ALAMEDA, Calif. — Washington Treasurer James McIntire has thrown his support behind a proposal to reduce the state’s constitutional debt limit and revise the formula used to calculate it.
The proposed constitutional amendment, which cleared the Senate Ways and Means committee Thursday, would reduce the debt limit from 9% of general state revenue to 7%.
“No matter how you do the numbers, Washington is a high debt state with per capita debt of more than twice the national median,” McIntire said in a statement Thursday. “Washington needs this lower debt limit to dial back the state’s debt burden.”
The amendment would not only lower the debt limit but also change the way it’s calculated, computing the limit by using a rolling 10-year revenue average instead of the current three-year average.
That would result in less borrowing authority in boom years when revenue surges, while keeping borrowing capacity available during down cycles.
“We see it as a way to manage down debt over time and still maintain the ability to borrow when the economy has its downs,” said Chris McGann, spokesman for McIntire.
“This constitutional amendment also smooths out short-term gyrations in debt finance,” McIntire said in his statement. “A more predictable capital budget will facilitate long-term capital planning and ensure we can afford the infrastructure investments needed to keep our economy moving forward.”
The proposed constitutional amendment will go before the voters this November if it is approved by two-thirds majorities in both houses of the Legislature. Voters could then approve the ballot measure with a majority vote.
Senators Derek Kilmer, D-Gig Harbor, and Linda Evans Parlette, R-Wenatchee, are co-sponsors.
If adopted, the new debt limit would not have an immediate impact on the treasurer’s bond issuance plans for the next two years, according to McGann.
Lawmakers will approve a two-year budget this spring that will set the state’s capital spending and borrowing plans through fiscal 2013. As the amendment is currently drafted, the new lower debt limit would be phased in gradually over time.
Washington’s debt limit applies to the state’s general purpose general obligation bonds, though GOs with their own dedicated repayment source, such as those backed by motor fuel taxes, are not subject to the limit.
“By reducing our state’s debt service obligations, we will free up money in future operating budgets to pay for the critical services the public expects for their tax dollars,” McIntire said.
Washington GOs carry AA-plus bond ratings across the board.