State treasurer concerned about bond financing

State treasurer James McIntire is concerned about the way legislators have been trying to use bond financing.

He cited the transportation revenue package and a recent bill to finance school construction through lottery bonds as examples.

"We have yet to see state revenues return to trend, and as a result, I think a lot of policy-makers keep trying to figure out ways to use debt finance to meet the needs of the state," McIntire said. "We want to try and make sure that we use that resource sparingly and carefully."

Lawmakers again failed this year to pass a transportation revenue package which would fund new projects and maintenance for roads, bridges and rail. McIntire said the proposals, which included raising the taxes Washington motorists pay at the pump by 11.5 cents a gallon, relied on borrowing against a declining revenue source.

The state is raising about twice as much in gas taxes as it has pledged to bond owners he said, compared to about five times as much as pledged a decade ago.

Revenue from gas taxes are expected to be flat through 2027, according to the debt affordability study published annually by McIntire's office. This is partly due to changes in driving habits and newer, more fuel-efficient vehicles, he said.

"(Our gas tax revenue) would be declining except for the fact that our population is growing faster than most parts of the country. So the notion that we're going to be able to continue to rely on gas tax as a major source of finance for transportation is something we're going to have start looking at seriously," McIntire said.

Just paying for the final portion of the new SR 520 bridge near Seattle would require taxing every gallon of gas in the state an extra 3.3 cents for the next 25 years, he said.

McIntire suggested tolls would be a better option.

Another major issue the legislature will need to continue discussing is extra funding for K-12 education. One bill proposed giving about $700 million toward new classrooms by borrowing against the lottery.

While it passed the house with 90 votes in favor and seven against, it stalled in the senate after McIntire wrote a letter to the governor and legislature opposing it.

"There is no need to finance school construction with high cost bonds that skirt the constitutional debt limit," he wrote.

The interest rates on the lottery-backed bonds would have been higher than the state's general obligation ones, which are backed by all revenue sources. And the lottery's revenue doesn't tend to grow much and could be affected by online gambling or other trends in the future, McIntire said.

"It just didn't seem to me that we wanted to be financing our paramount duty with junk bonds," he said.

The lottery currently finances state need grants for college and early childhood education.

"It's one of those interesting political footballs that the legislature has played on a frequent basis," McIntire said. "It's almost always been dedicated largely to education, but in different ways."

While people may tend to see "bickering and disagreement" in politics, McIntire said they should know that Washington's strong credit rating is partly due to its ability to work things out.

"Washington state has a very well-deserved reputation for outstanding financial management relative to other states," he said. "We do a pretty good job of coming to agreement on a bipartisan basis on how to do things in a financially sound manner. And we're recognized for that in the markets."

The state's annual debt affordability study and related information is available at www.tre.wa.gov.