The Capital Budget: Will there be one?

Tomorrow, the new revenue forecast for the State of Washington will be released. That revenue forecast will determine the size, and to some extent the shape, of the 2011-2013 biennial budget. Projections are that revenue will be down below previous forecasts by $500 Million to $2 Billion. 

This will have a dramatic impact on the capital budget. The state's bonding capacity is tied directly to general fund revenues. The state constitution limits construction debt to 9% of general fund revenues.

The available money to pay for bonds has dwindled. At the beginning of the year, the Governor proposed about $900 million in bonds to be sold. That is down from $1.7 billion in the current biennium and $2.7 billion in the prior biennium.

As the state’s revenues have gone down, so has the available bond capacity. This is further hampered by the fact that prior biennial budgets spent much more on bond projects. So, the previously high spending combined with lowered revenues have hit the next capital budget hard.

Right now, there is talk that there may not be any bond bill for the 2011-2013 biennium. In January, the bond projection had less than $200 million in available capacity. And, that is likely to go down after the next revenue forecast. 

We could very well see a situation where not only is there no available money for bonds, the state could already be over the constitutional limit. 

Should the Debt Limit Be Adjusted?

A related issue is a proposal by some senators to adjust the state debt limit (SB 5181 & SJR 8215). Their stated goal is to lower spending limits in good economic years to free up spending capacity in bad years. That would allow the state to increase capital construction spending at a time when private sector projects are struggling.

The challenge with the proposals is that they rely upon a belief that the legislature would actually spend more in lean years. In the current biennium, rather than spending existing capacity on construction projects, the legislature and the governor transferred nearly a billion dollars from the capital budget into the operating budget. Pressure from state employees’ unions and social welfare advocates over whelmed the economic plight of design and construction professionals.

Thus, any proposals that relies upon trusting the legislature to do the right thing is difficult to support. AIA|WA continues to be in talks with proponents. Our earlier concerns with this approach pushed them back to the drafting table to redesign the proposal. Budget writers are working with the State Treasurer and the State Treasurer's Bond Financing Advisory Committee. 

Stay tuned, this is a big week for architects, contractors and others who work on state projects.