Washington state officials are projecting a budget shortfall of nearly $500 million in the next year, as the governor signals an unwillingness to create new taxes to close that gap.
The latest revenue report shows the state is expected to bring in about $427 million below expectations, reflecting slower-than-expected job and wage growth, according to members of the state’s Economic Revenue Forecast Council. They told members of the media on Friday that some of the state’s losses can also be tied to the war in Iran.
Gov. Bob Ferguson said he was not surprised by the updated forecast.
“There is a long way to go before we know the specifics of the budget shortfall we will be facing, including two more revenue forecasts, but we are already preparing for the challenge,” Ferguson, a Democrat, told KNKX on Friday.
Ferguson’s comments come a day after he said he would not propose new taxes to boost state revenue in the coming year.
The next two revenue reports are due out in September and November. The governor will then release his budget proposal in December, a month before lawmakers meet in Olympia for session.
“I've been communicating my goals to our agencies: Preserve core services, protect our state’s most vulnerable, don’t raise taxes, and address the structural challenges in our budget to achieve long-term financial stability and protect our AAA bond rating,” Ferguson said.
Budget writers said it was too early to confirm or deny if this would be possible for next year.
Sen. June Robinson, a Democrat from Everett and the state’s lead budget writer, called the forecast a “mixed bag,” pointing to higher-than-expected capital gains tax revenue. She said that offered a temporary shield from worse results.
“But it doesn’t solve longer-term budget shortfalls,” Robinson said. “If you took that out, the forecast is generally down.”
The capital gains tax is expected to bring in about $4 billion in the current biennium — $1.3 billion over its expected amount this year. The measure levies a 9.9% tax on the individual sale of stocks, bonds, and other financial investments. A temporary change routed all that revenue into the state’s operating budget this year. But this will shift again in 2028, when part of the money from this tax returns to its original purpose: funding the state’s capital budget, specifically for building schools.
In March, the Legislature passed the state’s current budget, which included heavy cuts to early education and childcare funding. It’s unclear what other programs might be on the chopping block to make up for a new shortfall.
Washington’s Office of Financial Management has directed all state agencies to submit budget requests that “focus only on addressing mandatory increases while not expanding existing programs and services.”
Republicans on Friday blamed Democrats for the revenue shortfall.
“Our problem with our budgets is legislatively created and it needs to be legislatively fixed,” said Puyallup Sen. Chris Gildon, who sits on the state’s forecast council. “It’s an issue of overspending and we need to get spending under control.”
Democrats pushed back on that assessment.
“We understand that we're still in a situation that's really difficult next session. But I would just disagree that it's all a spending problem,” said Sen. Yasmin Trudeau, of Tacoma, who is also a part of the state’s forecast council.
But she also admitted that this latest report would mean “hard conversations” in the future.
Members of the Economic Revenue Forecast Council said they expect a new income tax on households earning over $1 million a year to make “large contributions” in the 2027-29 biennium. The tax, which will not start generating revenue until 2028, is currently facing a challenge to recall it on the November ballot and a pending court battle on its constitutionality.
Since taking office, Ferguson has promised not to add new taxes, but has simultaneously signed off on some of the state’s biggest tax packages, including a gas tax increase and the yet-to-be-implemented income tax on high earners.
