A new report submitted by State Treasurer Duane Davidson to Secretary of State Kim Wyman shows that the state annual debt service is $381 million below the constitutional limit, with $6 billion in additional total debt capacity to potentially finance capital projects.
However, Davidson warned in a statement that “unpredictable changes in interest rates or lower general state revenues could constrict debt capacity sooner than expected. It is in the best interest of the state to do everything possible to minimize issuance of new debt.”
The state’s total debt owed is more than $19 billion – a $12 billion increase over the past 20 years. More than half of that debt is various purpose bonds issued to finance general capital projects, and around 40 percent is for transportation project financing. Although Washington is one of the most leveraged states in the country in terms of debt, it still managed last year to obtain a historic credit rating bump from Moody’s Investor Service.
The Washington state constitution creates a debt ceiling by restricting the amount of state general revenue that may be used to pay annual debt owed. Currently, annual debt cannot exceed 8.25 percent of the mean general state revenue of the previous six fiscal years. According to Davidson’s report, that places the debt ceiling at roughly $1.6 billion, while actual annual debt service is just over $1.2 billion.
“It is a ceiling, not a floor,” Davidson said in the statement. “Therefore, we need to remain cognizant of the fact that the state’s debt limit is not a goal to be reached, but a constitutionally mandated limit on debt issuance.”
The report estimates that the state has $6.1 billion in remaining debt capacity, which would allow for the single issuance of 25-year bonds with 3.72 percent interest.