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We Build Alaska

As Banks collapse, Anchorage should not take on new debt

Recently, regional banks in the United States and one major international bank have either collapsed or, in crisis, been rescued by larger banks due to liquidity issues. Given these financial headwinds, it is a great time to assess the financial viability of the Municipality of Anchorage as voters decide how to vote on the many bonding propositions on the ballot.

In November 2022, the Municipality of Anchorage had its bond rating (credit score) downgraded by Fitch, citing the Muni’s depleted cash reserve levels, which was not adequate to cover 10% of the Muni’s current year expenditures in its general fund. That means the Muni – which is required to have about one month’s annual expenses in cash in order to maintain its rating – did not.

Later, Fitch updated its rating after finding the Muni could borrow up to $640 million in cash. Basically, it found that the Muni’s liquidity issues were solved because the Muni had a “credit card” with a $640 million limit. Not the place of financial strength one would hope for, and not how we the voters run our personal finances. Financial advisors suggest families have 3-6 months of cash on hand, the Muni has less than a month.

Contrast that with the Matanuska-Susitna Borough. In 2022 Fitch maintained the Borough’s bond rating, although the Borough was not seeking to borrow any money, and cited the strong cash reserve position for the rating. The Mat-Su Borough has roughly two month’s annual operating expenses and one year of its annual debt service on hand.

The Muni and the Borough also differ on what type of capital projects they take on and how they pay for them. For example, the Muni is currently asking to bond roof repairs, replace worn out equipment, and rehabilitate a trail. They are essentially bonding for maintenance, a dubious financial position to be in.

Contrast that with Mat-Su Borough paying $25 million for a new school this year – with cash. Two years ago, Mat-Su voters approved a roads package – adding roads, not repairing them – again the Borough paid cash. The Mat-Su has increased its school enrollment by 64% in the last ten years, while paying for schools with cash and not bonding.

In addition, the cost of borrowing has increased. The average loan in 2020 was 3.7%, versus the current 7%. The Federal Reserve just raised rates another quarter point this week. Any new bonds (debt) added to the Muni, would cost about 1.5 times what that same liability would have cost per month in 2020. Similarly, short term lending to cover monthly expenses, or the $640 million in borrowable cash, also will increase the Muni’s monthly expenses.

Given the problem the Muni has with low cash reserves and the substantially increased costs of bonding, its not the time to add more debt. Let’s learn lessons from the bank failures and the Mat-Su’s example of being financially prudent in regards to taking on additional debt. It’s not the right time to add more debt to the Muni monthly expenses. Rather, we should wait until the Muni replenishes its cash reserves before taking on any new debt in the short term.

Rob Yundt serves on the Mat-Su Borough Assembly. Jodi Taylor, an Anchorage resident, is the former board chair of the Alaska Policy Forum. They are both life-long Alaskans, business owners, and (by happy coincidence) both have six kids!

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Diane Stefan
1 year ago

I don’t believe the Valley is taking on the same debt Anchorage is facing trying to house the homeless. Albeit a small part of the budget but food for thought….

Pablo
1 year ago
Reply to  Diane Stefan

The Valley doesn’t pay for a police force like Anchorage does. They make the State Troopers police the MatSu.

food for thought

Diane
1 year ago
Reply to  Pablo

Another great point Pablo!!

Tim
1 year ago

There are lots of reasonable arguments against governments taking on debt, but this particular one is financially illiterate.

Robert Blooomfield
1 year ago

The idea that Anchorage does not have to stick to a sound budget, as its residents must to remain solvent, is one we hear all the time from governments in general. Congratulations to the Mat-Su for being more financially responsible. Make the hard choices Anchorage and become financially responsible. Hard times are coming and taking on more debt is only going to dig a deeper hole.

Pablo
1 year ago

Yup, congrats to the Mat-Su for conning the State to pay for a police force. Why should the Mat-Su get most of the Troopers?

Grateful Alaskan
1 year ago
Reply to  Pablo

We really ought to just do away with APD entirely and get the Trooper’s servicing Anchorage as well. Am sure Mr. Yundt and Ms. Taylor are all for it.

Anchorage also pays for our own jail. Irresponsible! With a bit of fiscally conservative leadership we could be like the Valley and get the State to pay for that too!

StuckintheMatsuMud
1 year ago

Rob Yundt and Jodi (Mrs Treg) Taylormgiving advice is wokealicious! If only Shelley (never
Met a mirror I didn’t love) Hughes also weighed in the troika of weirdo right wing nonsense would be complete. I’ve got the solution y’all: some of us liberals have to get elected to
counter balance these nonsense people.

RG Geiger
1 year ago

I could not agree more. It seems the Assembly has been on a spending spree buying up properties for overnight shelter’s rather than trying to solve homelessness. I for one plan to vote down every proposition on the ballot. Just hope others see the wisdom expressed in this article and does the same.

caleb
1 year ago

Is anyone over at the ak policy forum on the short list to replace the current chairman/ceo of exxon. if not, do you wonder why?

Allen
1 year ago

Bank failures and municipal bond debt are completely different topics so trying to compare them is just scare tactics.