March 9, 2022
One of the things that is really important is that we finish with enough reserves that do two things. One: allow us to weather any bad news that may come in the future. . . . The other thing, and Treasurer Pellicciotti has been very vocal about this: We have the best bond rating that we can have and the best ever in the history of the state . . . and we do not want to risk that bond rating, and so that means that we have to have a healthy reserve.
Indeed, during the House floor debate on the operating budget last month, Rep. Stokesbary said that Treasurer Pellicciotti had urged the Legislature to restore the BSA and unrestricted reserves. Rep. Stokesbary read from the treasurer’s email: “I write to re-emphasize three recommendations sent to you by my office earlier this year regarding debt affordability and credit management. . . . Restore total state reserves—BSA and ending fund balance—to a pre-pandemic level of no less than 10% of general fund state revenues.”
Total reserves are typically the budget stabilization account (BSA, or the rainy day fund) and the unrestricted NGFO (funds subject to the outlook) ending balance. Last year, the Legislature created the Washington rescue plan transition account (WRPTA) and transferred $1 billion to it. It’s essentially a shadow reserve account that is not subject to the BSA’s constitutional restrictions. By statute (RCW 43.79.555), the money in the account can be used to respond to the impacts of the pandemic “including those related to education, human services, health care, and the economy” and to continue activities that had been funded with federal COVID relief money.
As I wrote last week, the state should transfer this money back to the BSA, where it would be better protected. But the Senate-passed budget would transfer another $2 billion to the WRPTA.
To the treasurer’s point about increasing reserves, the charts below show reserves as a share of general state revenues by year. In chart 1, reserves include the BSA and the unrestricted NGFO ending balance. In chart 2, I’ve added the WRPTA balance. Without the WRPTA money, reserves under both the Senate- and House-passed budgets are clearly below the treasurer’s recommendation. If you include the WRPTA balance, the Senate’s proposal would meet the recommendation.
However, it is not clear whether the ratings agencies will consider the WRPTA to be part of the state’s reserves. They don’t mention it in their discussions of Washington’s reserves in the January credit rating updates. For example, in discussing the BSA, S&P writes, “We view the state’s commitment to rebuilding the reserve account as a positive credit factor.” And, “We could also lower the rating if Washington fails to replenish its budget stabilization account in a timely manner, or if we feel the state lacks a realistic plan to rebuild its reserve profile.”Categories: Budget.