Fiscal fallout: $375 million bond debt indirectly funding operating budget

Shifting $375 million from a loan fund impacts local infrastructure as Washington state covers operating costs with bond debt, prompting concern among officials and advocacy groups.

For decades, the Public Works Board’s Public Works Assistance Account has been repeatedly raided by the Legislature to cover operating expenditures

TJ Martinell
The Center Square Washington

Editor’s Note

This is part of an ongoing series examining increases in Washington state spending over several years and determining what taxpayers’ money is being used for by state elected officials.

Washington state is indirectly using bond debt to cover its operating budget despite record revenue and the largest tax increase in the state’s history, according to an analysis of state fiscal data by The Center Square.

For decades, the Public Works Board’s Public Works Assistance Account has been repeatedly raided by the Legislature to cover operating expenditures. This biennium represents not only a dramatic increase in the amount taken, but has reached the point where the account is unable to cover its funding obligations without the use of bond debt.

Between 1985 and 2017, the Legislature diverted $2.2 billion from the account, which funds a low-interest revolving loan program for local governments to pay for infrastructure projects such as roads and bridges and water and sewer facilities.

In the latest supplemental operating budget signed into law, $375 million will be diverted from the account to the general fund.

However, according to the Association of Washington Cities, the combined diversions from that account within all budgets for the biennium will be more than $800 million. Only a portion of that will be covered by the $389 million in bonding authority from the Legislature.

The result: the state will be borrowing money at a higher interest rate than what’s offered by the PWWA-funded loan program it’s backfilling.

PWB Vice Chair Gary Rowe hopes the practice is a stop-gap measure.

“We hope it’s temporary,” he told The Center Square in a phone interview when asked about the ongoing account raids. “We won’t have any more money. We just don’t have the resources. This current transfer depleted all the money that we have in the account.”

While the PWB hasn’t taken a position on the use of bond debt to cover funds diverted to the operating budget, Rowe said “if they (the Legislature) provide us with bonds, we’ll spend those bond dollars.”

Jim Rioux, Washington state chapter president for the American Public Works Association, told The Center Square in a phone interview that organizations like theirs “feel like we held our own” in advocating for the PWAA this year.

However, he expressed frustration with the perceived need by advocates to defend the loan program every session against yet another fund raid.

“In general there’s just been really I would say very high level disappointment that year after year,” he said.

The PWAA is funded, in part, by a portion of local governments’ real estate excise tax and to then have that money used for other purposes than intended “kind of feels like a slap in the face that’s hard to take,” he said. “We’re trying to remind the Legislature that there was a very specific purpose for establishing this fund.”

The PWAA raids have been a source of ongoing opposition from local government organizations such as the AWC.

Government Relations Advocate Steven Ellis told The Center Square due to the account raids, “the ability to make awards moving forward is affected.”

“We recognize that…our lawmakers did have to make difficult decisions,” he said. “It’s unfortunate that these diversions are deemed necessary because it is really important that we have a robust infrastructure program.

“Continuing to make diversions has the possible impact of weakening the account in terms of predictability and sustainability going forward, so we’ve spoken out,” he added. “We want the account protected but at the same time we have to live in reality.”

The frustration is shared by Washington State Association of Counties Executive Director Derek Young, who told The Center Square that the lack of funding has been a chronic problem.

“I’ve been around local government for three decades now, and it’s been fully funded fewer times than not,” he said. “That’s obviously not ideal.”

Like with PWB, WSAC has no position on the use of bond debt to backfill funds diverted to the operating budget. However, Young said members of the organization are concerned.

“I think philosophically a lot of our members would have a problem with that,” he said. “It’s worth wondering if that is a smart way to do business.”

Although most of the funding is directed at cities and special purpose districts, Young said “obviously those projects are still important to our members but it doesn’t impact our operations quite as much.

“It is meaningful,” he added. “Those loans basically guarantees that jurisdictions that could not get nearly that favorable (interest) rates on their own was able to achieve them. It’s sad, because it’s such a great program.”

“We continue to be supportive of the program, but at some time you have to wonder ‘Is this going to be viable in the future?’” he added.

Despite the raids, Rioux remains optimistic the loan program will continue, though not it might be on “life support” for a while.

“I don’t think the program is going to evaporate,” he said.” Even though there’s less out there’s, there is still fair amount of money that’s still being distributed to communities across the state.”

This report was first published by The Center Square Washington.

Under the Grok Lens

Analysis created with Grok

This independent analysis was created with Grok, an AI model from xAI. It is not written or edited by ClarkCountyToday.com and is provided to help readers evaluate the article’s sourcing and context.

Quick summary

Washington state is diverting more than $800 million from the Public Works Assistance Account during the current biennium, including $375 million in the supplemental operating budget, to help cover general fund spending. According to the article, that has left the account dependent on higher-interest bond debt to backfill loan capacity, raising concerns about the long-term strength of a program designed to offer low-interest infrastructure loans to local governments.

What Grok notices

Explains that the state is using a dedicated infrastructure funding source to help solve operating budget problems, rather than preserving the account exclusively for local public works loans.
Highlights the financial tradeoff that replacing revolving-loan dollars with bond debt can increase borrowing costs and weaken one of the account’s main advantages: low-interest financing.
Shows that local government groups acknowledge the state’s budget pressures while still arguing that repeated diversions undermine the purpose and predictability of the account.
Places the current action in a longer pattern of transfers, suggesting the concern is not an isolated budget decision but a recurring fiscal practice.
Suggests the scale of recent diversions may change how cities, counties, and other local entities view the reliability of the Public Works Assistance Account going forward.

Questions worth asking

How might repeated diversions from the Public Works Assistance Account affect long-term infrastructure planning by cities, counties, and special districts?
What additional costs result from replacing revolving-loan funding with higher-interest bond debt, and who ultimately absorbs those costs?
What alternatives could lawmakers consider to address operating budget shortfalls without relying on dedicated infrastructure accounts?
How do other states protect revolving infrastructure funds during periods of fiscal stress or budget imbalance?
What policy or statutory reforms could make the Public Works Assistance Account more stable and predictable over time?