In an announcement last Monday, Washington State Treasurer Mike Pellicciotti announced that his office would be refinancing $1.4 billion of state debt in order to take advantage of low interest rates.
In his statement, Pellicciotti said that the expected savings from the refinancing would total to $86 million.
The announcement came less than two weeks after multiple credit ratings agencies gave the state high credit ratings.
Pellicciotti praised the Legislature for passing recommendations his office made, saying, “The Legislature made the responsible decision to implement key recommendations presented by my office, which helped the state retain its strong credit scores and will help obtain the best possible interest rates in our upcoming sale.”
In a letter to the legislators in late April, Pellicciotti said the credit ratings agencies had mentioned the Legislature’s fiscal decisions as being a key part in determining their ratings, particularly the decision to increase the state’s fiscal reserves.
In his letter, the treasurer quoted the credit rating agency as saying, “Washington’s credit profile is characterized by strong fiscal management practices, including strong forecasting, a history of making budget adjustments based on material changes to forecasts, and demonstrated commitment to rebuilding reserves following withdrawals in economic downturns.”
The treasurer also alluded to the realities of rising interest rates as the economy strengthens after the pandemic.
“Although strong fiscal management practices and the state’s impressive ratings are a critical component of this refinancing, in comparison to bonds sold during the historic low-interest rate environment of a year ago, the savings to be produced by this transaction are expected to be more moderate,” said Pellicciotti, adding, “My talented team has been planning for interest rates to rise as the economy bounces back from the pandemic — the bottom line is that this sale reduces future debt service costs and saves taxpayers significant money.”
Regarding the allocation of the saved funds, Pellicciotti stated that approximately one-third of the funds will go to transportation projects while two-thirds will go to the state government’s general fund, of which the top recipients are public schools and social services.
