Last month, the three credit rating agencies reaffirmed Washington’s Aaa (Moody’s) and AA+ (S&P and Fitch) ratings. According to the Office of the State Treasurer, “With these ratings, Washington now exceeds the credit rating of the federal government for the first time in history.”

Washington’s credit ratings impact the state budget because states with stronger ratings can sell bonds at lower interest rates, which means the cost of borrowing is lower. In turn, the sustainability of a state’s budget impacts its credit ratings. All three rating agencies have consistently pointed to Washington’s budget practices—especially our four-year balanced budget requirement and constitutionally-required rainy day fund—as major factors in our strong ratings.

Last month’s ratings incorporate the budgets passed this session. As we have written, one sustainable choice the Legislature made this year was to assume the actual revenue forecast for the second biennium instead of assuming 4.5% revenue growth. Moody’s also notes that choice favorably:

the state’s latest multi-year budget outlook uses more realistic revenue forecasts for the outer years (2027–2029 biennium), instead of incorporating a 4.5% revenue growth factor allowed by its statute – this shift in practice emphasized by the Governor is more conservative to ensure long-term budget balance, which we view positively.

On the other hand, Moody’s highlights an unsustainable choice made this year:

However, to address the state’s recent budget gap, legislation passed in 2025 increased the state’s investment return assumption to 7.25% from 7.00% for most pension funds, effective July 1, 2025, to reduce near-term contributions. While this creates budget savings, we view it credit negative to increase investment rate assumptions because it can lead to larger funding gaps if the investment return assumption is not met.

Ultimately, S&P writes, “In our view, the state effectively resolved its projected deficits, but we still calculate ongoing deficits in fiscal years 2026 and 2027 when excluding the state’s beginning balances, signaling some structural pressures are still present.” Indeed, as we wrote in our report on the operating budget, “Despite the budget’s technical balance as enacted, its near- and long-term sustainability is questionable. Effectively, the new taxes and savings just papered over the underlying problems.”

All three agencies say that significantly drawing down reserves to address structural budget problems could lead to rating downgrades for Washington.