SAN FRANCISCO — Add Washington to the list of states worrying about liquidity.
The wolf isn’t at the door yet, but Treasurer James McIntire is telling lawmakers the state will face a liquidity crunch if they don’t take significant actions to bring the budget into balance.
Gov. Chris Gregoire, a Democrat, has identified a $2.6 billion general fund shortfall in the state’s $28.8 billion two-year budget. She wants to meet it with a mix of budget cuts and yet-to-be-identified revenue increases.
Lawmakers are in the midst of a 60-day session. Before they convened, McIntire wrote to legislative leaders and the governor, saying real budget solutions are needed.
“Without added revenue and-or severe program cuts such as those the governor has proposed, Washington may soon be at material risk of running short of the cash needed to pay its bills,” wrote McIntire, also a Democrat.
“Without significant increases in cash levels, Washington risks finishing fiscal year 2010 with the state general fund in a negative cash position,” he said. “With no improvement in the state’s overall cash position, the entire state treasury could be depleted as soon as September 2010.”
The letter was intended to impress upon lawmakers how serious the budget situation is, McIntire spokesman Chris McGann said Tuesday.
McIntire’s office is working on fallback plans that include accessing other state funds, and even borrowing. Washington does not normally issue cash-flow notes.
“Borrowing would be our last resort,” McGann said. “Most of these fallback positions come with some cost.”
Those costs could include interest for borrowing, or lower bond ratings, which would increase costs for the state’s capital borrowing.
“I would emphasize that these are fallback positions and considerably less desirable than the hope and faith that the Legislature and the governor will address this issue in a timely and decisive way,” McGann said.
He said IOUs, such as those California issued last year, are not in the cards.
“That’s not within the realm of what we’re going to allow to happen,” McGann said.
Washington general obligation bonds now carry ratings of AA from Fitch Ratings, Aa1 from Moody’s Investors Service, and AA-plus from Standard & Poor’s. Moody’s revised its outlook to negative from stable in its most recent report, dated Dec. 31.
“As a state with heavy dependence on sales tax receipts and no personal income tax, Washington’s revenues have been hit hard by the negative impact of the recession on consumer confidence,” the report said.
“The negative outlook reflects Washington’s vulnerability to further downward revenue revisions given the uncertainty surrounding the timing and strength of the economic recovery; likely depletion of the rainy-day funds and significantly lower projected ending balances by the end of the biennium; and considerable out-year structural gaps due to substantial one-time solutions already incorporated in the enacted budget.”
Washington priced $488 million of GOs in a Jan. 13 competitive sale that drew eight bids. Bonds reoffered by winner Bank of America Merrill Lynch were priced to yield between 2.65% for 2017 maturities to 4.148% for 2030 bonds.