Recommendations of Commission on State Debt and SJR 8221
Concerned about the growing share of the state operating budget going to pay debt service and therefore not available for other programs, lawmakers in 2011 created a Commission on State Debt by passing Senate Bill 5181. The bill passed the Senate by a vote of 40-1 and the House by a vote of 79-14. As noted by the bill report and text of SB 5181:
A commission is established to examine the use of debt in Washington State and make recommendations on debt policy and debt limitations. Commission members include the State Treasurer; the Director of the Office of Financial Management; four legislators, one from each of the four major caucuses; and six independent experts, three appointed by the Governor and three appointed by the State Treasurer. (Bill report)
The commission must recommend improvements in state debt policies and limitations, including possible amendments to state constitutional debt limitations that will accomplish the following: (a) Stabilizes the capacity to incur new debt in support of sustainable and predictable capital budgets; (b) Reduces the growth in debt service payments to an appropriate level that no longer exceeds the long-term growth in the general fund expenditures; (c) Maintain and enhance the state's credit rating. (Text of bill)
On December 1, 2011, the Commission on State Debt issued its findings and recommendations. Among the Commission’s findings:
- “Debt service expenditures have represented an increasing share of the operating budget, particularly since the 2007-09 biennium.”
- “Declining general state revenues have resulted in significant operating budget reductions in many functional areas, while debt service has increased. Concern has been expressed about debt service crowding out other budgetary priorities and reducing financial flexibility since debt service cannot be cut in response to revenue downturns.”
- “As measured by the rating agencies, Washington’s debt burden is among the top 10 states in the nation as measured by: debt per capita, debt as a percentage of personal income, debt as a percentage of gross state product, and debt service as a percentage of governmental expenditures.”
- “Despite citing the state’s debt level as a potential risk, each rating agency has recognized that fundamental strengths of the state largely mitigate the above-average debt burden.”
- “Washington’s debt limit follows the economic cycles too closely. Debt capacity falls in times of high unemployment when prices and interest rates are low. Debt capacity is high when unemployment is low and prices and interest rates are high. This ‘pro-cyclicality’ increases the state’s cost to acquire capital assets and constrains efforts to stimulate employment during recessionary periods.”
These findings led the Commission on State Debt to recommend reducing the state’s constitutional debt limit to, “Smooth the amount of bond capacity over time while maintaining a predictable and sustainable capital budget” and “Reduce the amount of debt service as a share of the state operating budget over the long run.”
In response lawmakers passed SJR 8221 asking the voters to reduce the state’s constitution debt limit. SJR 8221 passed the Senate by a vote of 38-7 and the House by a vote of 91-7. Voters will consider SJR 8221 this November.
We'll have additional details on SJR 8221 when we publish our Citizens' Guide later this month.
Estimated fiscal impact of SJR 8221 (Reducing Washington’s Constitutional Debt Limit)