial management policies during the Bronson administration, including “the trend of negative fund balances in the general fund in fiscal years 2021 and 2022, along with delayed release of the fiscal 2022 audited financial statement.”
The municipality was nearly a year behind schedule finalizing its annual audit for the 2022 fiscal year, creating a number of compounding problems for city departments. That audit was completed this month, according to Thern. The 2023 audit is also behind schedule.
One consequence of those delays, Thern said, is that the rating agencies were looking at older financial records for the city, which failed to show recent revenues from property taxes and federal reimbursements for COVID-19 pandemic-related programs and the 2018 earthquake.
“We sold based on our ‘22 financials ... that’s why we were downgraded,” Thern said. “They were using our ‘22 financials, knowing, however, that we are going to be much better in ‘23.”
The S&P report paints a picture of Anchorage as facing mediocre economic prospects in the near future, with no major signs of growth but few looming hazards, either.
“We expect the local economy will remain stable over the next few years due to the pickup in tourism despite the trend of slight population declines. We note there is no significant reversal to this trend in sight, and although higher oil prices generally attract additional workers to Alaska and bring in new residents, we don’t expect material population growth in our outlook horizon,” analysts wrote.
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According to Thern, the local conditions do not appear to have been very consequential in the city’s latest bond sale, where positive trends in the broader economy and a strong interest from investors in diversifying their bond holdings made for a competitive sale. The government bonds took in 10 bids, according to Thern, and the school bonds received 11 bids.
“The reality is a downgrade is not something we wanted … but ultimately I don’t think it had an impact on our sale,” Thern said. “I actually think the external markets and the interest in Alaska bonds helped us.”
This latest bond sale was designed to bring in enough revenue to cover capital needs for at least 18 months, said Thern, who does not anticipate another bond sale before 2026, by which point the administration aims to remedy some of the underlying financial problems noted by rating agencies.
“Going forward, we would love to be able to work on addressing some of the items that were reflected in the downgrade,” Thern said.