(Alan Schein Photograph via Getty Images)
Washington lawmakers have been waiting on a new set of state revenue estimates as they put the final touches on budget proposals expected next week.
Those figures arrived Tuesday and further dimmed the financial outlook at a time when the state is already facing an operating budget shortfall estimated to be as much as $15 billion over the next four years.
The latest forecast shows that money flowing into the state’s operating budget during that time is expected to be nearly $900 million lower than projections released in November.
Revenues for the remainder of this budget cycle show a modest, $54.4 million increase from the November figures. When taking this into account, revenue is down $845 million through 2029.
In the next two-year budget starting July 1, the forecast shows an expected drop of $479 million, to a total under $71 billion. The 2027-2029 biennium would see a $420 million reduction based on the latest forecast, with revenue totaling $76.4 billion.
‘Makes it that much more difficult’
Tuesday’s news didn’t surprise budget writers in the Legislature’s Democratic majority, who continued to signal they’re looking at combining tax increases with spending reductions.
Senate Ways and Means Chair June Robinson, D-Everett, described the projected revenue decline as “modest” and in line with what lawmakers expected.
“While it doesn’t change the broader fiscal challenges we face, it reinforces the need for a balanced and sustainable approach as we finalize the 2025-27 operating budget,” Robinson added in a statement.
Rep. Timm Ormsby, D-Spokane, said “it just makes it that much more difficult for us.”
Democrats in the state House and Senate will now work to fine-tune their operating budget proposals before releasing them Monday. Ormsby, the chair of the House Appropriations Committee, expects “plenty” of work will still be needed.
“It was a challenge thus far, it will continue to be a challenge,” he said.
The Senate Republicans’ budget leader said after the forecast that lawmakers should “take heed and show restraint going forward, especially with the uncertainty about actions at the federal level that could affect our situation.”
“The smart approach is to avoid new and higher taxes, limit new spending to core priorities like K-12 and public safety, preserve social services, and protect the rainy-day fund,” Sen. Chris Gildon, R-Puyallup, said in a statement.
Democrats have floated tapping state reserves to help address the shortfall. House Speaker Laurie Jinkins, D-Tacoma, told reporters Tuesday the rainy-day fund has that name for a reason.
“It’s raining,” she said, adding that “there is nothing off the table” at this stage with the budget.
Turbulent time for state revenue
Washington’s chief economist, Dave Reich, explained the state’s revenue collections have yet to fully “normalize” since the pandemic. “Slow revenue growth is still with us,” he said.
He blamed a range of factors. For instance, people purchased more goods during the pandemic, boosting sales tax collections. That spending has since declined. Higher interest rates in more recent years caused people to put off major purchases, like cars.
Looking ahead, Reich said as financial pressure causes the state to operate with lower budget balances, it can expect to see decreased interest earnings from its accounts.
Collections from sales tax as well as business and occupation taxes are expected to drop by a combined total of more than $450 million in the next two-year budget cycle compared to the November forecast. Stronger returns on capital gains and estate taxes will offset that drop a bit.
Reich also considered tariffs the Trump administration has imposed, but figuring out the exact impacts on Washington’s budget is difficult.
State law requires the budget, which lawmakers will look to pass next month, to be balanced over four years. Washington’s nonpartisan Economic and Revenue Forecast Council issues forecasts that help guide the budgeting process for the Legislature and the governor.
The state’s multibillion-dollar shortfall has loomed for months. Signs of trouble emerged last June, when lagging capital gains receipts and decreased consumer spending drove a $500 million drop from projections for the current budget cycle.
Since then, good news has been hard to come by.
In response, Gov. Bob Ferguson has searched for cuts in state agencies. He’s so far publicly identified $7 billion in savings, and vowed last month to look for more. His plan calls for a one-day-per-month furlough for state workers that has drawn staunch pushback from public sector labor unions.
Ferguson has not yet voiced support for any tax increases, even as Democratic legislators have raised the possibility of new taxes on large companies and wealthy individuals.
Democratic leadership in the Legislature met with the governor Monday and said they discussed the budget situation extensively. They expect to meet with him more often in the coming weeks.