Moody's Investor Service on Monday downgraded Alaska's credit rating due to the state's inability to reach consensus on how to close its structural imbalance and $3 billion-a-year budget deficit, the credit agency said.
Last week the Alaska Legislature concluded a special session called by Gov. Bill Walker to address the budget gap, which is driven by sustained low oil prices, through new taxes and spending cuts.
Despite warning that inaction could lead to serious consequences including layoffs of state troopers and thousands of teachers, the Legislature failed to approve any of the governor's bills.
Moody's downgraded the state to Aa2 from Aa1 and said in a statement that its outlook was negative.
[3rd ratings agency downgrades Alaska credit as lawmakers debate budget proposals]
"The downgrade recognizes the state's political inability — at least for now — to address its severe fiscal challenges," Moody's said.
It said that as Alaska spends its large reserves, which were built up over the years when oil prices were booming, the risks to its long-term credit profile will intensify.
Moody's also downgraded the state's lease-appropriation bonds to Aa3 from Aa2 and its moral obligation bonds to A1 from Aa3.