As the Washington Research Council has repeatedly pointed out – while urging them not to do it – lawmakers tucked a large share of the state’s budget surplus into a shadow account, outside the constitutionally-protected Budget Stabilization Account. Just before the Legislature adopted the budget recommended by the conference committee, the WRC wrote,
Last year, the Legislature created the Washington rescue plan transition account (WRPTA) and transferred $1 billion to it. It’s essentially a shadow reserve account that is not subject to the BSA’s constitutional restrictions. By statute (RCW 43.79.555), the money in the account can be used to respond to the impacts of the pandemic “including those related to education, human services, health care, and the economy” and to continue activities that had been funded with federal COVID relief money.
As I wrote last week, the state should transfer this money back to the BSA, where it would be better protected. But the Senate-passed budget would transfer another $2 billion to the WRPTA.
To the treasurer’s point about increasing reserves, the charts below show reserves as a share of general state revenues by year. In chart 1, reserves include the BSA and the unrestricted NGFO ending balance. In chart 2, I’ve added the WRPTA balance. Without the WRPTA money, reserves under both the Senate- and House-passed budgets are clearly below the treasurer’s recommendation. If you include the WRPTA balance, the Senate’s proposal would meet the recommendation.
However, it is not clear whether the ratings agencies will consider the WRPTA to be part of the state’s reserves. They don’t mention it in their discussions of Washington’s reserves in the January credit rating updates. For example, in discussing the BSA, S&P writes, “We view the state’s commitment to rebuilding the reserve account as a positive credit factor.” And, “We could also lower the rating if Washington fails to replenish its budget stabilization account in a timely manner, or if we feel the state lacks a realistic plan to rebuild its reserve profile.”
The Center Square reports that the state Treasurer seems reconciled to the Legislature’s action.
The final Washington state budget leaves less than half the amount in the Budget Stabilization Account (BSA) recommended by state Treasurer Mike Pellicciotti – at least on paper.
The Treasurer’s Office defended the budget.
“Our office worked closely with legislative leaders in the last weeks of session to communicate the need for the final budget to reflect a return to pre-pandemic reserve levels,” Adam Johnson, communications and public relations director for the Office of State Treasurer, said in an email to The Center Square.
The budget meets the 10% threshold, Johnson indicated.
“When evaluating the state’s reserve, it’s important to consider the general fund’s ending balance, the budget stabilization account (BSA), as well as the relatively new Washington Rescue Plan Transition Account (WARPTA),” he explained. “After considering the funds set aside in the WARPTA account, the BSA, and the ending fund balance, the final budget did meet this 10% level. Our office now believes the state is meeting the expectations of the credit rating analysts.”
Soon enough we’ll know whether the ratings agencies agree.
Reserves, of course, become more important during times of economic volatility and uncertainty. And the WRC writes that one major ratings firm has sounded an alarm.
An extended conflict between Russia and Ukraine would hit the U.S. economy broadly, with all 50 states affected by the fallout, according to an analysis by Moody’s Analytics.
Washington and South Carolina, the two states that export the most proportionally to Russia and Ukraine, would be hurt. Shipments affected likely would include transportation equipment from Washington and auto parts from South Carolina
The Organization for Economic Cooperation and Development has also warned of a global economic toll.