Lawmakers should rethink debt policy, state treasurer says

KENNEWICK --Washington State Treasurer Jim McIntire doesn't believe the state is in any immediate danger of losing its AA+ credit rating, which was reaffirmed by Wall Street last month.

But McIntire told members of the Washington State Transit Association in Kennewick on Monday that he would like to see the Legislature look at the state's mounting debt and form a sustainable strategy for future borrowing.

"I'm doing this as a prelude to ask the question, 'How do we do a better job of planning for capital investments to get our economy growing,' " McIntire said. "Getting the Legislature to think about how we use debt is an important part of the process."

Unlike the federal government, the state doesn't borrow money to pay for operating expenses, but only for capital and transportation projects that can't be paid for with cash, McIntire said.

But the Legislature has a tendency to "spend to the credit card limit," and he thinks that is a policy lawmakers should rethink.

"In the best of all worlds, we would keep a high debt limit ... and not spend up to it," he said. "That's hard to do with the Legislature."

Because of the formula for how the state's debt ceiling is calculated as a percentage of revenues, spending to the limit during prosperous years ends up leaving little or no wiggle room for funding building projects during lean years.

That happened this year when lawmakers arrived for the 2011 legislative session and found that stunted revenue growth coupled with capital spending over the last couple of biennia had left them just $118 million in debt capacity for the 2011-13 capital budget.

A last-minute deal was struck to raise the state's debt ceiling by more than $1 billion, but the Legislature also created a bipartisan Debt Commission to look at the state's debt and whether the way the debt ceiling is calculated should be changed, McIntire said.

He said that he would like to see the debt ceiling formula changed so that it's more stable compared to the current formula that tends to put the state on a "roller coaster."

He noted that in 2010, Moody's estimated Washington's net tax-supported debt at $14.8 billion, compared to a national median of $4.2 billion. Washington ranked eighth in net tax-supported debt per capita.

Standard & Poor's rated Washington a little differently, putting the state's net tax-supported debt at $13.8 billion, compared to a national median of $3.6 billion. S&P ranked the state seventh in net tax-supported debt per capita.

State debt payments are about 6 percent of general fund expenditures, compared to a national average of 3 percent, McIntire said. He would like to see that brought down to 5 percent.

McIntire said he has been able to save the state about $750 million by getting better competitive rates for its bonds, and using the Build America bonds federal subsidy program included in President Obama's stimulus package.

And that lets the state invest more into building projects while costs are low during recession.

"So there is some rationale for doing this kind of spending," he said.

-- Michelle Dupler: 582-1543; mdupler@tricityherald.com