State lawmakers are bracing for what officials describe as a challenging budget cycle as revenue projections fall short of expectations established earlier this year.
The Washington State Office of Financial Management reports that revenue collections for the 2025-2027 biennium are forecast to come in $390 million below projections used when legislators enacted the budget in May. This substantial shortfall means the supplemental budget process will likely focus more on reductions than new program funding.
“There’s no question this is going to be a challenging budget year,” said House Majority Leader Joe Fitzgibbon, a West Seattle Democrat. “And it’s not a year we’re likely to see a lot of new investments in things like healthcare, childcare or food assistance.”
The supplemental budget allows lawmakers to adjust their main operating budget during the two-year biennium. Fitzgibbon indicated that throughout the upcoming process, legislators will review all state-funded programs to identify the “least harmful” areas for reductions.
Major expenditure categories in the state budget include K-12 education, healthcare and human services, programs for elderly residents, services for people with developmental disabilities, foster care, higher education, and correctional facilities. These large budget items represent the bulk of state spending and leave limited flexibility for cuts.
Fitzgibbon noted that the previous legislative session also operated under tight fiscal constraints, making obvious reduction targets scarce. He cited prison closures as one example of cost savings achieved through policy changes. Sentencing law modifications and programs designed to reduce recidivism have decreased the state’s prison population, allowing facility closures that save money.
“Those only get you so far, and so we’re going to look at the ways in which we can ask school districts, healthcare providers, and others too to operate more efficiently within the resources that we are able to allocate their way,” Fitzgibbon explained.
Beyond the immediate deficit, the state faces additional fiscal pressure beginning in 2026 when major federal cuts to Medicaid and SNAP benefits are expected to take effect. These reductions at the federal level will create difficult choices about whether and how much the state might attempt to backfill lost funding.
“Back-filling the cuts from the federal government is probably beyond what we have the ability to do as a state because those cuts are so large,” Fitzgibbon said, suggesting state resources cannot fully compensate for anticipated federal funding reductions.
Senator Chris Gildon, a Puyallup Republican who serves as operating budget ranking member on the Senate Ways and Means Committee and Republican budget leader, agreed the fiscal situation presents challenges. He attributes the shortfall partly to revenue projections that have not materialized despite tax increases passed in the previous session.
“Coming off of last session where the legislature passed historic levels of tax increases, and the revenues have not come in as they were expected to come into,” Gildon stated.
The Republican budget leader believes cuts can be made in several areas without causing harm to essential services. He pointed to a recent audit finding that approximately 130,000 individuals appear enrolled in Washington’s Medicaid program while simultaneously enrolled in another state’s program.
“And that means that they were enrolled in Washington State, and we were paying the monthly premiums, and they were also enrolled in another state that is paying monthly premiums for those people,” Gildon explained. “So certainly, cleaning up the roles of state Medicaid, I think we’ll find substantial savings.”
Gildon outlined additional areas where the state could generate savings or reduce expenditures. He suggested modifying the working families tax credit to allow claims only for the current year rather than permitting retroactive claims for past years. This change would reduce the state’s financial obligation under the program.
Another proposal involves reducing the mileage reimbursement rate for state employees, currently set at 70 cents per mile. Lowering this rate while encouraging greater use of the state motor pool could reduce transportation-related expenses across state agencies.
Gildon warned that the budget challenges extend beyond the immediate $390 million shortfall. Analysis by the Senate Ways and Means fiscal analyst projects the deficit will grow to $1.1 billion by the end of the 2027-2029 biennium, a gap that “needs to be made up in some manner.”
He referenced the “Save Washington Budget” proposed by Republicans during the previous session as a potential framework for addressing the growing fiscal gap. That proposal outlined Republican priorities for spending reductions and revenue measures.
Regarding funding priorities, Gildon identified three areas he believes should receive full funding despite the constrained fiscal environment. “If I had to rank order, the top there are K-12 public education, public safety, and our social welfare net to protect the vulnerable amongst us,” he stated.
Governor Bob Ferguson plans to release his executive budget proposal in mid-December, providing the starting point for legislative negotiations. The Washington House will begin its budget work in January, followed by the Senate developing its own proposal before the chambers reconcile differences.
Democrats hold significant majorities in both the Washington House and Senate, though not supermajorities. This partisan composition means Democrats can pass budget legislation without Republican votes if the caucus maintains unity, though bipartisan support often aids passage of major fiscal measures.
The budget process typically extends through the legislative session, with final passage occurring in late April before the constitutionally required adjournment. Supplemental budgets generally receive less public attention than the main biennial operating budget but still represent significant policy decisions about state priorities and resource allocation.
The revenue shortfall reflects broader economic trends affecting state finances. Tax collections depend heavily on consumer spending, business activity, and other economic indicators that can fluctuate based on national and global conditions beyond state control.
Washington’s tax structure, which relies heavily on sales taxes rather than income taxes, makes revenue particularly sensitive to consumer behavior changes. Economic uncertainty, inflation concerns, and shifts in spending patterns can all impact collections even when the economy continues growing.
