State Treasurer Jim McIntire believes the governor’s proposal dips too deep into the state’s rainy day fund. The Seattle Times reports:
In a letter to Inslee last week, McIntire said he opposed Inslee’s proposal to spend $538 million out of the rainy-day account — or more than half of the reserve fund.
One reason the reserves matter:
Bond investors and ratings agencies look closely at state reserve levels — and Washington’s reserves are at about one-third the average of states with similar credit ratings, McIntire added.
The story quotes state budget director David Schumacher as saying the governor chose to use reserve funds rather than trying to raise taxes more than the $1.4 billion he proposed last December.
That $1.4 billion increase already faces stiff opposition in the state Senate, which (as we’ve noted) adopted a 2/3 supermajority rule to adopt new taxes. The governor’s proposed carbon and capital gains taxes would face the high procedural hurdle.
For more insight into how state’s should approach reserves see Building State Rainy Day Funds, a July 2014 report from Pew Charitable Trusts. From the conclusion:
State leaders, regardless of their policy goals, have good reason to be concerned about revenue and economic volatility. Whether policymakers aspire to reduce taxes, provide high-quality infrastructure and services, pay down liabilities, or spur economic development, wide swings in state resources from year to year can undermine those efforts. States can manage revenue fluctuations by studying their unique patterns of volatility and connecting those observations to concrete rules that guide when, how, and how much to save.
The volatility concern highlight another challenge the governor’s budget faces. His largest proposed tax increase, the capital gains tax, would add to the the volatility of the revenue stream.