Editorial: Washington gets credit for budget’s success
Washington has earned a collective fist bump from the three national credit rating agencies, an affirmation that the Legislature’s hard-fought budget was worth the acrimony.
Moody’s and Fitch upgraded their outlooks for the state. Standard & Poor’s affirmed its ratings on existing bonds, and gave the same grades to those to be sold at an upcoming auction.
Washington has been held in relatively high regard by the agencies since an S&P upgrade in November 2007, but the new ratings may be particularly helpful now. Detroit’s bankruptcy threw a little sawdust into the crankcase that processes billions of dollars in public bond sales.
Washington Treasurer James McIntire plans to sell $860 million in bonds Aug. 7, with most of the proceeds allotted for state highway projects.
McIntire warned legislators in April that the state’s credit ratings could be at-risk if they could not agree on a budget balanced with a minimum of gimmicks. S&P acknowledged their success: Only 11 percent of the solution to what had been a $2.6 billion budget gap relied on “nonrecurring” items, such as borrowing money from a fund that will eventually have to be repaid.
The haggling in Olympia may not have been pretty, but all three agencies noted the outcome was in keeping with Washington’s constant monitoring of the overall state economy and willingness to adjust state spending in response. Financial reserves, they noted, are increasing, and lawmakers raised their sights toward long-term stability by requiring budgets that will remain balanced through the next biennium.
The state is a little heavy on debt, but light on unfunded pension obligations.
In many ways, the reports were an assessment of Washington’s economy, which is growing faster than the nation’s. So has personal income growth, thanks to compensation levels at companies like Boeing Co. and Microsoft Corp. Still, S&P observes, many workers who lost their jobs during the recession remain unemployed.
Washington may be overdependent on its sales, business and occupation taxes, but those sources have advantages compared with income taxes.
A couple of weaknesses: The initiative process, which can impose new spending obligations – remember smaller class sizes? – or take away anticipated revenue, as happened with the highly unpopular tax on bottled water.
And, more surprisingly, the potential long-range obligations created by the Washington Supreme Court’s McCleary decision on K-12 education. Lawmakers came up with $1 billion to make a start on meeting their responsibilities under the state constitution, but nobody expects that to be the end of the financial commitment it will take to satisfy the court.
So, it’s not all fist-bumps and high fives. Another economic downturn, and “more recalcitrance by opposing legislative caucuses (S&P),” and those credit ratings, which translate into lower debt costs, go away.
Monday’s Department of Revenue report that first-quarter retail sales were up 8 percent over 2012 suggests pressure on the budget may ease. McCleary will take care of that.