PORT HADLOCK — If there’s one thing that keeps state Treasurer Duane Davidson up at night, it’s Washington’s Rainy Day Fund.
Davidson, a Republican, spoke about the state debt, a funding directory to help local governments seek grants and amending federal law to allow state banks to finance the cannabis industry, at the Old Alcohol Plant on Thursday.
He answered a question from an East Jefferson Rotary Club member about his biggest fear.
“Our Rainy Day Fund doesn’t have an adequate balance right now because the state Legislature keeps raiding it,” Davidson told about 30 people.
“I keep telling them they need to adopt an Eastern Washington mentality for the Rainy Day Fund. The fact that it rains here doesn’t mean they need to keep spending it.”
Davidson, 60, served four terms as the Benton County treasurer in the Tri-Cities. He said an appropriate Rainy Day Fund amount would be up to two months of the state’s operational cash.
While a chart on the state treasurer’s website showed a balance of $1.62 billion at the end of the 2019 fiscal year — more than three times the balance in 2015 and 2016 — Davidson said Gov. Jay Inslee recently submitted a $54 billion budget proposal with $3 million in reserves.
“That’s gas fumes at the end of the biennium,” he said.
He cautioned the lack of savings, saying it was the Rainy Day Fund that pulled the state through the Great Recession in 2007-08.
“I don’t know when the next recession is coming, but it’s coming,” Davidson said. “Recessions are like earthquakes. The longer between them, the greater the magnitude they are.”
Davidson, who was elected statewide in 2016, also shared concerns about the state’s debt ranking sixth in the nation.
“Debt’s been very, very cheap for a long time, and rates just took another big drop,” he said. “We just sold bonds [Wednesday] at rates I know were the cheapest rates we’ve got since the 1950s.
“The trouble is, that makes legislators that much more willing to borrow at times when they’re willing to take on projects.”
Some of the debt can be attributed to the complexity of projects that are somewhat unique to the Northwest, Davidson said.
“It costs a lot of money to dig tunnels under major cities and make bridges float,” he said.
One of the projects he’s proud of is the Local Program, available for local government jurisdictions from cities and counties to schools and fire districts.
“We put out the call for any capitalization financing they need, and they put those offers in to us,” Davidson said.
Since many of the smaller agencies don’t have a financing rating, the state can bundle the requests together, go to the capital market and return a more favorable rate, he added.
Moody’s, a credit rating service, recently awarded Washington a AAA rating for the first time in state history, Davidson said.
“We got a 2.8 percent rate last time, and we dispersed that to all of them,” he said. “The best part is, it doesn’t increase the state debt. The debt stays where it should, with local governments, because they’re the ones borrowing it.”
Davidson also said he’s been lobbying the federal government on banking reform as it applies to the legal marijuana industry.
Since marijuana is still a violation of federal law, banks won’t handle transactions in states where it’s legal, he said.
“The industry is still largely under the table in terms of cash going back and forth,” Davidson said.
A change at the federal level would allow a higher level of transparency, he added.
Davidson’s office reported Washington collected $367.4 million in legal marijuana income and license fees in fiscal year 2018, and all but $5.4 million came from the state’s marijuana sales tax.
The report shows marijuana revenues were $157 million more than liquor and that the marijuana sales tax income grew by almost $50 million from 2017.
Jefferson County Managing Editor Brian McLean can be reached at 360-385-2335, ext. 6, or at [email protected].