WA Democratic lawmakers propose moving state reserves to general fund

OLYMPIA — Democratic state lawmakers in Washington are proposing a bill that would move the entirety of the state’s rainy day fund into the general fund, despite warnings from the state treasurer that the move could make the state more vulnerable to future financial uncertainties.

Senate Bill 5392, sponsored by Sen. June Robinson, D-Everett, chair of the Senate Ways and Means Committee, comes as the state is facing a massive multibillion-dollar shortfall in an attempt to shore up the budget. 

If passed, the proposal would move more than $1.6 billion from the Budget Stabilization Account to the state’s general fund by June 2026. The bill then directs a transfer of $816.25 million in June 2028 and 2029 from the state’s general fund back to the BSA. Funds equal to 1% of general state revenues must be transferred into the BSA yearly. 

State Treasurer Mike Pellicciotti spoke against the proposal at the first public hearing for the bill Wednesday, telling lawmakers that he would not be doing his job properly if he was not “crystal clear” about the serious consequences of tapping the rainy day reserves. 

“The need for reserves is now,” Pellicciotti said. “It is not in four years.”

The reserves are a “key tool” and a necessary shield, Pellicciotti said, if the state wants to defend itself from the potential loss of federal funding by President Donald Trump’s administration. He said his focus was making sure that under the “worst of conditions” Washington is not left in a situation where it would have to issue IOUs, or hold a special session, if federal funds are suddenly pulled. 

Currently, he said, Washington maintains a AAA credit rating but sufficient reserves are necessary to weather what could be coming, including risks to Medicaid. Federal tax cuts being considered by Congress could also impact the state’s reserves, he said. Having a healthy bank account is what will shield the state, he added. 

In January, Pellicciotti sent a letter to the Legislature encouraging them not to use BSA funds. Washington’s high credit rating is “an achievement” that will provide Washington with critical financial independence in the years ahead, he said. He noted that the state needs high credit ratings to borrow money by issuing bonds at a lower cost. 

“Washington funds important projects in its capital and transportation budgets by issuing bonds,” Pellicciotti wrote. “The operating budget makes the payments on bonds issued for the capital budget. A drop in our credit ratings would increase the cost of our debt and thereby decrease available funding for the state’s capital, transportation, and operating budgets into the foreseeable future.”

Aaron Sherman, a spokesperson for the state treasurer’s office, told The Seattle Times that typically when money is moved out of reserves, it is included in the budget bill, which provides much more transparency. 

“So it is a bit anomalous that there is a stand-alone bill doing this,” he said. 

Sherman said it is unclear where the money to replenish the general account would come from. 

No one testified in favor of the proposal Wednesday, but Senate Majority Leader Jamie Pedersen, D-Seattle, told reporters in a news conference this week that due to the “significant cash crunch” in the first year of the next biennium that the legislation is part of the Senate’s plan to use BSA funds and pay those funds back before the end of the next four years. 

Lawmakers told reporters that both chambers have enough Democrats to pass the measure and they believe the state is in a budget emergency already, necessitating the use of the rainy day funds.

Pedersen said it would help the state avoid deeper cuts that would hurt the public and noted the amount in the BSA “pales” in comparison to the amount the state receives from the federal government.

“If the federal government really begins to cut off Medicaid funding for our people, then we’re talking about a completely different conversation that is not going to be remedied by having $1.7 billion extra sitting in the Budget Stabilization Account; those accounts would be wiped out in a couple of months,” he said.

Gov. Bob Ferguson told reporters Thursday that he has not yet spoken with the Legislature about the transfer, but that he doesn’t disagree about potential challenges coming from the federal government. He reiterated the importance of ensuring the state has adequate budget reserves to respond in times of crisis and maintaining the state’s rating.

“I’m not going to lock myself in right this very moment, but those will be conversations we’re having,” he said.

The legislation came at the request of the Office of Financial Management.

In an email to The Times, a spokesperson for the office said the budget stabilization account is just one tool available to “help balance the budget for the next biennium, and as such was included in then-Governor Inslee’s proposed budget.”

According to the office’s website, funds from the BSA can be appropriated with a majority vote from each chamber if state employment growth is forecasted to be less than 1% in a fiscal year, or if the governor declares an emergency due to a catastrophic event that requires government action to protect life or public safety. Other withdrawals require a three-fifths vote from the Legislature. 

The last time state lawmakers in Washington drained the BSA was in 2021 in response to the COVID pandemic.