House Committee Passes Debt Reduction Bill

Yesterday, the House Capital Budget Committee passed a revised version of SSJR 8215 to lower the state’s bonding limits. The state sells bonds to finance the design and construction of buildings and infrastructure.

The AIA|WA is still evaluating the impacts of the bill. The Washington Construction Industry Council released a press statement expressing significant concerns about the new version. They state that it is an improvement over the Senate version, but still cuts deeply into overall bonding capacity.

Details of the Bill

The state constitution limits the total amount of outstanding debt (including interest) to 9% of the average of the last 3 years general state revenues. The state has working debt limit of 8.75% in the last 2 years, but used 8.5% prior to that.

The House committee proposed to drop that to 8.5% in 2017. In 2015 the limit would be based on the average of the last 10 years of general state revenues and include the property tax in the calculation.

The House version also includes an “advisory debt limit” that is one-half percentage point lower than the constitutional limit. Thus, it creates a working limit of 8%. But, it allows that “the advisory limit may be adjusted to reflect changes in economic trends and conditions.” In other words, the legislature can increase the working debt limit when a boost to the economy is needed from additional construction spending.

So the House is meeting the Senate halfway to its proposal. The senate eventually lowers to 7%   (in 2022) while the House gets to a working limit of 8%. Both the House and Senate move to 10 year averaging starting in 2015.


Over the next 10 years, the House proposal would reduce total bond sales by only about a million dollars. This is because the 10 year averaging would kick in right before the next projected recession and would bridge the steep drop in projected revenue associated with a recession. It would lower bond sales in 2013-2019, but it would create increased capacity during a projected recession of 2019-2023. However, over the next 10 years (years 11-20) it would cut bond sales by about $4 billion.

The Senate version cuts $2.774 Billion over the next 10 years and $7.389 Billion over 20 years. So, the House proposal preserves a net $2.773 Billion in bonding capacity over 10 years and $3.918 Billion over 20 years, as compared to the Senate version.

Of course the real impacts that SSJR 8215 backers are looking for are the savings in debt service on the operating budget. In the first decade, the House version cuts debt service by $1.042 billion, but preserves the spending capacity. This is only $761 million more in debt service than the Senate version.

Policy Questions

The big question is whether this new version is acceptable or whether more modifications are needed. Left unsaid by lawmakers is that simply moving to the 10 year averaging and including the property tax results in savings, too. The cuts are not as deep or the savings as big. But, this move without cutting the bond limits would provide stability and predictability to the state’ debt capacity.

The House version provides for more flexibility than the Senate version, but still results in deep cuts to bonding capacity. In the first three biennia it cuts bonding by $760 Million, $821 Million and $887 Million. Of course, in the next two recessionary biennia, it increases debt capacity. So, in the first 10 years it’s about even with current law, but does lower debt service payments.

The bigger concerns come in years 11 and later. As state revenue grows the gap between current law and the House proposal continues to grow. By about the year 2033, the gap is about $1 Billion a biennium. This is lower than the Senate gap of about $2 billion a biennium, but still a big hit to future construction capacity.

The flaw in all of this is the inability to accurately predict the depth or length of future recessions. The deeper the recession, the less the overall impacts (because of 10 year averaging). But, shorter, shallower recessions will exacerbate the differences and make the cuts even deeper.

Committee Debate

The vote was 6-5 with a Republicans and Democrats on both sides. Voting “yes” were: Dunshee (D), Warnick (R), Moeller (D), Asay (R), Pearson (R), and Ormsby (D). Voting “no” were: Zeiger (R), Lytton (D), Smith (R), Jenkins (D) and Tharinger (D).

The Democrats who voted yes generally stated they did not like the idea of cutting capital construction spending nor tying the hands of future legislatures. But, they voted for it because the Senate is holding the current $3.1 Billion capital budget hostage and they cannot abide the thought of that necessary spending being blocked by recalcitrant Senators.

The Republicans who voted yes generally stated that this is a work in progress and hope for deeper cuts, but want to keep the discussion alive.

The Democrats who voted against the measure were against the whole concept of cutting the debt limit. They stated that the debt service is very low compared to household or business debt payments. They cited the need for funding critical building and infrastructure improvements.

The Republicans who voted against it generally stated that they support much deeper cuts to the debt limit and this bill does not go far enough.

Next Steps

The committee debate could be precursor to the final floor debate in the House. Senators Kilmer (D) and Parlette (R) reject the current House proposal as not going far enough. A recent press report indicates they may be willing to move to 7.25% with a longer, more gradual decline to get there. They said the House version is a small step in the right direction.

AIA|WA, contractors, unions and other allies will evaluate the bill and determine our next steps for lobbying strategy. The general consensus is that we want to keep everyone talking in the hopes that a deal can be reach that preserves the current capital budget, but doesn’t sell future budgets short.

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