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Davidson: Washington State Should Tame Debt Appetite

Davidson Talks Debt, In Radio Interview

In a recent radio interview, new State Treasurer Duane Davidson said the state needs to tame its appetite for debt. He said he will ensure the annual state debt capacity analysis by the Treasurer’s Office will be completed and sent directly to the homes of lawmakers well before the usual December publication – when it tends to get lost amidst the bustle of preparation for the opening of the coming legislative session in January.

State Should Tame Debt Appetite

A former four-term Benton County Treasurer, and former President of the Washington Association of County Treasurers, Davidson also told listeners of KIT-AM in Yakima in a mid-May on-air appearance, that he wants the concept of restricting growth of the state’s $20 billion debt to become “fixated” in the minds of lawmakers, before each new legislative session.

Talking to KIT morning news-talk hosts Dave Ettl and Lance Tormey, Davidson said the current level of state debt needs to be closely monitored, and generally should be held firm or lowered, not increased.

Beware Rising Interest Rates

Davidson also warned about the dangers of growing debt if interest rates were to move significantly upward. He said, “$20 billion in debt for a state, that concerns me a great deal. We’re up to $2 billion of debt service (annually)…In Benton County, we actually cut the debt in the 14 years I was there.”

He added constraining debt growth “is going to be especially important if interest rates go up. We just could not afford that…It’s amazing to me they’ve been able to stay as low as they have for as long as they have.” Nonetheless, rates have begun to creep upward and all predictions are for at least some further increase, Davidson added.

Davidson said, “Especially in a year like this, when revenues are up, we ought to be trying to (rely on) cash flow a little bit more” – and debt less.

Annual Debt Report Needs More Emphasis

Davidson added that he intends to drive home the need for prudence on the size of the state’s debt in part through a greater emphasis on the annual debt affordability study issued by the Office of the State Treasurer (OST).

He said of the release of the 2017 report this December, a month prior to his taking office, “I doubt that even the aides read it, let alone the legislators. We’re going to send it right to their homes before they arrive” in Olympia for the 2018 session.”

Davidson said OST will produce two versions of the 2018 debt study, one for citizens and another for lawmakers. He also said he intends to rename the annual report so that it’s purpose is more clear.

High-Ranking Debt Load

The 2017 Debt Affordability Study was released in December, 2016 by Davidson’s predecessor, James McIntire. The report notes the state’s high bond ratings stem from core strengths such as “high income levels, solid population and income growth and a diverse state economy” as well as “sound financial management practices” and “access to significant reserves and liquidity.” Though these strengths mitigate risk, the OST report adds, “Washington’s debt burden places it among the top 10 states in the nation” according to four different leading measurements.

Washington’s reported $19.8 billion in net tax-supported debt placed it eighth-highest nationally as of May 2016, according to Moody’s rating service data cited in the OST report. The 50-state median was $4.3 billion. Washington ranked 5th highest nationally in net tax-supported debt as a percent of personal income, and sixth-highest in tax-supported debt per capita and as a percent of gross state product. Washington’s debt burden was 8.3 percent of state revenue and spending versus a 50-state median of 4.2 percent, according to the OST Debt Affordability study.