The proposed budgets from the Washington House and Senate could hurt the state's bond ratings, meaning interests rates could creep up when Washington borrows money for construction and transportation projects.
Washington State Treasurer James McIntire painted that picture in a letter to the Senate and House leaders. The Democratic-controlled House and the Republican-oriented Senate have just begun closed-door talks on how to reconcile their radically different budget proposals for 2013-2015.
The Senate version totals $33.21 billion, extends no taxes, closes no tax exemptions and sets aside $1 billion for Supreme Court-mandated education improvements. The $34.33 billion House budget would raise an extra $1.17 billion for the education fix-it work by closing 11 tax exemptions and extending a business-and-occupation tax on service firms. Each budget used different assumptions, different priorities and different funds shifts.
The state treasurer's office will soon begin to sell bonds to help pay for transportation and construction projects this summer. In preparation, three rating agencies will study the state government's financial health and provide bond ratings. So far, Washington has had AA+ and Aa1 ratings, which provide good interest rates. Higher interest rates translate to less money actually going to the capital projects, which produces jobs in the private sector.
"Both budgets also include a number of items that may negatively affect our credit rating that I need to bring to your attention," McIntire wrote to the Senate and House leaders on Thursday.
McIntire said red flags to bond rating agencies include:
- The Senate keeping the emergency-related "rainy day fund" intact, but planning on an ending balance to the budget of $19 million. "About a half a day's spending," McIntire wrote. He noted that the House's ending balance would be $263 million in the red if it were not for $575 million transferred from the rainy day fund.
- The House budget transfers from a $100 million from the Public Works Trust Fund — "a 'temporary' stopgap measure used before in the past several years," McIntire wrote. That money would likely have to be replaced by local government bonds to pay for construction projects, he wrote.
- The Senate budget transfers $160 million from a school construction fund. McIntire noted the dispute over whether this transfer is constitutional. This transfer would require the school construction fund to borrow money for some projects, adding debt to the state's obligations when the general fund's debt retirement payment is more than $2 billion in 2013-2015.
- Both the House's and Senate's revenue predictions are "overly optimistic." The Senate also relies on $40 million in increased collection of use taxes, without the added capability to increase those collections.
- The Senate budget relies on $151 million in unspecified improved efficiencies with no plans mapped out on how to achieve them.
- The House assumes $20 million savings from "Lean Management," a managerial approach that supposedly improves efficiencies. The Senate assumes $65 million in Lean Management savings. "Both stretch the bounds of credibility after so many years of cuts, consolidation, and program eliminations have already been made," McIntire wrote.
"A final budget with the above credit negatives will be difficult to explain to the rating agencies -- two of which have a 'negative outlook' for Washington, an early warning of a possible downgrade. ... Our taxpayers can ill afford to pay higher interest costs to Wall Street," he wrote.
Last year, the rating agencies Fitch Ratings and Moody's Investor's Service downgraded Washington's future outlook to keep a AA+ rating from "stable" to "negative." The third bond-rating agency to scrutinize Washington is Standard & Poor's.
Senate Ways & Means Committee chairman Andy Hill, R-Redmond was in meetings and floor votes Friday, and was not available for comment.
McIntire has "got some pretty valid criticisms. No budget is perfect," said Rep. Ross Hunter, D-Medina and chairman of the House Appropriations Committee.
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