Housing bond proposal would be outside Washington’s state debt limit

A referendum that would ask Washington voters to approve $4 billion in bonds for housing will be on the agenda when state lawmakers convene Tuesday.

Gov. Jay Inslee, a Democrat, included the bond referendum — which would allow bonds to be issued outside the state’s constitutional debt limit— in the budget proposal he released in December.

The state can exceed the constitutional debt limit if voters approve the bond sale, but the referendum needs approval from lawmakers to appear on the ballot.

Inslee described the housing bond as “front-loading funding so we can build more faster over the next six years.”

He says the underlying capital budget will fund 2,200 housing units in 2023-25. The $4 billion referendum would add 5,300 additional units during that time, and 19,000 over the next six years.

“Unfortunately, we no longer have the influx of federal funding we are using today to quickly build thousands of new supportive housing units for people experiencing homelessness,” Inslee said. “I don’t want to lose momentum, and I don’t want the problem to get worse because we aren’t moving fast enough.”

Washington state’s 2022 Point in Time Count indicates nearly 13,000 people are living unsheltered throughout Washington state, up from 10,506 in 2020.

Lawmakers on both sides of the aisle have indicated that dealing with the state’s housing crisis is paramount, but whether Republicans will support a referendum to exceed the state’s debt limit is another matter.

Sen. Lynda Wilson, R-Vancouver^{, called the proposal a “one-dimensional response” to a problem that requires a multiplicity of solutions.}

“The trouble is, over the past decade or so, many billions of state and local dollars have been poured into addressing homelessness here,” said Wilson, the Republican leader on the Senate Ways and Means Committee, which considers the operating and capital budget bills and related legislation, including the authorization of state debt. “And yet the homeless population has grown in our state during that time, at about 20 times the national rate, while homelessness has decreased in most states.”

Wilson added that she is skeptical of the governor’s proposal because there is no reason to believe another $4 billion, whether it’s from bonds or not, will somehow produce a better outcome without accompanying changes in growth-management and drug-possession laws, and fewer building-code changes that make new housing construction more expensive.

“And then you get to the part about taking on more debt than Washington’s constitution allows, at a time when the state’s chief economist says a recession could be on the horizon,” Wilson said. “Republicans and Democrats can agree there is a shortage of both affordable housing and homes that first-time buyers can afford, but a debt-financing referendum is a one-dimensional response when we really need an ‘all of the above.'”

The Washington State Economic and Revenue Forecast Council quarterly report released in November calls for three quarters of slightly negative growth in the U.S. economy starting in the fourth quarter of 2022

“Due to the high degree of uncertainty regarding the extent to which the COVID-19 pandemic will continue, and the possibility of a recession, the uncertainty in the baseline forecast is elevated,” the state’s economists wrote.

The Washington economy “continues to expand, but inflation remains high and housing has weakened,” the state’s economists wrote.

The revenue forecast indicated that taxable activity was much stronger than expected, with tracked collections coming in well above the forecast.

“While the forecast had expected year-over-year growth in collections of Revenue Act taxes, the largest category of general revenue that includes sale and business taxes, to slow, growth instead increased,” according to the state’s economists. “While the November forecast still expects a slowdown in the growth of taxable activity, the slowdown is now expected to begin later and start from a higher level.”

Forecasted revenue for funds subject to the budget outlook process increased by $761.5 million for the 2021-23 biennium, and by $681.3 million for the 2023-25 biennium.

The governor’s budget includes $70 billion in spending for the 2023-25 biennium and the capital projects budget is likely to be $4 billion, which is consistent with the $3.9 billion included in the 2021-23 budget, said Jason Richter, Washington’s deputy treasurer for debt management.

“This housing debt proposal is additive,” Richter said. “It’s in addition to the regular occurring capital budget.”

More than half of the capital budget has been used for education or school construction for K-12 and higher education, so there is limited room in the capital budget to do anything else, Richter said.

“We are still evaluating the proposal,” said Aaron Sherman, communications director for State Treasurer Mike Pellicciotti. “We need to have a more comprehensive look before we can provide advice to the Legislature.”

He added the governor’s budget proposal is the starting point, and he expects there will be negotiations on all aspects of the budget during the 105-day session that begins Tuesday.

Washington’s constitutional debt limit caps debt service at not more than 8.25% of the six-year average of general state revenues.

The state is not that close to reaching its debt limit, according to the debt limit certification report issued by the State Treasurer’s Office on Dec. 12.

It says the state has more than $600 million in unused annual debt service capacity, which translates into
$9.1 billion of debt capacity.

In order to authorize debt outside that limit, more than 60% of voters have to approve the referendum, Richter said.

Normally, according to the state treasurer’s office, new money state general obligation debt must be authorized in one of two ways: through a 60% majority in both the State House and Senate, which doesn’t require voter approval; or by a simple majority of both the legislature and by voters at a general or special election.

But new money debt issued that exceeds the debt limit would also have to be approved by voters as codified in the state constitution, according to Richter.

Inslee’s fellow Democrats have solid control over both houses in Olympia, but it doesn’t exceed 60%.

Much of the state’s transportation debt isn’t included in the state debt limit, because it’s paid for with motor vehicle fees and tolls.

The debt limit doesn’t impact paying down existing debt, so if revenues decline that debt still gets paid, but it does put a limit on new money issuance, he said.

If lawmakers approve the governor’s proposal for a $4 billion housing bond, it will go before voters in November.

In addition to the emphasis on housing, homelessness and behavioral health, Inslee also highlighted plans for climate, salmon recovery, education, public safety and state workforce as priorities.