Washington state Capitol on March 7, 2024. (Jerry Cornfield/Washington State Standard)
A state revenue forecast released Wednesday shows collections will be nearly $500 million less than lawmakers counted on earlier this year, driven largely by a tumble in capital gains tax receipts and less consumer spending.
Washington’s economy is projected to generate $66.5 billion for the budget cycle that runs through June 30, 2025. That’s down $477 million from the February forecast lawmakers and Gov. Jay Inslee relied on to pay for new spending.
In the coming months, reserves may be needed to fill funding gaps until the Legislature and next governor craft spending plans in the 2025 session.
“This will require no drastic changes,” said David Schumacher, director of the Office of Financial Management and Inslee’s budget director. It’s a “modest amount” and there’s $2.4 billion in reserves, he noted.
Sen. June Robinson, D-Everett, chair of the Senate Ways and Means Committee, echoed the message.
“For the very short term we are okay,” she said.
Capital gains tax payments are down $324 million from what was anticipated in February. Less retail spending led to a $224 million dip in projected sales tax collections, David Reich, Washington’s chief economist, told the Economic and Revenue Forecast Council. On the plus side, he said payments from estate taxes and real estate transactions came in higher than expected.
Though the latest forecast contains one of the larger recent dips in revenue, Schumacher and legislative budget writers, who are members of the council, aren’t fretting quite yet.
Washington operates on two-year budget cycles. Wednesday’s report comes at the midpoint of the current biennium, with a new fiscal year set to start July 1.
Inslee will propose a budget for the 2025-27 biennium in December. Two more forecasts will be issued before then. Another forecast will be out next March to guide the spending plans written in the House and Senate.
“Is this a blip down? Is this a downward trend?” said Rep. Ed Orcutt, R-Kalama. It will become clearer with each of those forecasts, he said.
But there is another concern. Washington lawmakers must write budgets that balance over two bienniums. Reich’s forecast shows revenues will be down a total of $666 million between the current budget and the next.
“A drop of $666 million does put us negative at the end of the 2027 biennium,” Orcutt said.
Voters could further complicate the budget picture in November when they consider a ballot measure to erase the capital gains tax. Wednesday’s forecast assumes that won’t happen.
“Toward the end of the year we’re going to know if the budget will be affected even more if the initiative passes,” said Sen. Lynda Wilson, R-Vancouver, the lead Republican on the Senate budget-writing committee.
Timm Ormsby, D-Spokane, the top House budget writer, said Democrats are waiting to see what the economy and the voters deliver.
“At this point, we’re not committing resources to anything other than what our current obligations are and let the dust settle where it will,” he said.
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