Projected tax collections in Washington continue to fall, with declines totaling more than $500 million since the governor signed off on billions of dollars in tax increases earlier this year to help balance the budget.
Estimates shared with officials Tuesday show receipts for the current two-year state budget tumbling $412 million further from what was forecast three months ago. Incorporating the previous forecast from June, this puts the total slide over half a billion dollars.
The troubling report from Dave Reich, the state’s chief economist, to the Economic and Revenue Forecast Council sets the stage for another legislative session marred by tough budget decisions, with the potential for further cuts to state services and higher taxes.
Sen. June Robinson, the lead budget writer in the Senate, said it’s “all bad news” that will make figuring out a supplemental budget plan next year “that much harder.”
With months until the next session begins in January, it’s still early, but Robinson said lawmakers “may look at tax levers” again.
Robinson, D-Everett, noted in an interview that the state had taken “significant steps” raising taxes this year and that “those haven’t all played out.”
“I’m not sure there will be a big appetite to do a lot in the revenue space,” she added. “We really scoured all the agencies earlier this year for any savings and reductions that were tenable, so it just means we have to go deeper.”
Rep. Ed Orcutt, R-Kalama, said the forecast is a “huge concern” and means the new budget passed earlier this year is already underwater. He called for budget writers and the governor to come into the next legislative session with ideas for further spending cuts.
“Increasing taxes has not resolved the deficit problem, so maybe it’s time we look at the other side of the equation,” Orcutt said.
Gov. Bob Ferguson called the new projections “disappointing but not surprising.”
“As I write my first budget, I will be focused on delivering a balanced budget that maintains core services to the people of our state,” he said in a statement.
While Ferguson worked off a budget blueprint left by his predecessor, former Gov. Jay Inslee, he had significant input on the spending and tax decisions made earlier this year.
During the session that ran from January to April, state lawmakers grappled with a budget shortfall in the $12 billion to $16 billion range. In response, they passed an array of tax hikes while cutting services to fill the gap.
Republicans staunchly opposed the final spending plan, arguing that Democrats had driven the state into a financial ditch with years of overspending.
The state’s $77.8 billion operating budget funds everything from public schools and health care to social services and prisons. Tuesday’s forecast pegs revenue fueling this budget at $74.3 billion, even with the boost from $4.3 billion from new and higher taxes that legislators and Ferguson approved.
Before the new two-year budget even kicked in on July 1, estimates in June already showed tax collections falling short of what lawmakers planned for. The decline in receipts forced the state to draw down savings to make ends meet, but didn’t necessitate a special session.
Tuesday’s predictions show revenue dropping even further.
Meanwhile, cable giant Comcast is suing to stop a new sales tax on advertising services from going into effect Oct. 1. Lawmakers counted on about $475 million from the levy over the next four years when they passed their latest budget.
Lagging sales and real estate excise taxes are largely to blame for the state’s declining revenue. New construction permits are also down, and the labor market has been weaker than expected.
The fallout from Republican-backed cuts to social services made by Congress went unmentioned in Tuesday’s forecast meeting. The effects of some of those federal reductions won’t be fully known for months or years, but they are another concern for policymakers.
The 60-day legislative session begins in January. Lawmakers will pass a supplemental budget adjusting the two-year spending plan approved earlier this year. Ferguson will release his proposed budget later this year.
State agencies this month have rolled out their pleas for funding.
The Washington Health Benefit Exchange, for instance, wants $65 million to help cover the potential loss of federal subsidies for residents enrolled in Affordable Care Act plans through the exchange. The Department of Natural Resources is seeking around $100 million for wildfire prevention and suppression.
Also looming is the state’s skyrocketing lawsuit payouts.
Lawmakers punted on the issue this year, making it the 2026 Legislature’s problem. Addressing the shortfall left by lagging premiums Washington agencies pay into the state’s self-insurance fund would cost hundreds of millions of dollars per year.
“It’s money that the state has to pay out in lawsuits, so we need to find some way to pay our bills,” Robinson said.
Looking forward to the 2027-29 budget, tax receipts are projected to slip $477 million from the previous forecast, for a total predicted drop of roughly $889 million over the next four years since the latest projections from June.
Tuesday’s forecast does not cover revenue going to the state’s transportation budget, which is separate from the operating budget. A forecast covering that funding, including the gas tax, is expected on Friday.
The state will get its next revenue forecast in mid-November.
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