Former Gov. Inslee’s 2025–27 operating budget proposal included a transfer of the balance of the budget stabilization account (BSA, or the rainy day fund) to the general fund–state (GFS) in FY 2026. Then, Inslee proposed returning the money to the BSA in 2027–29. The proposed transfer acted as bridge funding for new spending until Inslee’s wealth tax proposal was fully implemented in 2027–29.

This proposal was introduced in the Legislature as SB 5392 and HB 1471. The bills would transfer $1.633 billion from the BSA to the GFS in FY 2026. Then, $816.3 million would be transferred from the GFS to the BSA in FY 2028 and another $816.3 million would be transferred from the GFS to the BSA in FY 2029.

The Senate Ways and Means Committee heard SB 5392 on Wednesday. Treasurer Pellicciotti testified against the bill: “The need for reserves is now. It is not in four years.” Although the treasurer’s testimony highlighted the uncertainty around federal spending, healthy reserves are also crucial in maintaining our state’s high credit ratings.

In the 2025 Debt and Credit Analysis report, the state treasurer recommends that Washington “maintain budget reserves at or above 10% of Near General Fund State Revenues” in order to “sustain Washington’s financial standing.” As the report notes, the state’s level of reserves is one factor considered by the credit rating agencies. Washington’s “strong ratings are essential to receiving competitive interest rates on state issued bonds and keeps debt costs low for transportation and capital projects.”

The importance of healthy reserves is confirmed by the three credit rating agencies in January 2025 updates (Moody’s, S&P, Fitch). For example, S&P writes,

The GO rating also reflects our view of the state’s formal reserve levels, which historically have been narrower than those of higher-rated peers but could improve over the biennium to a level more in line with a higher rating. We will continue to monitor the state’s commitment to its informal reserve targets, as well as its budgetary balance, as it prepares its next biennial budget. . . .

The current proposed governor’s budget contemplates the use of some reserves for increased spending priorities. We understand that this document is a starting point; our view will solidify as the legislature weighs in on the biennium budget and we have a clearer picture of the state’s reserve position going forward. . . .

We view the state’s commitment to preserving combined reserves at healthy levels through the current biennium as a positive credit factor and we expect the state to continue balancing its revenues with ongoing operational needs in its upcoming biennial budget; we view this as an imperative factor in Washington’s credit profile.

The treasurer’s report adds,

Undeniably, the Legislature is facing new challenges and budgetary pressures in the upcoming session. However, this should only heighten the need to avoid solutions that create higher costs for taxpayers, diminish the state’s strong financial position and leave Washington less able to navigate economic disruptions. Healthy reserves, manageable debt costs, and well-funded pensions must continue to be foundational.

Nevertheless, the Seattle Times reports,

Senate Majority Leader Jamie Pedersen, D-Seattle, told reporters in a news conference this week that due to the “significant cash crunch” in the first year of the next biennium that the legislation is part of the Senate’s plan to use BSA funds and pay those funds back before the end of the next four years.

The Times story also states, “The last time state lawmakers in Washington drained the BSA was in 2021 in response to the COVID pandemic.” That’s not how I would describe what happened.

There was not a budget shortfall in 2021, but employment growth was expected to be less than 1% that year. Consequently, the Legislature was able to tap the BSA with just a simple majority vote—even though revenues were growing. It used part of the $1.820 billion transfer for general spending immediately and parked $1 billion in a new, unrestricted reserve account. (For more, see this report.) That unrestricted account has since been used on new spending items and is completely drawn down this year.

As we’ve written, sweeping the BSA in 2021 was one of the causes of the current budget problem. Legislators used this one-time money to fund ongoing spending, even as general revenues were growing. Now, revenues are forecasted to be $5.040 billion higher in 2025–27 than in 2023–25. Sweeping the BSA again could similarly lead to future deficits while also harming our credit rating.