OLYMPIA – Today, the State Treasurer issued his annual budget recommendations as lawmakers convened for the first week of the 2024 legislative session. This as S&P, one of the country’s major rating agencies, changed their outlook to “positive” from “stable” for Washington’s already sound credit rating, forecasting a potential upgrade.
“Our recommendations for the state budget provide a set of financial guardrails designed to help ensure the state’s long-term financial security and uphold our strong credit ratings,” said State Treasurer Mike Pellicciotti. “Keeping financing costs low for capital projects and transportation improvements is as important as ever in today’s interest rate environment. Adhering to these recommendations will keep the state on the right trajectory.”
The State Treasurer’s recommendations for the 2024 supplemental budget are as follows:
- Maintain a minimum level of total reserves equal to no less than 10% of annual Near General Fund-State Revenues;
- Manage future bond issuance plans to ensure that projected debt service costs do not exceed target debt service coverage ratios; and
- Continue to improve the excellent funding status of the state’s pension plans by fully funding the state’s actuarially determined pension contributions.
“By adopting budgets within the scope of these recommendations in recent years, the Legislature has strengthened our financial position with rating agencies,” said Pellicciotti. “Receiving a ‘positive outlook’ for the state’s credit rating is a key indicator that Washington is crafting sound fiscal policy and putting the state in the best possible financial position going forward.”
Three of the nation’s largest credit rating agencies recently affirmed Washington’s excellent ratings ahead of a November 2023 bond sale, with Moody’s issuing the highest possible rating of Aaa, and both S&P and Fitch maintaining impressive AA+ ratings.
Although today’s “positive outlook” from S&P does not change Washington’s credit rating, it suggests that a rating upgrade may be on the horizon. The report states that, “The (positive) outlook reflects our expectations that there is a one-in-three chance we could raise our rating over the next two years. We expect the state’s strong budgetary management will continue its commitment to balanced operations.”
A credit rating upgrade could translate to lower interest rates on debt issuances and ultimately produce needed cost savings on future state projects.