Opinion: Washington’s budget outlook darkens with latest revenue forecast

Washington's next budget has only 2.5% capacity while projected inflation could hit 9.4% over two years. — Washington’s next budget has only 2.5% capacity while projected inflation could hit 9.4% over two years. Photo courtesy Bill Lucia/Washington State Standard

🎧 WA Budget Outlook Darkens After June Revenue Forecast

Ryan Frost believes that either major tax increases, or major spending cuts, will need to happen in 2027

Ryan Frost
Washington Policy Center

The state’s June revenue forecast, released Friday, raised projected collections for the current 2025-27 biennium by about $554 million above what the enacted budget assumed, while lowering projected revenue for 2027-29 by about $461 million. On net, the two changes nearly offset one another, keeping the current budget in balance. That’s good news. The bad news is that the downgrade lands squarely on the next biennium, even after lawmakers approved billions in new taxes this session that were supposed to shore up those years.

Most of that downward revision traces to the economy, not tax changes. The Economic and Revenue Forecast Council lowered projected personal income growth this year to 4.1%, cut expected employment growth to 0.1%, and reported that Revenue Act collections, the sales, use and business taxes that make up most of the general fund, are running below forecast. The state unemployment rate has risen to 5.2%, the second highest in the country.

The near-term improvement is also driven largely by one-time money. A surge in capital gains collections in fiscal 2026 raised the account those revenues flow into by about $1.28 billion for the biennium.

Looking ahead to 2027–29, the Council projects $82.164 billion in revenue. The state is currently spending about $80.2 billion, leaving roughly $2 billion in budget capacity, about 2.5% over the two-year biennium, before spending exceeds expected revenue. That projection also assumes the new income tax remains in place, even though it may ultimately be overturned by the Supreme Court.

Apart from the Great Recession, Washington’s budget has never grown that little. The Council projects Seattle inflation of 4.6% in 2026 alone. If inflation remained at that rate, prices would rise roughly 9.4% over two years, nearly four times the budget’s available 2.5% growth.

The Governor and lawmakers have argued that billions in new taxes were necessary to close a structural budget deficit. The latest forecast suggests that problem has not been solved. Despite record tax collections and new revenue, the state has only about 2.5% of budget capacity over the next biennium before spending would outstrip projected revenue. Either major tax increases, or major spending cuts, will need to happen in 2027.

Ryan Frost is the director of the Center for Budget and Tax Policy at the Washington Policy Center.