Budget Rules and Safeguards

With certain exceptions noted below, the amount of state general obligation debt that may be incurred is limited by the Washington State Constitution. The constitutional debt limitation prohibits the issuance of new debt if the aggregate debt contracted by the state would exceed the amount for which payments of principal and interest in any fiscal year would require the state to expend more than 9 percent of the arithmetic mean of general state revenues for the three immediately preceding fiscal years. This limitation restricts the incurrence of new debt and not the amount of debt service that may be paid by the state in future years.

Under the constitution, “general state revenues” includes all state money received in the state treasury, with certain exceptions, including:

• fees and revenues derived from the operation of any undertaking, facility or project;
• certain moneys received as gifts, grants, donations, aid or assistance;
• retirement system moneys and performance bonds and deposits;
• trust fund money, including money received
• from taxes levied for specific purposes; and
• proceeds from sale of bonds or other indebtedness.

In November 2012, voters approved an amendment to the constitutional limit specifying that (1) beginning July 1, 2014, general state revenues will be averaged over the six immediately preceding fiscal years; (2) for the purpose of the calculation, the definition of general state revenue will be expanded to include property taxes received by the state; and (3) the 9 percent constitutional limit on debt service will be reduced to 8 percent by July 1, 2034 (in downward steps to 8.5 percent starting July 1, 2014, to 8.25 percent starting July 1, 2016, and finally to 8.0 percent starting July 1, 2034). The amendment was intended to stabilize and smooth the state’s ability to borrow, gradually reduce the state’s long-term debt burden and lower the share of the operating budget used to pay principal and interest on debt. In some years, the new constitutional limits are anticipated to be more restrictive than the previously approved statutory working debt limits.

The amount of new bonded capital program that is affordable under the debt limit can change depending upon:

• the amount of previously approved projects carried forward in the capital budget;
• changes in revenue forecasts that increase or decrease general state revenues;
• changes in the make-up of funds included in general state revenues; and
• changes in the interest rates at which bonds are sold.

Senate Joint Resolution 8206, passed by the voters in November 2007, established the Budget Stabilization Account, also referred to as the “Rainy Day Fund.”

By June 30 of each fiscal year, the State Treasurer transfers an amount equal to 1 percent of the general state revenues deposited in the General Fund for that fiscal year to the Budget Stabilization Account.

Moneys may be appropriated from the Budget Stabilization Account by a majority vote of each house of the Legislature if: (1) forecasted state employment growth for any fiscal year is less than 1 percent; or (2) the Governor declares an emergency resulting from a catastrophic event that requires government action to protect life or public safety. Other withdrawals from the Budget Stabilization Account may be made only by a three-fifths vote of the Legislature.