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Debt Reduction Act will fuel growth
As the federal government turns its focus toward the debate over raising the country’s debt ceiling, Washington state legislators are pondering a different question — whether to pass a measure that reduces our state’s long-term debt and puts our budgets on a more stable and sustainable footing.
The Debt Reduction Act of 2011, which passed the Senate unanimously and now awaits House approval, would accomplish both of those goals.
The state capital budget — which funds construction of schools and colleges, develops community infrastructure and maintains parks and other recreation areas — is funded in part by state bonds.
Payment on those bonds is made from the state operating budget, which also funds other priorities such as education and health care.
This debt is one of the fastest-growing parts of the budget, climbing from $970 million 10 years ago to $1.8 billion in the current biennial budget.
That’s more than the $1.55 billion budget for the entire Department of Corrections, including its 13 prison facilities.
Something is broken when the operating budget has doubled its level of debt payment in the past decade while the state invests no more on higher education than it did in the mid 1980s.
The Debt Reduction Act addresses this problem by phasing down our constitutional debt limit from 9 to 7 percent.
This will reduce the debt payments we make in the operating budget over the next 20 years by more than $3 billion.
That’s money we can use to support K-12, higher education, public safety, services for our most vulnerable citizens, and other critical needs.
In addition to helping our operating budget situation, the Debt Reduction Act will also stabilize our capital budget.
Right now, our bonding capacity is based on a three-year average. As a result, when the economy is thriving, we can take on more debt and build more projects at times when employment is already strong and construction costs more.
On the other hand, when the economy is weak and unemployment is high, the state’s debt capacity shrinks along with our ability to fund these projects.
It makes far more sense to do it the other way around.
By shifting our bond model from a three-year average to a 10-year average, the Debt Reduction Act will level out the peaks and valleys of our economic cycles and smooth our average spending.
During good times, we will spend less, pay down our bonded debt and bank as much debt capacity as possible. When times turn lean, we’ll have the capacity to bond projects at a time when the market is most competitive, construction costs are lower, and people really need the work.
Passing the Debt Reduction Act would change our constitutional debt limit and would require an amendment to the state constitution — and approval by both the Legislature and the state’s voters.
The vehicle for that is Senate Joint Resolution 8215, which has already passed the Senate unanimously.
If approved by the House, SJR 8215 would go before the voters in the next general election.
In our current economic climate, the value of the Debt Reduction Act approach is obvious.
This is not just a good idea now — it’s a fundamental change that can reverse our counter-competitive cycles of spending, put our state on more solid financial footing and benefit generations of Washingtonians to come by avoiding a senseless buildup of debt.
Sen. Derek Kilmer, D-Gig Harbor, and Sen. Linda Evans Parlette, R-Wenatchee, are the chairman and ranking member, respectively, for the Senate’s capital budget committee.