SAN FRANCISCO — A push for a constitutional amendment to reduce Washington’s debt limit has run into a political roadblock.
The proposed amendment, which has already cleared the Senate, would reduce the state’s debt limit to 7% from 9% of general revenue and revise the formula used to calculate it.
After passing the Senate, the bill has run into concerns from some House lawmakers that the reduction could lead to fewer jobs and higher borrowing costs. The amendment has received bipartisan support in the Senate and House, but still has strong opponents.
Capital Budget Committee chairman Hans Dunshee, D-Snohomish, said proponents are holding the capital budget hostage in an effort to pass the debt-limit bill in the House.
“I think [the debt-limit amendment] forces future legislatures to use alternative methods — such as revenue bonds and certificates of participation — that are actually more expensive and less secure,” Dunshee said. “The limit is only on our most secure GO bonds.”
Dunshee said the limit could also reduce the number of state construction projects, leading to fewer jobs.
The proposed amendment would slowly reduce the formula until it reaches 7% in fiscal 2022 and start calculating the limit over a 10-year average in fiscal 2016, replacing a three-year average.
The formula would also begin to use property tax revenue, which had been excluded.
Washington’s debt limit applies to the state’s general-purpose general obligation bonds, though GOs with a dedicated repayment source, such as those backed by motor-vehicle fuel taxes, are not subject to the limit.
If approved by two-thirds of the house, the proposed amendment would then go to voters in November.
Washington Treasurer James McIntire has thrown his support behind the proposal and expects it to eventually get approval in some form.
“I have every expectation that they will find some common ground,” said Chris McGann, a spokesman for the treasurer’s office. “This office’s overall strategy is to continue the state’s hard-won reputation for strong financial management, and having this kind of limit on debt sends a strong message.”
McGann said the state’s debt per capita is twice the national average.
Moody’s Investors Service said in a February report that a reduction of Washington’s debt ratios closer to the agency’s 50-state median could add to the chance of an upgrade.
The state’s maximum annual debt service on all outstanding debt subject to the constitutional debt limit was $974 million, or 8.03% of the average of the previous three years’ general revenue, as of August, according to the treasurer’s debt affordability study, which was released in January.
The study said the state’s current debt service will peak at more than $1.4 billion from 2017 to 2019 and then continuing falling through 2041.
Washington had $10.4 billion of general-purpose bonds and $6.2 billion of motor-vehicle fuel tax GOs outstanding as of June 30.
Outstanding state certificates of participation totaled $742 million as of the end of the fiscal 2010.
Washington general obligation bonds carry a AA-plus bond rating across the board.
Moody’s rates the state’s COPs Aa2 and Standard and Poor’s rates them an equivalent AA.
Washington officials estimate that a one-notch downgrade costs the government more than $110 million in additional interest costs, while a two-notch downgrade could cost $285 million.
The state closed a $7.7 billion budget coming into its 2009-11 biennium and has faced shortfalls equaling $3.8 billion in the current two-year period, according to Moody’s.
Lawmakers are trying to close a gap projected at more than $4 billion for the upcoming 2011-13 biennium, Moody’s said.