Earlier this week, the state treasurer announced that the credit rating agencies have affirmed Washington’s strong (Aaa/AA+/AA+) credit ratings. All three praised Washington’s budget reserves and fiscal management practices.

In our policy brief on the enacted 2022 supplemental budget, we noted that the Legislature substantially increased reserves. However, most of those savings are held in the Washington rescue plan transition account (WRPTA) rather than in the constitutionally-protected budget stabilization account (BSA, or the rainy day fund). When the Legislature passed the budget, it wasn’t clear that the ratings agencies would recognize the WRPTA balance as reserves. At that time, the account wasn’t included in the budget outlook, and since the 2021 Legislature had drained the BSA (in part to seed the WRPTA), it may have looked like the Legislature wasn’t adequately replenishing reserves.

But the Economic and Revenue Forecast Council adopted an official budget outlook earlier this month that includes the WRPTA balance, in order to provide more transparency to the public and rating agencies. Both S&P and Fitch cite the WRPTA as being part of Washington’s reserves:

• S&P: “We consider the projected $609 million [BSA] balance to be low at 1.8% of annual near general fund expenditures for fiscal 2023. We note, however, that the state created a new reserve account, the WRPTA, which is projected to have a balance of $2.1 billion at the end of the fiscal 2021-2023 biennium. On a combined basis, these BSA and the WRPTA reserve accounts total $2.7 billion or a good 7.9% of annual near general fund expenditures for fiscal 2023.” (Emphasis added.)
• Fitch: “The new WRPTA provides an additional source of fiscal reserves, with less restrictions on accessing it than the BSA. Given its flexibility, Fitch considers the WRPTA to be a component of the state’s budgetary reserves.”

The WRPTA is certainly more flexible than the BSA. The state constitution provides that withdrawals from the BSA may be made with a simple majority only when there is a state of emergency or state employment growth is less than 1%. At other times, withdrawals require a three-fifths vote.

The WRPTA, on the other hand, is established in statute and may be accessed via a simple majority at any time in order to respond “to the impacts of the COVID-19 pandemic including those related to education, human services, health care, and the economy” and to “continue activities begun with, or augmented with, COVID-19 related federal funding” (RCW 43.79.555).

The account’s flexibility is a double-edged sword. Legislators will be able to easily use the money; but if they use it for items that do not have broad support, will there be anything left in the account in the event of a downturn?