(OLYMPIA) Washington state’s budget is, to put it nicely, in a world of hurt.
There’s a big gap between what the state is collecting in taxes and what it needs to pay for its commitments in education, human services, health care, corrections and other day-to-day government operations.
On paper, the chasm is billions of dollars wide. In early November, Gov. Jay Inslee pegged it at between $10 billion and $12 billion through the next two budgets. It could be closer to $15 billion when the tab for new public employee contracts is added in.
Those big numbers are projections. They represent the difference between the anticipated cost of state services and the money expected to be available to pay for them through mid-2029.
Put another way, agencies need $10 billion to $12 billion — or more — to deliver state-funded programs already promised in the next two budget cycles.
Start from the beginning
Washington operates on a two-year budget. The current one ends June 30, 2025 and it’s balanced. The next budget is not. Nor the one after that. That’s the multi-billion dollar challenge for state lawmakers and the next governor, Bob Ferguson, when the legislative session starts in January.
This is not a total surprise. The supplemental budget approved last session showed state spending outpacing tax collections. Lawmakers and Inslee tapped into reserves and used up the last of the federal pandemic aid to make ends meet.
This past Monday, the House Appropriations Committee heard the projected budget deficit is $4.35 billion in the 2025-27 biennium and $6.7 billion in the 2027-29 period. That’s an $11 billion gap — and it excludes the roughly $4 billion cost of new collective bargaining agreements.
There are several factors behind those numbers, explained Mary Munroe, budget coordinator for the committee.
Though the economy is on solid footing, it is generating less tax receipts. Consumer spending is slowing after a post-pandemic spike. Home sales are down too. And the capital gains tax isn’t bringing in as much as originally predicted.
Altogether over four years, there will be $1 billion less in revenue than what lawmakers counted on last session.
Demand for social services, health care, education and other publicly-funded programs is up. And forecasts show caseloads rising further. Some recently passed laws expand program eligibility in the next couple years. Serving more people means hiring or contracting with more workers. Inflation will push costs higher too.
How did the gap get so large
In September, after agencies submitted requests for the 2025-27 budget to Inslee, the total increase for “maintenance level” needs was $11.5 billion, according to the Office of Financial Management, which is the governor’s budget office. In budget speak, maintenance level spending refers to how much agencies predict they’ll need to pay for programs already written into law.
The Department of Social and Health Services, which serves nearly 2 million people, sought $3 billion. This would cover a projected rise in people and families with low incomes receiving cash assistance. There are also costs from greater numbers of people receiving in-home care and moving into adult family homes, assisted living facilities, and nursing homes.
The Department of Children, Youth and Families is navigating expenses from the 2021 Fair Start for Kids Act. The landmark law expands and guarantees access to state-paid early learning programs and subsidized child care for families with lower household incomes. It funded new slots for providers and expanded how many families can use them.
As a result of the law, the state’s Early Childhood Education and Assistance and Working Connections Child Care programs will see expenses rise as eligibility expands. These changes add up to $941 million in the next budget and nearly $2.1 billion over four years.
Declining document recording fee collections underlie the Department of Commerce’s request for $403 million to maintain programs such as emergency shelter grants, temporary rent assistance and support for homeless youth. This money is from fees people pay when they file real estate deeds and other paperwork with county auditors.
The department budgeted $908 million through 2027 for services funded by the fees, but only about $505 million is projected to come in, in part because of sluggish home sales.
A $210.5 million request from the state Board of Community and Technical Colleges stems from voters passing Initiative 732 in 2000. It ushered in a requirement for annual cost of living increases for faculty and other staff at the colleges. Unless the law is changed, those increases will be 4% on July 1, 2025 and 2.6% on July 1, 2026.
Sopping up red ink
Gov. Jay Inslee and leaders of the majority Democratic caucuses in the Legislature have been signaling their approaches for closing the void and balancing the budget.
Step 1: Save money now.
Inslee on Dec. 3 ordered state agencies to freeze “most non-discretionary and non-essential” hiring as well as service contracts, purchases and travel.
Step 2: Delay costly commitments.
Inslee directed agency leaders to tell him where savings could be made by potentially postponing program enhancements.
An example is the Fair Start For Kids Act. That law sets specific dates for expanding eligibility and boosting provider pay in the next four years. Erasing those deadlines could reduce projected maintenance level needs by roughly $2.1 billion.
“You are the Legislature and you have the power to control the law,” Munroe, the House Appropriations Committee budget coordinator, told members on Monday.
Step 3: Open the revenue spigot wider.
Democrats are unabashed in looking to new or higher taxes to close the gap.
House Speaker Laurie Jinkins and Senate Majority Leader Jamie Pedersen view voters’ preservation of the capital gains tax in the November election as a sign they’re on board with tapping the wallets of wealthy individuals and corporations. And Democratic budget writers in the two chambers all but insist revenue will be a piece of solving the budget puzzle.
What might they do?
There’s interest in attempting a statewide version of Seattle’s JumpStart tax levied on companies with large payrolls and high-paid employees. Companies with an annual payroll of $8.8 million in the city and at least one employee earning $189,371 or more in 2025 had to pay it.
Expect another run at a wealth tax that would enact a 1% levy on intangible assets above $250 million such as cash, bonds and stocks. Same goes for a real estate transfer tax on sales of expensive properties. That proposal also didn’t reach the finish line last session.
And a road usage charge may be considered for transportation funding. Drivers would pay a fee for each mile driven while receiving credits for gas taxes paid.
Senate Minority Leader John Braun, R-Centralia, and House Minority Leader Drew Stokesbary, R-Auburn, see tax-free pathways to eliminating the shortfall though not all are easy.
“This is a spending problem. We are not in a recession,” Braun said this week.
He said it would be “very logical” to delay enhancements to Fair Start for Kids. Braun said if the state also holds off funding the collective bargaining agreements, those two decisions would wipe out half the shortfall, leaving what he called a “manageable number.”
Good ideas need to be prioritized. But Stokesbary said slowing government growth, not adding taxes is the better option.
What about the new guy?
Bob Ferguson will be sworn in as governor next month. As a candidate, he steered clear of answering questions about the state’s spending habits and tax policies.
He’s not said much as the governor-elect either. In a recent interview with The Seattle Times, he said he wanted to scour the budget for savings and efficiencies before engaging in a conversation on taxes. But Ferguson didn’t rule out backing new or higher taxes.
Reporter Laurel Demkovich contributed to this article which first appeared on Washington State Standard.
