The Washington state legislature convenes on January 8, led by a strong Democratic majority in both houses. Here's what the Democrats should do in the first 100 seconds of the new session: Pass the "Rainy Day" fund bill.
An effective Rainy Day fund makes good political and economic sense—and might even save the state $10 million a year.
For years and years, a bipartisan effort has been underway to establish a serious, constitutionally protected, Rainy Day fund that would require the state government to set aside a modest amount of tax revenue in good years—like this one—to be spent during economic downturns. Having a Rainy Day fund is common-sense economics. Right now, it's also particularly good politics.
The notion always draws bipartisan support. Last year, Democrats Mark Doumit from Cathlamet, Tim Sheldon from Mason County, Marilyn Rasmussen from Eatonville, and Rosa Franklin from Tacoma all pitched in. However, last year the Democratic leadership did not sign on. Historically, it's mostly been Republicans who've pushed for the fund.
In fact, it's been a topic dear to the Republican legislative leadership all the way back to former Senate Majority leader Dan MacDonald. The most recent effort was a carefully crafted bill presented by Cowlitz County's Senator Joe Zarelli.
Washington Democrats are pretty much in a position to do whatever they want this session. If they want to stay in power in future sessions, they'll need to persuade the electorate they are the party of good government.
Good government means getting things done. It also means being fiscally responsible. Nothing, absolutely nothing, would send the message of fiscal responsibility more clearly than making the legislative session's first order of business to put some of the state's anticipated surplus into a Rainy Day fund.
What's more, there's a right way to go about doing this: Reach across the aisle to the Republican leadership. On that first day of the session, the Democratic leadership should invite Sen. Zarelli to re-introduce his Rainy Day fund bill and then pass it unanimously.
Be gracious in victory. Voters like that.
The operation of a Rainy Day fund is straightforward. Each good year we'll set aside 1 percent of general tax revenue. In an economic downturn, the money can be spent by majority vote of the legislature. When the balance in the fund tops 10 percent of the budget, the excess would become available for current spending. Importantly, this gets enshrined in the state constitution so that it's not easy to monkey with.
The economics of a Rainy Day fund are also straightforward. During good times we should make a modest provision for the lean years.
There might be a small—if you call $10 million a year small—extra bonus from establishing such a fund. Just like you and me, the state government has a credit rating.
Washington bonds are typically rated AA. That's a very good rating, but it's not the absolute best. Among the things standing between us and an AAA rating is the missing Rainy Day fund—lots of other states have one.
I've done some back-of-the-envelope calculations on what a higher credit rating might be worth. Just like with a home mortgage, the better the state's credit the lower the interest rate it pays to borrow money.
A higher rating would lower our costs by about a tenth of a percentage point, what bond dealers call "10 basis points." Doesn't sound like a lot until you realize that the state has about $10 billion in bonds outstanding..[please see comment] So even this small improvement in our borrowing rate would save $10 million a year.
Establish a Rainy Day fund on Day One. Do it to save $10 million. Even better, do it because providing a cushion for hard times is the right thing to do.