Washington state could keep a half billion dollars that will otherwise go to Wall Street in interest costs
Washington State Treasurer Mike Pellicciotti called on Congress today to reverse a 2017 Trump law that blocks states like Washington from fully refinancing all of its debt at more favorable interest rates. Given the current historically-low interest rate environment, Pellicciotti estimates that if this policy change is included in the Build Back Better reconciliation legislation, his office could save the people of Washington nearly a half billion dollars in lower interest costs on state bonds that are callable in the next three years alone. Trump signed this current prohibition into law after Congressional Republicans inserted the restrictive language in the 2017 Tax Cuts and Jobs Act.
“This critical fix would be particularly advantageous to the Washington State Treasury, allowing us to again take full advantage of refinancing our state debt in this low interest rate environment, and potentially saving the State of Washington about a half billion dollars in the years ahead,” said Pellicciotti in a letter delivered to the Washington delegation on Tuesday. “It would keep money with the people of Washington, instead of going to Wall Street in unnecessary interest costs,” he wrote.
Pellicciotti announced in July that Washington has maintained its top Moody’s Aaa credit rating which, coupled with the current low-interest rate environment, has allowed his office to favorably refinance eligible bonds issued years ago at higher interest rates. Since taking office, Pellicciotti has refinanced all callable state debt, in the same way a homeowner might refinance a mortgage, saving the state more than $214 million in future interest costs.
Washington state’s ability to refinance all of its bonds is severely restricted under the 2017 Trump-era law. Without being able to issue these “advanced refunding” bonds, the state is limited to issuing tax-exempt refinancing bonds no earlier than 90 days prior to the call date of the outstanding bonds. Practically speaking, this means the state must wait on the sidelines during periods of historically-low interest rates, unable to refinance billions of dollars of bonds and free up those excess debt service payments as savings for the State of Washington.
Treasurer Pellicciotti stresses how the return of the advanced refunding option would allow the state to lock-in approximately $600 million in lower debt service costs on bonds callable in the next three years alone, which is equal to approximately $565 million on a present value basis as the state and country regain economic stability.