OLYMPIA – Since taking office, State Treasurer Mike Pellicciotti took advantage of low interest rates to refinance all state debt eligible for a tax-exempt refinancing under federal law, saving Washingtonians over $290 million in future debt service payments. Tomorrow (Tuesday, 4/26/22), the State Treasurer’s Office plans to refinance an additional $1.4 billion in previously issued state debt, Washington’s largest refunding of Various Purpose and MVFT bonds to date, that has now become legally eligible for a tax-exempt refinancing.
The lower interest rates that are expected to be locked-in as part of this refinancing have the potential to create a significant amount of debt service savings for the state of Washington. As of today, Tuesday’s sale is projected to produce approximately $86 million in total debt service savings.
On April 15, 2022, Moody’s, S&P and Fitch published reports affirming the state’s impressive Aaa/AA+/AA+ credit ratings. They reported the state’s significant funding of pension liabilities, its return to pre-pandemic budget reserve levels, and its strong fiscal governance practices as reasons for the state’s credit ratings.
“The legislature made the responsible decision to implement key recommendations presented by my office, which helped the state retain its strong credit scores and will help obtain the best possible interest rates in our upcoming sale,” said State Treasurer Mike Pellicciotti. “I appreciate the leadership from the budget writers in the legislature to prioritize rebuilding reserves, which was a definitive factor in the credit agencies’ analysis.”
Although strong fiscal management practices and the state’s impressive ratings are a critical component of this refinancing, in comparison to bonds sold during the historic low-interest rate environment of a year ago, the savings to be produced by this transaction are expected to be more moderate.
“My talented team has been planning for interest rates to rise as the economy bounces back from the pandemic — the bottom line is that this sale reduces future debt service costs and saves taxpayers significant money. Those savings can be better spent on important transportation and capital projects here in Washington instead of going to Wall Street,” said Pellicciotti.
Refinancing state debt is like how a homeowner refinances their mortgage at a lower interest rate to create savings, giving the state future budget savings with this refinancing. About two-thirds of the savings will go to the state’s general fund and about one-third will go to transportation projects. Top general fund recipients are K-12 public schools and other social services.