Washington state’s continuing fiscal stability earned it affirmation of its AAA rating and stable outlook from Moody’s Investors Service ahead of plans to sell $743.5 million in general obligation bonds competitively to fund a variety of projects.
S&P Global Ratings and Fitch Ratings also affirmed AA-plus ratings with stable outlooks.
The state’s tax revenues increased by $2.8 billion in fiscal 2021 from fiscal 2020, reflecting continuing strength in property values and real estate sales, according to its latest annual comprehensive financial report. It saw growth in every revenue category: sales and use tax gained $1.51 billion, business and occupation tax rose $666.6 million and property tax revenue increased $225.1 million.
“We are optimistic about the upcoming competitive sale based on our strong credit ratings and the interest rate environment,” State Treasurer Mike Pellicciotti said.
The bonds will be sold in three tranches Feb. 8 beginning at 7:30 a.m. Pacific Standard Time. The first offering will be $200.6 million with maturities from 2023 to 2032, the second $277.4 million maturing from 2033 to 2041 and the third $265.5 million maturing from 2042 to 2047.
The sale and delivery of each bidding group is contingent on the sale and delivery of the other tranches.
Montague DeRose and Associates LLC and Piper Sandler are co-municipal advisors and Foster Garvey is bond counsel.
The biggest beneficiary of the proceeds, roughly $200 million, will be K-12 projects, with a list of projects for universities and health administration buildings also to be funded by the bonds, said Jason Richter, deputy treasurer for debt management.
Washington last sold $266.38 million of GOs on Nov. 2 in the competitive market. The 10-year with a 5% coupon was bought at 1.25%, or +9 basis points to the Bloomberg BVAL triple-A curve and the long bond on the deal, 4s of 2042, yielded 1.77%, +25 to BVAL.
Block trading of Washington GOs show similar spreads. Washington 5s of 2031 at 1.55% (+9 BVAL) on Wednesday versus 1.60% on Tuesday. Washington 4s of 2035 at 1.82%-1.81% (+30,+29). It originally yielded 1.51% (+32)
The state has experienced a shift in fortunes with Amazon wresting the title of the state’s largest employer from Boeing. The airplane manufacturer fell to third place behind Microsoft. Amazon’s fortunes bloomed as people sheltered in during the pandemic and online sales grew, while Boeing has shifted some of its manufacturing out of state over the past few years.
“It is a relatively new development,” Pellicciotti said. “Amazon has been adding staff and Boeing did move some production east.”
Much of the state’s economic activity is dominated by international trade, manufacturing, computer technology, biotechnology and business services, according to offering documents. Google and Facebook also rank among the state’s 25 largest employers.
The state’s governmental funds reported a combined ending balance of $24.5 billion for the fiscal year ended June 30, 2021, an increase of 21.7% compared with the prior year, according to its annual comprehensive financial report.
The state’s total bond debt increased by $998 million to $20.5 billion, according to its most recent ACFR, yet Moody’s said the state, which has historically carried high debt levels compared to the 50-state median has decline relative to other states.
“Washington's economy has seen really strong growth, so that has helped improve our ranking compared to the median,” Richter said. “The issuance of transportation debt in recent years has slowed. Unlike other states that debt is supported by a motor vehicle tax and fees, not the general fund, but it still gets lumped in with state debt.”
