Washington’s revenue forecast signals rough budget talks ahead

Washington state lawmakers will have their work cut out for them in coming months as they head into next year’s budget talks with revenues coming in more than $500 million lower than projections for the fiscal 2025-27 biennium.

Dave Erich, the state’s chief economist, reported last week that receipts for the two-year state budget were $412 million below June’s forecast, in addition to the roughly $90 million miss in revenues reported three months ago. The forecast revised revenue estimates down by $903 million through 2029.

The news comes after the governor signed the fiscal 2025-27 budget in May approving $8.7 billion in tax increases over the four-year budget outlook and $5.9 billion in program cuts to deliver a $77.9 billion balanced two-year budget.

“The changes in the forecast are primarily the result of a weaker taxable sales forecast for retail and construction, lower state agency revenues and a reduction in projected real estate excise tax returns,” according to the state’s economic and revenue forecast council (ERC).

Erich’s report means lawmakers are now anticipating another tough legislative session — and the governor will likely need to propose further cuts when he introduces his supplementary off-year budget proposal in December. The state has a two-year budget and approves a supplementary budget during the off year.

Washington Gov. Bob Ferguson called the forecast disappointing, but not surprising, adding in a statement that his budget team has been preparing for a challenging revenue forecast.

“Unfortunately, we are also grappling with the impacts of President Trump’s Big Betrayal Bill, which includes billions in cuts to Washington state for programs such as Medicaid and food for hungry kids,” Ferguson said. “Approximately 28% of our budget consists of federal investments, so these cuts will have adverse impacts for many Washingtonians.”

The governor said as he writes his first budget his focus will be on delivering a balanced budget that maintains core services. Ferguson, the former state attorney general, last year won the governor’s race to replace Jay Inslee, who decided to not run for a fourth term.

The 2025-27 biennial budget appropriates $4.68 billion in new debt limit bond spending and $7.5 billion in total funds, including cash and other revenue sources. Additionally, it reappropriated $4.9 billion in debt limit bonds and $11.6 billion in total funds to continue projects from previous budgets.

“Given the ongoing uncertainty in the economy and around federal funding, the Office of Financial Management continues to carefully monitor the state’s financial outlook,” said K.D. Chapman-See, director of the Office of Financial Management. “We’ve been preparing for the possibility of slowing revenue growth, and the forecast will inform our work as we help develop Gov. Ferguson’s supplemental budget proposal.”

The ERC also reported separately in a transportation forecast released Friday that those revenues are expected to come in $61 million higher during the 2025-27 budget, but down $144 million through 2029.

Changes in the forecast are primarily due to gas consumption falling more quickly than previously projected, the ERC reported. That trend is partly offset by higher-than-expected toll and ferry revenues from fare increases.

The council attributed the increase in license, permit and fee revenues to a surge in vehicle purchases ahead of expected federal tariff increases.