The Tax Foundation is out with another of its useful national maps, this week illustrating state and local debt per capita. Washington ranks No. 9.
Tax Foundation analysts point out the distinction between long-term and short-term debt, the perils of using debt financing to cover ongoing operating costs, and the way debt for capital expenditures (e.g., large infrastructure projects) allows government to amortize costs over the anticipated life of the project.
As they write,
Just as with private finances, there is “good debt” and “bad debt.” Governments which turn to debt to fund recurring expenditures are similarly situated to individuals who go into debt in paying their monthly bills. Public debt for private purposes is a little like co-signing a loan: it’s not taxpayer-supported debt, and while it may count toward caps, ideally the government won’t be the one making the payments—but there’s always that risk. Conversely, capital projects are more analogous to a home loan. An individual project may or may not be prudent, the costs may or may not be reasonable, and the capacity to undertake additional debt may or may not be there, but assuming rational expenditures, relying on long-term debt as a means of covering the cost can be entirely reasonable.
Washington’s state debt has been a concern in the recent past. A state debt commission reported in December 2011,
Whether Washington is considered a high debt state relative to other states is dependent on definitions and what debt is included in the debt calculation. Washington has made significant investment in public infrastructure through issuing tax supported debt and thus carries above-average debt ratios. Rating agencies rank Washington State’s debt levels in the top ten among the 50 states based on the amount of outstanding tax-supported debt.
Although measurement techniques vary, Washington ranks high, the commission noted.
Research conducted by Professors Ronald Fisher, Michigan State University, and Robert Wassmer, Sacramento State University, relies on census data to calculate the relative debt burden of the states. Census data includes not only general obligation bonds but also revenue bonds and certificates of participation, which is debt the rating agencies do not include in their calculations. By this measure, when local debt is excluded, Washington is 16th highest in per capita debt. (Including local debt, the Fisher and Wassmer calculations shows Washington ranking at the fifth highest.) During the same period the measure used by Moody’s placed Washington as the eighth highest per capita debt.
Thrive Washington, a partnership between the Washington Roundtable and the Washington Research Council, also cited state debt as a concern to be monitored.
Washington’s taxpayer-supported debt is untenably high…The budget implications are clear. When the state authorizes bonds in the capital budget, those costs are repaid in the operating budget.
With the continuing demands on the general fund to pay for basic education and other vital services, debt management will be a fiscal priority in the coming years.