OST Report: State Debt Burden Stabilizes

OST Report: State Debt Burden Stabilizes

(Updated May 25, 2017). The debt burden of the State of Washington has stabilized with growth of less than one percent in 2016, according to the annual Debt Affordability Study released today by outgoing State Treasurer Jim McIntire. “Debt is an important resource for funding major capital projects such as schools, universities, parks, roads, bridges and other public structures,” said McIntire, “but it needs to be used sparingly.” Debt financing for major transportation projects has slowed in recent years while new debt for schools, the environment and general government is growing at a slower pace.

At the end of 2016, Washington’s debt stood at $20.9 billion, an increase of less than four percent over the past three years. Debt payments will account for 6.2% of general fund state revenues in 2017, down from nearly 7% in 2010 after voters enacted a lower constitutional debt limit proposed by McIntire in 2012. Debt payments for transportation projects will account for 40.5 percent of motor vehicle fuel tax revenues this year and rise in the future as construction starts on the transportation package enacted in 2015.

“We’ve done an excellent job managing our debt burdens through the Great Recession,” noted McIntire. “We kept our AA+/Aa1 bond rating for the entire 8 years. We re-engineered how we issue bonds and forced Wall Street to be more competitive in bidding on our bonds, beating our benchmark for borrowing costs 16 out the 20 times we went to the market in the past 8 years, versus 9 out of 18 times in the prior 8 years. The weighted average cost of funds on our GO portfolio is now 3.22%.

“Lowering our borrowing costs has saved Washington taxpayers billions of dollars that can be used for financing additional infrastructure. Since taking office in 2009, we’ve refinanced $10.3 billion of debt at lower interest rates to save more than $1.1 billion, and we’ve financed $13.4 billion of new bonds at lower interest rates than expected when the Legislature approved the projects, saving another $2.2 billion,” said McIntire.

Today the State of Washington successfully issued four series of general obligation bonds in competitive sales, marking the last bond sale of the McIntire Administration. Proceeds of Series 2017D will be used for facilities at K-12 schools, state universities and community colleges as well as for habitat conservation, outdoor recreation projects and farmland preservation. Proceeds of 2017E will provide funding for highway projects across the state. Two other series, R2017-C and R-2017D, were issued to refund outstanding bonds.

The four series were priced in three bids. The 25-year new money bonds Series 2017D and 2017E achieved a true interest cost (“TIC”) of 3.5100% and 3.5441%, respectively. The refunding Series R-2017C and R-2017-D, which had final maturities of approximately nine years, were priced at 1.9241% and 1.8845% respectively. Wells Fargo, Citi and Bank of America Merrill Lynch were the successful bidders on the three sales. The refundings will save taxpayers approximately $30 million in interest costs.

As OST reported more recently:

The 2017 Debt Affordability Study…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…OST…