ANCHORAGE, Alaska — The state is proceeding with plans to sell up to $3.3 billion in bonds to help pay for Alaska’s pension obligations despite a warning that the action could trigger a drop in the state’s credit rating.
S&P Global Ratings last week indicated that it would likely lower the rating if the bonds were sold. It is the only one of three major ratings agencies to indicate that a credit hit from the sale is possible.
State Revenue Commissioner Randall Hoffbeck said opinions from the agencies are somewhat better than the state was expecting, providing a measure of comfort in moving forward.
The Alaska Journal of Commerce reported (http://bit.ly/2ekYcSD) that the state is looking at selling between $2.3 billion and $3.3 billion in bonds to help fund the state teachers’ and public employees’ retirement systems. The systems are underfunded by about $6 billion.
Officials with the state Department of Revenue have said the market’s interest in the bonds would ultimately determine the size of any sale. The bonds are expected to be priced Oct. 26.
The deal could help Alaska take advantage of low interest rates if investment returns on the bond revenue exceed the interest rate at which they’re sold. But Hoffbeck said the state probably won’t sell the bonds if the interest rate is higher than 4 percent.
Savings to the state on a $3.3-billion sale would total nearly $3 billion, assuming the target 8 percent long-term return rate is met.
Skeptical legislators have cited uncertainties with the market and poor experiences with the bonds by other states and large cities.
The Department of Revenue has said the bonds would be sold only with a fixed interest rate.
State debt manager Deven Mitchell said there is a risk in counting on a specific investment return, but said the state has structured as conservative a deal as possible.
Information from: (Anchorage) Alaska Journal of Commerce, http://www.alaskajournal.com