Editorial: Legislators should be careful with bond sales

Washington Treasurer Jim McIntire conducted another successful bond auction Tuesday despite negative outlooks announced by two credit-rating agencies.

The interest rate on $715.2 million in general obligation bonds was bid down to 2.62 percent by Bank of America Merrill Lynch. Wells Fargo bid 2.57 percent for $263.4 million in bonds backed by gas tax revenues. The sale will reduce interest costs for the remainder of this budget biennium by $11 million and save the state much more in the future.

Earlier sales will lift the total biennium savings to $31 million.

But Fitch and Moody’s Investor Service say the state’s inability to achieve a balanced budget despite spending cuts, and its shrinking financial reserves, could jeopardize their good opinions on Washington debt, which are now just a notch below the very highest. Although Washington has a good reputation for financial management, forecasting and confronting budget problems, they say, the state has continued to add to an already excessive debt load.

Those comments should be a caution to legislators from both parties who want the state to take advantage of cheap interest rates and low construction costs by undertaking $1 billion in new construction projects. They have been vague about which projects might be undertaken with the money, but $35 million to complete the Biomedical and Health Sciences Building at the Riverpoint Campus would almost certainly be included. The facility would accommodate medical and dental education programs backers hope will attract millions in private-sector investment.

Also on the priority list: stormwater projects like those mandated for Spokane.

Statewide, the projects could generate as many as 25,000 jobs, although some estimates are substantially smaller. But where to find the money without adding to the general obligation burden worrying Fitch and Moody’s?

Sen. Derek Kilmer, D-Gig Harbor, says the funds are there if legislators will authorize the sale of bonds backed by revenues from the Public Works Trust Fund, and the fees authorized under the Model Toxics Control Act. Selling bonds instead of funding projects on a pay-as-you-go basis will allow the state to build when costs are at their lowest and employment needs are greatest.

Dedicating those revenues to bond payments will also stop appropriation of that money for general fund purposes, a practice that has become all too common as a patch for budget shortfalls.

That’s a plus for Republicans, who have shown cautious interest in the bonding concept. Labor groups and the Associated General Contractors have united in support of the idea.

The drawback: Bonding will tie up revenues for decades, preempting their use for other needs that may emerge in the future. A Commission on State Debt last year recommended that the state allow bonding to increase during economic downturns, with the understanding that commitments to new obligations would be curtailed when the economy recovers.

Trouble is, spending discipline in Olympia was nil at the top of the last business cycle. Can we bond our way out of bad behavior?