Since the Public Works Assistance Account was created in 1985, $2.2 billion has been diverted or transferred for purposes other than funding the revolving, low-interest loan program meant to pay for local infrastructure projects. Those raids would continue under both the state House and Senate 2019-21 operating budget proposals.
Now Public Works Board Chair Scott Hutsell is warning that legislators face a reckoning if the raids don’t cease. Not only will they run out of money to pay for new spending obligations under the McCleary compromise made in 2017, but also they will be unable to fund public works projects. Or, they might resort to bonds issued at higher rates than that of the revolving loan – something they’ve already done in the current capital budget.
“If you don’t stop this now, it will get to a point where it just continues to go down,” Hutsell said.
Of the $2.2 billion taken over the account’s lifetime, $880 million has gone into the education legacy trust account, while $1 billion has gone to the state operating budget. The bulk of those transfers or diversions has occurred since the 2011-13 biennia to cover operating budget expenditures or new basic education spending.
At the same time, there are $880 million worth of local infrastructure projects that are ready to start, but lack funding the public works account might have provided. The account itself has around $800 million right now, but because of the way project loans are approved, it may take several years before a local government withdraws the total amount. In other words, much of the existing funds in the account are already dedicated to an existing loan. The account is replenished by the 20-years’ worth of existing loan repayments, along with a portion of state real estate excise tax (REET) revenue.
However, the appearance of money sitting idly made it a target for raids by the legislature based on what Hutsell calls an accelerated funding model.
“We’re loaning money that we really don’t even have,” he said. “We’re actually loaning money that we’ve already loaned to someone else, and money that hasn’t been repaid.”
The first significant withdrawal from the account occurred in the 2005-07 biennium when the legislature raided $124 million. However, that amount increased significantly in the 2009-11 biennium with $472 million redirected or withdrawn. Since the 2013-15 biennium, the legislature has diverted or taken $1.2 billion from the account. If things continue, the account will be drawn down to $600 million by the 2021-23 biennium.
The raids reached the point where the legislature actually began borrowing money to loan; in the 2013-15 capital budget, $158 million in bonds were issued to backfill cash transfers. In the 2017-19 capital budget, lawmakers issued $97 million in bonds to provide funds for the assistance account. However, the bonds were issued at regular market rates of around 3.6 percent, while the Public Works program lends money out at 1.6 percent.
Since it was first created, the revolving loan has funded $922 million worth of drinking water projects and $1.29 billion worth of wastewater projects, which constitute the vast bulk of loans issued.
Had the legislature never raided the account, Hutsell estimates that the Public Works Board would have $1-1.5 billion per biennium to invest in local infrastructure projects such as the hundreds of fish culvert repairs on Washington State Department of Transportation (WSDOT) land that is subject to a court injunction. The total price tag for those projects through 2030 is more than $3 billion.
However, there are also thousands of similar fish barriers on private, city and county lands that also need to be removed.
While loan repayments will provide a continual stream of revenue for the next 20 years, Hutsell says the account will lack the capacity to issue new loans or provide long-term money for education.