Credit Ratings Remain High as Washington Prepares to Issue New Debt
On Monday, Moody’s Investor Services, S&P Global Ratings, and Fitch Ratings affirmed their credit ratings for the state’s General Obligation Bond (GO) and Certificates of Participation (COP) programs, as the state makes plans to issue new debt.
Moody’s affirmed its highest score of Aaa for the state’s GO debt, and also upheld its Aa1 rating of the state’s COP obligations. S&P and Fitch both affirmed AA+ ratings for the state’s GO debt, their second-highest rating.
“Our ability to maintain such outstanding credit ratings goes to show that even in an economic downturn the state’s commitment to maintaining a robust rainy day fund scores highly with the rating agencies,” Treasurer Davidson said.
The agencies’ reports contained consistent themes regarding the state’s economic performance, fund balances, and strong history of prudent financial management. “Heading into the COVID-19-pandemic-induced recession, Washington’s credit profile benefited from an economy that had been among the strongest performing in the nation, often translating into better-than-forecast revenue growth,” S&P reported.
From that growth, the state was able to build up its financial reserves, especially the Budget Stabilization Account (aka rainy day fund), which is a credit positive. According to Fitch, Washington’s AA+ rating also reﬂects the state’s very strong ﬁnancial resilience supported by reserves — including its fund balance and budget stabilization account.
Developing these balances during times of growth is an important tool for weathering revenue fluctuations and responding to economic downturns. Having a well-funded rainy day fund will help the state maintain strong and stable ratings, which are critical for ensuring continued access to low interest rates on future bond issuances.
Moody’s emphasized the positive underlying fundamentals of Washington’s economy, its sizable reserves, strong governance practices, and manageable long-term liabilities. However, it cautioned that a protracted structural budget imbalance or one-time budget solutions could lead to a rating downgrade.
“We really have to be careful of our next steps. Borrowing to repay lost revenue is a recipe for a credit rating downgrade. That would translate to costlier future financings and wasted taxpayer dollars,” Treasurer Davidson said.
On July 7th, the state is scheduled to sell approximately $68 million of COPs. Later in the month, on July 14th, the state plans to sell approximately $653 million of GO backed bonds in three series to pay for and reimburse certain capital and transportation projects.