This Washington

State Reaches Debt Limit Compromise

By Josh Feit May 24, 2011

The state legislature cleared the final hurdle toward wrapping up business in the special session today by reaching a compromise on the debt limit.

The state house and senate seemed to be in an intractable standoff over the capital budget this session: The senate passed a bill mandating a lower debt limit on capital bonding—7 percent of revenues, down from 9 percent. (The limit is spelled out in the constitution and would have required a vote of the people.)

The fiscally conservative senate complained that debt payments, currently at at 6.1 percent of the operating budget at $2 billion this biennium, were jeopardizing spending on education, health care, and other basics. The Krugman-y house argued that limiting capital spending would exacerbate the recession by drying up spending on job-heavy construction projects.

State Sen. Derek Kilmer (D-26, Gig Harbor), the lead advocate for the debt limit, announced a compromise today: A 7.75 percent  "working limit" as opposed to 7 percent  on the constitutional limit.

Insisting the compromise still had "teeth" even though a constitutional rule "is harder to change and has a greater sense of certainty," Kilmer explained that the working limit is the gentleman's agreement that governs bonding; the compromise would empower the the governor, the lieutenant governor, and the treasurer to balk at any legislative budget that goes beyond the working limit.

Capital budget chair Rep. Hans Dunshee (D-44, Lake Stevens), who was dead-set against the original bill, called the compromise "a victory for jobs," highlighting the fact that the senate had originally pledged not to pass the capital budget if he didn't agree to the nine percent constitutional limit. With the lower working limit deal, he says, the legislature won't be "stuck," adding that the non-constitutional limit "is easier to change if we find we're shifting costs to local school districts." "[pullquote]I'm mystified by that," Dunshee says.[/pullquote]

Dunshee is referring to the notion that the capital budget uses its bonding capacity to build schools rather than making local governments do it. Throughout the debate this session, Dunshee has argued that without the flexibility to spend on general obligation bonds, the state would have resorted to riskier bonds that would have ended up costing more and, ironically, would have forced them to pass the spending off to local districts.

Dunshee scoffed at another aspect of the compromise, though. The senate agreed to waive the limit in "dire economic" times like a major recession. "I'm mystified by that," Dunshee says. "Here we are in the middle of a recession right now and they're calling for the lower limit."

Another element of the deal—the balm of every compromise: The dueling sides agreed to set up a blue ribbon commission to come back next year with recommendations to further resolve the issue.
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