Washington receives a second negative rating outlook

Fitch Ratings revised the rating outlook on the state of Washington to negative from stable Monday, joining Moody's Ratings, which took the same action on Wednesday.

The outlook revisions come ahead of the state's plans to issue $545.930 million various purpose general obligation refunding bonds, Series R-2026C and $240.315 million motor vehicle fuel tax and vehicle-related fees GO refunding bonds, Series R-2026D.

Moody's cited funding uncertainties and the legal challenge to the state's recently passed millionaire's tax ahead of the May 5 competitive bond sale. It affirmed its Aaa rating and assigned the same rating to an upcoming competitive deal.

Fitch assigned its AA-plus rating to the proposed bonds and affirmed the same rating for the state's outstanding GOs and the Washington School District Credit Enhancement Program.

The rating agency said the outlook revision "reflects weakening of financial resilience due to budgeted drawdowns from the state's Budget Stabilization Account in the current biennium and risks around the state's plan to restore reserves and structural balance."

The state's "broadened and growing economy and relatively low long-term liabilities," were cited in affirming the AA-plus rating.

Washington's economic performance beat the nation's gross domestic product growth, which Fitch said it expects to continue supporting strong revenue growth prospects. The state has complete independent control over taxation, with unlimited legal ability to raise operating revenue as needed, analysts noted.

The state also "possesses ample expenditure flexibility, with various statutory commitments including broad responsibility for education and infrastructure spending offset by low carrying costs. Washington also benefits from the broad expense-cutting authority common to most U.S. states. Washington's spending growth, absent policy actions, will likely be marginally above its pace of revenue growth, requiring regular budget management actions to ensure ongoing structural balance," Fitch analysts wrote.