On Friday, Moody’s upgraded Washington’s general obligation bond ratings from Aa1 to Aaa. In part, the upgrade “reflects a significant increase in financial reserves even as the state increased funding for K-12 education in response to a state supreme court mandate” and “the exceptional growth of the state’s economy driven largely by the technology sector in the Seattle metro area.” Further, “While the state’s debt levels are above average, they have been declining relative to the 50-state medians and the state’s debt and pension liabilities combined and fixed costs are comparable to medians.”

State Treasurer Duane Davidson said, “Not only does the Aaa rating reflect highly upon Washington’s credit, it will help ensure that when we finance schools, roads and other important projects, we do so at the lowest possible interest rates.”

Moody’s also noted Washington’s “above-average wealth and income levels, and the state’s strong fiscal governance practices.” Though Moody’s considers Washington’s outlook to be stable, it writes that a “protracted structural budget imbalance and/or a shift to reliance on one-time budget solutions” could lead to a ratings downgrade.

We wrote about Washington’s budget sustainability policies earlier this year, noting that they work when they are followed. Moody’s is certainly correct that Washington’s reserves have increased, but they could be even higher. Instead, the Legislature opted to spend all the extraordinary revenue growth the state has experienced over the past few biennia, and it has diverted revenues away from the rainy day fund.

Finally (perhaps thinking of I-976, which would reduce car tab fees and state revenues), Moody’s writes, “Frequent voter initiative activity adds budget challenges, but the legislature has broad authority to suspend voter-enacted statutes and a history of responding effectively to maintain budget balance.” (Indeed, as an example, I-1351, which would have reduced class sizes for grades K–12, was approved by voters in 2014 but never funded by the Legislature.)