More than Meets the Eye to Debt Limit Proposal

Construction spending by the state could shrink by $8.6 billion over the next 20 years should a proposed amendment to the state constitution be enacted.

AGC opposes a legislative resolution (SSJR 8215) that seeks to reduce what the Legislature can borrow by gradually lowering the debt limit in the state constitution from its current nine percent of state revenues to seven percent. Such a move would have to be passed by a vote of the people on the fall ballot because it involves amending the state constitution but the first step is passage by two-thirds of both houses of the State Legislature. SSJR 8215 has already been passed – unanimously – by the Senate. Even though the Legislative session has ended this matter will continue to be considered in the upcoming special session called by the Governor.

While a proposal to reduce the state’s debt might seem attractive at first blush AGC maintains that doing so would not only harm the construction industry it would also hinder private economic development.

“Washington State is unusual compared to most other states in the level that the State helps fund local construction projects such as schools and local drinking water systems” said AGC Director of Government Affairs Rick Slunaker. “This means the state has a higher-than-average debt obligation but that fact alone is no reason to lower the debt limit. On the contrary the current nine percent limit allows the state to fund infrastructure construction projects that provide thousands of jobs in the short term and facilitate private economic development for the long term. Reducing the debt limit could increase by a relatively small amount the funding for other general government budget spending. But at the same time it would severely reduce the ‘seed corn’ the state invests on future economic growth.”

One of the arguments used by proponents of the debt limit reduction legislation is that the percentage of the state budget reserved for funding debt obligations has increased. In fact debt service payments on debt limit bonds rose from 4.8 percent of the general fund 10 years ago to 6.1 percent this year. But a major reason that the ratio has increased is the economic downturn which is reducing the size of the “denominator” (overall revenue) according to Slunaker. As the economy improves that ratio will decline to normal levels and in any event it remains well under current limits.

SSJR 8215 also seeks to stabilize debt capacity by extending the calculation period for determining average annual general revenue from the current three-year “look back” period to a ten year average. But Slunaker says this modest improvement in predictability is gained by significantly diminishing debt capacity and the ability to build needed infrastructure.

AGC will continue to oppose this measure in the House. For more information contact Rick Slunaker at 360-352-5000.