Fitch warns Washington state over budget gap

Reuters News
Posted: Jan 27, 2012 7:33 PM
Fitch warns Washington state over budget gap

SAN FRANCISCO (Reuters) - On the heels of a warning on Friday by Fitch Ratings that it could lower its rating on Washington state's general obligation bonds, a top lawmaker said talks on balancing the state budget would gain momentum after a key forecast next month.

Fitch in a statement affirmed its 'AA+' rating on approximately $17.5 billion of the state's outstanding general obligation debt and revised its outlook on the bonds to negative from stable in part due to "challenges faced by the state in addressing a sizable budget gap that developed after the adoption of the current biennial budget."

"The state is operating in an environment of significantly constrained revenue raising and spending control flexibility," Fitch added.

House Majority Leader Pat Sullivan told Reuters that budget talks to close a budget shortfall of about $1 billion are "moving forward" and would speed up after a mid-February revenue forecast.

That outlook will help guide lawmakers on balancing the state's books before their session ends in March, he added: "We know there is no magic bullet that will solve our problem if we stay longer."

Fitch also expects action on the budget gap following the revenue forecast. The rating agency said in its statement that "it seems likely that resolution will be delayed until late in the session and after the revenue forecast update is released on February 16."

Governor Christine Gregoire urged lawmakers earlier this month to advance a measure to voters seeking approval for a temporary sales tax increase.

In her State of the State address, Gregoire urged increasing the state sales tax by a half-cent to raise new revenue to avoid deeper spending cuts to education, social services sand public safety programs.

A sales tax increase is one of a few ways for Washington state to raise revenue as it does not have an income tax.

Fitch noted that "The state, with no income tax, relies on consumption-based revenues. This makes Washington particularly vulnerable to reductions in consumer spending and limits the prospects for quick revenue recovery."

Lawmakers opened their session early this month after cutting $480 million in spending during a special session that adjourned last month.

(Reporting by Jim Christie; Editing by Gary Hill)