The Washington State Legislature has approved a supplemental operating budget, making adjustments to the state’s 2025–27 spending plan. While supplemental budgets are intended to address changes in revenue forecasts and program costs, this year’s budget relies heavily on one-time funding and new taxes rather than addressing the state’s long-term fiscal challenges.
Total operating budget spending now reaches $80.2 billion, an increase of $2.3 billion over the budget adopted just last year. Overall, spending for the 2025–27 biennium is 11.4% higher than the 2023–25 biennium, continuing the trend of rapid growth in state spending.
Throughout the session, lawmakers said the state needed to backfill funding due to federal changes associated with H.R. 1, which reduced federal support for programs such as SNAP and certain health care services. The supplemental budget includes additional state funding intended to offset those reductions.
However, the final budget relies heavily on one-time funding sources and the recently passed income tax to close the current budget gap. These types of short-term solutions may balance the books today, but they do little to address the structural budget challenges the state will face in the future. As a result, the state could find itself facing similar financial pressures in the next budget cycle.
Key Funding Sources Include:
- Redirecting all capital gains tax revenues for 2025–27 to the Near General Fund–State (NGFO). Previously, revenue above $500 million was directed to the Common School Construction Account, which supports school construction projects.
- $800 million from the Budget Stabilization (rainy day) fund, along with $141 million set aside for wildfire costs in 2029.
- $375 million transferred from the Public Works Assistance Account, which typically supports local infrastructure projects.
- Revenue from the newly adopted income tax.
- Repeal of the tax exemption for data center refurbishment.
- Repeal of the B&O tax exemption for prescription drugs through warehousing and reselling activities.
- Changes clarifying which entities qualify for the B&O tax exemption related to insurance premiums.
- Adjustments to estate tax rates adopted in the previous session.
The budget also assumes that spending growth will slow significantly in future years. Lawmakers project 2.2% spending growth in the 2027–29 biennium, which is significantly below the roughly 15% average growth seen in recent budget cycles. Notably, these projections do not include funding for future state employee collective bargaining agreements, which will likely increase costs further.
Taken together, these assumptions raise serious concerns about the long-term sustainability of the state’s operating budget. When lawmakers return in 2027 to write the next biennial budget, they may once again face significant pressure to find additional revenue.
If you have questions, please contact AGC’s Michele Willms.