Washington state Treasurer Jim McIntire reported the refinancing of $228.1 million in state debt obligations last week, which his office says will result in $8.3 million in savings over two years and $31.4 million longer term. But the Democrat and economist said in an interview late last week that he won’t have to take the state back to the financial markets this year.
McIntire also said he expects the U.S. to avoid a debt default, but also said he thinks the impact will be immediate if Congress fails to strike a deal to fund the government and raise the debt limit at or near the deadline of Oct. 17. He said a default on U.S. debts could come quickly and would jack up lending rates for U.S. debt.
“In that case the impacts will be significant, severe and dramatic – and immediate,’’ McIntire said. “It affects the global market’s confidence in our willingness to pay our debts. And you’d see probably an immediate downgrading of U.S. treasuries. It would affect our standing as the global anchor currency which could destabilize global markets all across the board. “
Already, the federal government shutdown that began Oct. 1 has slowed operations at a few state agencies that depend on federal dollars, and agencies like Early Learning are expecting to notify 24,000 low-income families later this week that Working Connections Child Care subsidies will run out at the end of the month if the shutdown continues.
McIntire says most agencies won’t see fund cutoffs, and he’s more worried by a default, which would be disastrous, according this Monday story from the Washington Post.
The threat of a default has been hanging over national financial markets for days, but McIntire said Washington’s latest bond sale went better than planned last week. The refinancing was for general and transportation debts dating to 2003-04, and a Treasurer’s Office news release last week said interest rates were 1.37 percent for $120.2 million in various purpose bonds and 1.43 percent for another $107.9 million in motor-vehicle fuel tax backed transportation bonds.
“We have a policy that we don’t finance unless there is savings of at least 5 percent. Savings in this case is over 12 percent’’ on interest rates, McIntire said. “We were anticipating rates a little higher. We think these rates came in about 20 to 30 basis points lower than we expected. Part of it was the ebullience of the markets that there might be some sort of resolution of the budget or extension of the debt limit.’’
McIntire added a jab at the federal government held hostage by the U.S. House Republicans’ decision to hold budget and debt limit hostage while demanding changes to Obamacare: “It’s not hard to look good standing next to a pig. We look pretty good anyway.’’
McIntire said he does not think Congress wil go over the debt cliff, however.
“My sense is there are enough people in the House Republican caucus that get this’’ risk, McIntire said. “It’s always a risk that somebody pushes it to that point and they are not able to pull it together. … If it happens it will be very short and brutal.’’
If you’re wondering what’ll happen to Washington bond sales in the offing, it turns out McIntire doesn’t have any lined up and his staffers moved to do its latest refinance ahead of any default.
“We have no plans to be back in the market until next year,’’ McIntire said. “We saw the opportunity. We definitely wanted to get into the market before the Oct. 17 date.’‘
The interest rate environment since the Great Recession began has been favorable for state refinancing of debt. McIntire’s press release said his “debt management team has reduced debt service costs by $1.7 billion on a present value basis since 2009.’’