After forecasting a tidy $1.1 billion windfall for the next few years, Washington State Treasurer Duane Davidson urged state legislators last week to squirrel the money away in a rainy day fund, not spend it.
This would be better use of the proceeds in advance of a recession, he argued. He cited other potential financial drains, such as economic disruptions stemming from the coronavirus.
Davidson’s office forecasted $606 million in additional revenue through mid-2021, when the fiscal year ends. It also estimated a $536 million surplus for the biennial period stretching from July 2021 through June 2023. After that, Davidson cautioned lawmakers in a letter, the cash bonanza is unlikely to repeat.
“I want legislators to consider saving and preparing,” Davidson wrote in a blog post. “We need a better cash position in both the rainy day fund and the general fund’s ending fund balance to help us weather the next recession.”
The financial officer also suggested some of the new money go toward paying down the state’s $11.2 billion unfunded liability to get its pensions to fully funded status. Washington—which has the sixth-highest debt per capita in the country—funds 69% of its capital budget with debt.
It’s not the first time Davidson has warned government officials against raiding the state coffers for immediate needs. In 2018, the treasurer called the state’s proposal to divert $700 million from a rainy day fund “unacceptable,” while some state senators argued the funds were necessary for school funding.
But Davidson compared Washington unfavorably with California, which proposed adding $5 billion that year to its own reserves.
“Even California is doing the right thing!” Davidson wrote. “We can too.”
The treasurer’s warning comes as the spread of the COVID-19 disease in Iran, Italy, and South Korea shocked global markets last week and sent all three major US stock indexes plunging into correction territory.
By Monday, US markets stabilized, though uncertainty remains. The S&P 500 index was up 4.6% during Monday trading, even as domestic incidents of the illness continued to tick upward. Four deaths in Washington state alone brought the total number of US casualties up to at least six people this week.
“While the state faces a number of pressing problems, I am concerned about the Legislature’s willingness to spend down fund balances and its lack of urgency to ready the state for the next economic downturn, which would occur any time,” Davidson wrote in the post.