The good news: Washington isn't facing imminent insolvency or the loss of its sterling credit rating.

Less good? Recent negative assessments by two top credit rating agencies highlight major fiscal hurdles for the state over the next few years.

On April 23, Moody's revised the state's financial outlook from stable" to "negative", and Fitch Ratings followed a day later.

Both agencies criticized the state for spending down financial reserves, which are currently under 6% of general fund revenues, the lowest in the nation.

Moody's called out state lawmakers for relying on "one-time budget-balancing solutions," such as tapping rainy day funds to address budget gaps.

The revisions don't change Washington's sterling credit rating, which means the state can borrow at relatively low interest rates.

But the negative moves put Washington on notice that it risks an actual credit rating downgrade over the next 12 to 18 months.

That's all more worrisome given concerns about future revenue, possible cuts in federal funding and huge uncertainties about the state's new "millionaires'" tax.

"It's a 'check engine light'," said state Treasurer Mike Pellicciotti, of the rating agencies' actions.

The outlook downgrades are "a clear warning to the legislature" that the next legislative session must prioritize "shoring up reserves and making sure there's a structurally balanced budget at least [by] fiscal year 2028," Pellicciotti added.

Failure to make that deadline could be expensive.

A downgrade of Washington's credit rating, which it has had for around six years, would likely add another 0.1% in interest on the bonds the state sells to raise money for projects and other needs, according to treasurer's office estimates.

That would translate into another $60 a million a year in state financing costs, Pellicciotti said.

Further, because the state guarantees local school district bonds, districts costs for bonds would rise by an estimated $30 million a year statewide, he said.

For individual districts, those higher borrowing costs mean they would have to pare back construction projects, especially for smaller, poorer districts.

The state expects to forgo around $60 million a year in interest it would earning on state reserves if they weren't so depleted, he said.

Democratic state lawmakers, who control the state budget process, say they're more than aware of Pellicciotti's check-engine light.

Concerns over depleted reserves and budget imbalances were a big reason lawmakers backed the state's new income tax less than a year before a statewide election, said Senate Majority Leader Jamie Pedersen, D-Seattle.

"I don't know how much appreciation there is for how unusual it is for the legislature to take a big tax vote in an election year," Pedersen said.

Both rating agencies were bullish on Washington's prospects for restoring its reserves. The state's economy is solid relative to the U.S. as a whole, and "will continue to benefit from its position as a premier tech hub and leader in AI," Moody's noted.

Yet despite strong tax revenue growth and a "sound overall governmental reserve and liquidity," Moody added, concerns that the state will continue to spend down its reserves will hurt its credit position relative to the 17 other AAA-rated states, Moody's notes.

Over the next 12 to 18 months, Pellicciotti said the rating agencies will want to see that Washington is on track to replenishing its reserves before fiscal year 2029, which begins in mid 2028.

That's putting still more pressure on lawmakers for next year's legislative session.

It has also further raised the stakes around the new "millionaires' tax" of 9.9% on household earnings over $1 million annually. The tax, which Democrats promoted as a way to address long-term budget imbalances, faces major legal hurdles.

Those challenges to the law mean it can't yet be factored into future budgets, says Sen. Pedersen.

"So all of that will go into what the next legislature decides it wants to do" next session, he said.

Pellicciotti agrees that state lawmakers "took significant steps" in the recent session fix "the long-term structural imbalance of the budget."

"But I think what you're hearing from Moody's is (the budget) is structurally imbalanced between now and 2029, during what could be a very volatile period, economically and otherwise, (when) the reserve levels are just are just too low to sustain a AAA status for Washington State," he said.

"That's why it needs to be addressed," he added. "But Moody's is giving time to address that.

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