The biggest-ticket policy item in Gov. Inslee’s budget proposals is $4 billion in bonds for homelessness and housing programs, which would have to be approved by voters.

State debt is limited by the state constitution. Under Article VIII, Section 1, the principal and interest payments on the state debt cannot exceed 8.25% of average general state revenues over the prior six years. Some debt is not subject to the limit, including (for example) bonds that are backed by motor vehicle fuel taxes.

Additionally, the constitution specifies that contracting debt generally requires the approval of three-fifths of the Legislature. However, under Article VIII, Section 3, bond measures are not subject to the debt limit if they are approved by voters. For such bond measures, only a simple majority is required of the Legislature and the people.

Gov. Inslee’s 2023–25 capital budget proposal is accompanied by two bond bills. The first is a traditional bond bill that is subject to the debt limit and that would require a three-fifths majority of the Legislature. It would authorize the issuance of $3.983 billion in general obligation (GO) bonds to fund capital budget items. Additionally, it would authorize the issuance of $895.0 million in GO bonds specifically for the construction of the new forensic hospital.

The governor’s second bond bill would authorize $4.0 billion in GO bonds “for the purpose of reducing homelessness by providing capital funding for selected programs and projects that address housing insecurity.” It would be put to the voters as a referendum and would thus be outside of the state debt limit.

As shown in Chart 1, the traditional state bond authority proposed by Gov. Inslee would be the largest (adjusted for inflation) amount going back to at least 1991, but it would be in the same ballpark as bond bills in recent years. With the $4 billion homelessness bond, the bond authority proposed in 2023 is twice as large as the amount authorized in 2021 (adjusted for inflation).

Gov. Inslee’s 2023–25 capital budget proposal would appropriate $771.0 million from the homelessness bond proceeds. Of that, $496.0 million would be appropriated for the Housing Trust Fund and $50.0 million would be used for a new workforce housing accelerator revolving loan fund program (which is created in the bond bill). The table shows how the rest of the homelessness bond proceeds would be spent. According to the governor’s budget documents, this would result in 26,700 new affordable housing units through 2029–31.

In December, the state treasurer published the FY 2023 report on the state debt limit. The total outstanding principal of state bonds is currently $21.173 billion. Of that, $13.711 billion is subject to the debt limit. (If both the proposed bond bills are approved, they would increase the outstanding principal of state bonds by 41.9%.)

Excluding transportation bonds, there are currently no voter-approved state bonds outstanding. Based on information from the state treasurer’s office and a review of the state’s referendum history, since 1950, voters have approved 23 bond referenda. Many of those were approved in the 1960s and 1970s. The most recent was Referendum 39, approved in 1980, which authorized $450 million in bonds for public waste disposal facilities. The last of these bonds was paid off in 2010. Additionally, in 1997, voters approved Referendum 48, which authorized $300 million in bonds for the Seahawks stadium. Those bonds were paid off in 2021. In 2010, voters rejected Referendum 52, which would have authorized $505 million in bonds to fund energy saving improvements to public schools. No state bonds have been put to voters since then.

After adjusting for inflation, the proposed $4 billion in homelessness bonds would be the largest voter-approved bond measure ever. (See Chart 2.) A Crosscut/Elway poll that was released this week found that 52% of registered voters support Gov. Inslee’s homelessness bond proposal.

According to the debt limit report, the FY 2023 debt service limit is $1.991 billion. Given that, and assumptions about terms and interest rates, the treasurer’s office estimates that the state’s remaining debt capacity is $9.125 billion. As noted above, the governor’s proposed traditional bond bill would add $4.878 billion in debt. Thus, if it is enacted, there would be about $4.247 billion in remaining debt capacity.

That means that the $4 billion in homelessness bonds could technically be authorized under the debt limit. But if it were, it would essentially use up all the remaining debt capacity and would crowd out the contracting of future debt.

That said, Washington’s debt burden is already high. According to the state treasurer’s 2022 Debt Affordability Study, “Washington ranks in the top ten of states for debt per capita and debt as a percent of revenues. It also ranks 11th highest for debt as a percent of personal income and debt as a percent of gross state product.” At some point, if the state takes on too much debt, it could negatively affect our credit rating. In turn, that could increase future borrowing costs.

(For more on the governor’s budget proposals, see here.)