Washington's credit outlook turns negative, while Montana and Idaho receive high praise

The hits keep coming for Washington state’s poor fiscal management. The latest comes in the form of the recent credit ratings. Washington’s consistent overspending, while draining down budget reserves to the lowest level of any state in the country as a percentage of spending, has resulted in the state’s credit outlook being downgraded from stable to negative.

At the same time, Idaho and Montana continue to receive high praise on credit reports for their fiscally conservative budget practices. Here are the most recent credit updates for the states from Moody’s, Fitch, and S&P.

Washington – Moody’s Outlook Negative: “The negative outlook reflects the increased likelihood that the state will rely on sizable one-time budget balancing measures over the next 12–18 months, continuing a trend of General Fund expenditures outpacing recurring revenues. The persistent operating imbalances and projected narrowing of budgetary reserves amid still solid economic and revenue conditions underscore the depth of the state’s structural budget challenges and reduce its financial flexibility to absorb unexpected revenue or expenditure shocks.”

Washington - Fitch Outlook Negative: “The Outlook revision to Negative from Stable reflects weakening of financial resilience due to budgeted drawdowns from the state's Budget Stabilization Account (BSA) in the current biennium and risks around the state's plan to restore reserves and structural balance.”

Washington – S&P Outlook Stable: “We could lower the rating if the state continues to experience structural pressures from expenditure growth or if it delays taking corrective actions in response to potential financial pressures that result in further use of available reserves, without a plan to replenish balances in a timely manner.”

Idaho – Moody’s Outlook Stable: “Idaho's Aaa issuer rating reflects its strong credit position supported by continued higher than average economic and demographic growth, healthy and stable finances, and low leverage and fixed cost . . . The stable outlook on the state's obligations and programmatic ratings reflects the expectation that the state's fundamental credit factors will remain strong and continue to support a Aaa issuer rating.”

Idaho – Fitch Outlook Stable: “Fitch Ratings believes the state is well positioned to absorb multiple rounds of recent tax cuts and dedicated spending allocations from the general fund, given Idaho's prudently managed budget with significant one-time spending that rolls off to create fiscal capacity.”

Idaho – S&P Outlook Stable: “History of adhering to structurally balanced fiscal operations, including midyear spending holdbacks when necessary, and conservative revenue forecasting, a function of strong management, in our opinion . . . the stable outlook reflects the state's strong management team will continue its commitment to balanced operations.”

Montana – Moody’s Outlook Stable: “The stable outlook reflects our expectation that the state's finances will remain robust, supported by prudent fiscal disciplines . . . Montana is well positioned to successfully counter fiscal stress from weaker macroeconomic conditions and federal policy shifts, given its strong reserves and prudent fiscal management.”

Montana – Fitch Outlook Stable: "Financial resilience is strong, with superior gap-closing capacity and solid established budgetary reserves. Multiple trust funds add to budgetary stability by supporting various spending needs. The state consistently budgets to maintain balance and has been willing to make deep spending cuts in the face of budgetary uncertainty.”

Over the last decade, the tax and spending priorities of Washington couldn’t be any different than those of Idaho and Montana. While the Gem and Treasure states have been prioritizing record tax relief and keeping spending in check, Washington has instead doubled its spending, facilitated by the largest tax increases in state history, including attempts to impose an unconstitutional income tax.

You don’t have to ask taxpayers twice which approach they prefer. They are already voting with their feet. Now we also know which budget approach leads to a stable or negative credit outlook.