Moody’s, one of the nation’s top three credit rating agencies, has threatened to downgrade Washington state’s bond rating if its spending practices don’t improve.
After years of reckless spending, Gov. Bob Ferguson and Democratic lawmakers have just one year to prove they can bring the state’s finances back under control—or face the consequences of a downgrade that could cost taxpayers dearly.
DEVELOPING: Moody’s, one of the big three credit rating agencies, has put Washington state on notice that its bond rating is at risk
After years of reckless spending, Gov. Bob Ferguson and Washington Democrats have a year to show the agency they can begin to live within their…
— Ari Hoffman (@thehoffather) April 23, 2026
The warning comes as Washington earns a dubious distinction: dead last in the nation for financial reserves. Lawmakers have consistently spent beyond the state’s tax revenues, draining the rainy-day fund and leaving the state with the weakest fiscal cushion in the country.
According to The Seattle Times, on Wednesday, Moody’s issued a negative outlook for Washington, signaling that a downgrade could be imminent unless significant changes are made. Such a move would drive up borrowing costs for infrastructure and other public projects, costs that ultimately fall on taxpayers.
Since 2024, the Democratic majority in the Legislature has continued to grow, spending even as revenues increased, relying on one-time budget maneuvers to paper over the gap. Those tactics include drawing down reserves meant for economic downturns or emergencies.
Today, Washington’s reserves sit at just 8.4 percent of tax revenues, the lowest in the nation. According to the state treasurer’s office, that figure is projected to collapse to a mere 1.4 percent by 2028 if current trends continue.
Moody’s pointed to three primary concerns: the state’s reliance on one-time budget solutions, rapidly shrinking reserves, and ongoing legal challenges to new revenue sources intended to stabilize the budget.
If the state fails to reverse course, the financial consequences could be significant. A downgrade would likely add roughly $250 million in borrowing costs over the next four years. That impact would ripple beyond state government, affecting local entities like school districts that depend on Washington’s credit rating to finance their own projects.
With reserves nearly depleted, the state is no longer earning interest on funds that once helped support public programs. The treasurer’s office estimates that the loss is approximately $80 million per year.
The fiscal warning comes amid broader economic uncertainty. Earlier this year, Moody’s identified Washington as one of 22 states either in or nearing a recession, with some analysts warning that 2026 could bring a tougher job market.
