New taxes, cuts in $77.8B state budget

Lawmakers were expected to pass a budget Sunday night that avoids furloughs of state workers.

By Jerry Cornfield

Washington State Standard

Democrats in the Washington Legislature unveiled a budget deal Saturday that cuts spending and hikes taxes on thousands of businesses to maintain core public services and erase a projected multibillion-dollar shortfall.

The agreement hammered out by House and Senate budget writers does not tap the state’s emergency reserves or furlough state employees, as prior proposals this year suggested doing. It pays for new collective bargaining agreements for state workers and provides $100 million for law enforcement hiring sought by the governor.

Overall, it spends $77.8 billion in the two-year budget cycle that begins July 1, roughly 9% higher than the current biennium. When all the adding and subtracting is done, there’s $7.4 billion in new spending, officials said.

It was teed up for votes in each chamber on Sunday, the last scheduled day of the 2025 session.

“ We’ve worked diligently to write a budget that addresses the fiscal challenges that we have, and continues to fund the core services that the people of Washington expect us to fund, and they depend on,” said Sen. June Robinson, D-Everett, chair of the Senate Ways and Means Committee.

“ There are many reductions throughout the budget that are harmful, are going to be hard for people, and for agencies to implement,” she continued. “We’re all eyes wide open about that.”

Robinson was one of four Democrats on the conference committee reconciling differences between the spending plans passed by the Senate and House. Two Republican lawmakers on the panel have not been at the table for negotiations.

One of them, Sen. Chris Gildon, R-Puyallup, the budget leader for Senate Republicans, criticized the process, then voted against adopting the final product.

“It’s been developed in the back halls of Olympia, out of view of the public,” he said. “I honestly believeit brings shame on the Legislature for doing it this way.”

Overall, there aren’t many surprises as the blueprint tracks with major contours of what Democrats pushed through in each chamber.

To balance, it depends on $4.3 billion from a combination of transfers from other accounts, plus a slate of new and higher taxes on businesses and services that will start taking effect this fall. Transfers, targeted cuts, and a money-saving maneuver involving pension funds are also needed to make ends meet.

Gov. Bob Ferguson, who is completing his first session, fared well.

In his inaugural address, he threatened to veto any budget that did not have $100 million to help local governments hire more police. There’s exactly that amount. He also wanted the state’s rainy day fund left untouched, and it was.

Ferguson said in a statement that he was pleased the budget funds the grant program, increases financial support for public schools, and “maintains our rainy day reserve fund so we are prepared for the chaos of the Trump Administration.”

“ That said, I will be carefully reviewing the budget after it is adopted by the Legislature,” he added.

Robinson and Rep. Timm Ormsby, D-Spokane, chair of the House Appropriations Committee and a conferee, declined to say if they thought Ferguson would sign the budget.

“I can just say that the Legislature, pending approval of this conference report, will have fulfilled its constitutional and statutory obligation,” Ormsby said.

Robinson added: “The executive branch is its own branch of

government. I cannot predict nor do I know what they will choose to do.”

The ledger sheet

By law, the Legislature must adopt a budget that is balanced over four fiscal years. Practically speaking, the immediate concern is the next two-year fiscal cycle that begins July 1.

Under the deal, the state will spend $77.8 billion in that period and end with $ 225 million in its cash reserves and $ 2 billion stashed in the rainy day fund.

It contains $4.4 billion to maintain levels of services required under current law. One of the largest chunks of new spending is for education, with another $ 682 million for elementary and secondary schools. Most of it will go to districts for providing special education services, buying materials and paying expenses like utilities and insurance.

There are cuts throughout. One of the most painful for Democrats: delayed expansions planned under the Fair Start for Kids Act. The 2021 law expands and guarantees access to statepaid early learning programs and subsidized child care for families with lower household incomes.

Under the law, the Early Childhood Education and Assistance Program is supposed to become an entitlement next year. It won’t. There will also be delays to broadened eligibility for the Working Connections Child Care Program. Increased reimbursement rates for providers will be pushed off as well.

A reprieve for state workers

Ferguson proposed furloughing state employees one day a month in the next budget cycle to save $300 million. Senate Democrats proposed 13 unpaid days off to save half as much. Senate Republicans wanted to not fund the recently brokered labor contracts, which include a 5% pay raise over two years, and instead give each worker a $5,000 bonus.

None of that is happening. Nearly a billion dollars is penciled in to cover the contracts.

“The state needs to be a model employer,” Ormsby said. “We need to project outward to the rest of the state what it looks like to appreciate the work that people do, compensate them fairly and keep them employed.”

Taxing matters

Democrats had designs for raising up to $21 billion from new and higher taxes in the next four fiscal years. Ferguson shook his head no.

They went back to the drawing board and came up with a different approach projected to net $4.3 billion for the coming budget and $4.4 billion in the one after that.

It would permanently boost the primary business and occupation tax rates. Sales tax would be applied to more services. New surcharges are coming for Washington companies with more than $250 million in annual revenue. Higher tax rates are in store for financial institutions with more than $1 billion in earnings. A few tax breaks disappear. And an existing tax gets broadened to include nicotine pouches, like Zyn.

Two gimmicks gone

Democrats put forth two eye-rolling, money-moving maneuvers with their earlier budget proposals. They’re put away now.

One required certain companies to prepay a month’s worth of sales tax. The thinking was to get those dollars paid into the final month of the next budget cycle that would’ve otherwise been due in the first month of the following one. It would have been like creating a 25th month of collections.

The other idea was to change the timing and amounts of apportionment payments to school districts to push hundreds of millions of dollars in spending into the 2027-29 budget.

A new move involving the state’s pension funds is in. Senate Bill 5357 lets budget writers assume a greater return on dollars invested through the state’s pension accounts – 7.25% up from the 7% set by the Pension Funding Council in 2023.

Assuming the higher rate of return means that the state can meet its funding obligations for the pensions while contributing less money to them. But jacking up the rate also raises the risk of investments not meeting higher targets, and the plans gradually becoming underfunded. Washington is generally known for having healthy public employee pension plans.

In the next four years, the shift will allow the state to save about a billion dollars by making lower payments into its pension system.

Last word

“Affordability” is one of the session buzzwords.

Republicans have argued new and higher taxes for the operating budget will drive up costs for “hard-working Washingtonians.” Gildon said the tax increases will equate to about $2,000 a year for a family of four.

Democrats contend the steps they are taking will bolster public schools and preserve access to critical services for the state’s most vulnerable residents.

Robinson said the budget is not the one “we thought we’d be writing a year ago.”

“ That’s the hard job of governing, trying to find the balance between funding the needs of our state,” she added, “and finding ways to pay for it.”