WA may have to dip into emergency reserves, despite historic tax increases

Despite record revenue and the largest tax hike in state history, Washington may face a budget shortfall by 2027 and could need to tap emergency reserves, according to the latest ERFC report. — Washington Capitol in Olympia. Photo courtesy Peter Robbins/Unsplash

Rep. Ed Orcutt says there is still time to make changes

TJ Martinell
The Center Square Washington

Despite passing the largest tax increase in state history amid record revenue levels, Washington state’s wallet may be empty by the end of the 2025-27 biennium, according to a new report by the state Economic and Revenue Forecast Council.

While ERFC members noted during its Tuesday meeting that the news comes just as the state is entering the biennium, State Treasurer Mike Pellicciotti, a former legislator, pointed out that the state can also turn to its rainy day fund.

“I am concerned that we’re seeing numbers lower and if we were to do nothing we would go negative by the end of the biennium,” ERFC member Rep. Ed Orcutt, R-Kalama, told colleagues at the meeting. “I had concerns from the start when the budget was being adopted in the legislative session.”

However, he added that “if you’re looking at it from a straight numbers standpoint, we do have time to make changes. The fact that it’s in the first part of the biennium … make those course corrections easier than in second year of the biennium. That means when we come back in January, we would have time to make some adjustments in the budget to ensure that we did not end up going negative by the end of the biennium.”

Whether or not legislative intervention is necessary may depend on a variety of factors that ultimately affect the state’s revenue. According to state Office of Financial Management Director Katherine Chapman-See, that can include state caseloads and reductions to federal funding.

ERFC member Rep. Timm Orsmby, D-Spokane, said at the meeting “we’re monitoring those things closely. I think with the new numbers … we will have to continue to make nonpartisan analysis of the forecast. When we have that, we’ll be a little bit more clear.”

Pellicciotti told ERFC that the budget stabilization account, also known as the rainy day fund, has “sufficient reserve levels to be able to respond.” The BSA is projected to have an ending fund balance of $2.2 billion for the 2025-27 biennium

“The budget stabilization account was created in part for moments like this to not have a total negative balance,” he said.

Earlier this month, ERFC voted to adopt an economic outlook without a 4.5% assumed growth rate that would have added $1 billion to assumed revenue.

After facing a multi billion budget shortfall due to spending outpacing revenue increases, the state Legislature passed a budget with the largest tax increase in Washington history; the Senate Republicans released their own budget proposal that would not have raised taxes.

According to the ERFC report, total state revenues are expected to grow 11.3% between the 2023-25 biennium and the 2025-27 biennium. At the time the budget was signed in May, critics within the Legislature warned of potential unintended consequences.

This report was first published by The Center Square Washington.

Rep. Ed Orcutt says there is still time to make changes

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