Fitch, one of the three major companies that rate publicly and privately issued debt, changed its outlook for the state to "negative" from "stable."
Fitch Ratings warned Friday that Washington’s budget woes may imperil its prime credit rating.
Fitch, one of the three major companies that rates publicly and privately issued debt, changed its outlook for the state to “negative” from “stable.” The shift means that in the next year or two, unless the state finds long-term solutions to its recurrent budget holes, its rating could be downgraded.
A downgrade would raise future borrowing costs — significant for a state that already is a heavier-than-average borrower relative to the size of its economy.
The outlook change doesn’t affect the state’s current AA+ rating, the second-highest in Fitch’s scale. The state plans to sell $959.2 million in refunding bonds on Jan. 31, and $534.7 million in new bonds on Feb. 28.
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Fitch rated those issues AA+, as has ratings agency Standard & Poor’s. S&P kept its outlook for the state at “stable”; the third ratings firm, Moody’s, is expected to issue its report Monday.
The Legislature has to figure out how to close a roughly $1.5 billion shortfall in the current 2011-13 budget — the fourth straight year it has faced the prospect of deep spending cuts.
In its report, Fitch noted that the state’s heavy reliance on the retail sales tax and the business-and-occupation tax — which together supply close to half of general-fund revenues — “makes Washington particularly vulnerable to reductions in consumer spending and limits the prospects for quick revenue recovery.”
Fitch also noted the state’s “well-above average” debt levels, the fact tax revenues repeatedly have fallen short of projections, and the high political barriers to any tax increases.
The firm added, “The state has demonstrated its willingness and ability to take actions to maintain budget balance … although it seems likely that resolution will be delayed until late in the session.”
This isn’t the first time Washington’s budget problems have worried a ratings firm. In December 2009, Moody’s lowered its credit outlook from stable to negative, warning that using too many one-time budget fixes was reducing the state’s flexibility to respond to surprise revenue shortfalls. However, Moody’s never cut its actual rating, and after the Legislature rebalanced the budget it restored its outlook to stable.
“As recognized by the rating agencies, the Legislature has historically done an excellent job in making budgetary adjustments to meet revenue shortfalls,” state Treasurer Jim McIntire said in a statement. “We fully expect them to do the same now.”
Drew DeSilver: 206-464-3145 or email@example.com