The deal, awaiting Gov. Ferguson’s signature, includes $4.3B in new taxes on businesses, financial assets and technology, and boosts K-12 funding.
OLYMPIA, WA – Washington state lawmakers on Sunday approved a $77.8 billion two-year budget to fund schools, state prisons, mental health services, homeless services and more.
The final package includes new taxes, spending cuts and funding for new programs. It passed the House of Representatives 52-45 and the Senate 28-19. It now heads to Gov. Bob Ferguson’s desk for final approval.
This year’s budget writers had a complicated equation on their hands due to an anticipated $15 billion shortfall over the next four years caused by costly new programs, inflation and higher demand for services. Filling that gap was a source of contention: Progressive Democrats wanted to address it by implementing a wealth tax, but Republicans – and Ferguson – argued for an approach that started by trimming spending.
After the budget was released Saturday, Ferguson said he was pleased that it maintained the state’s savings and made increased investments in K-12 education. He did not comment on the new taxes. He had previously rejected other tax packages. He has until May 17 to sign or veto the budget.
“I appreciate that the Legislature heard my concerns and dramatically reduced the revenue assumed in the final budget,” Ferguson said. “That said, I intend to carefully review all revenue increases.”
The final deal includes $4.3 billion in new taxes on businesses, financial assets and technology services and $2.7 billion in cuts to services. It also includes billions in spending on new programs and services.
“It’s probably not the budget that we thought we were going to be writing a year ago,” said Senate Ways and Means Committee chair June Robinson, D-Everett. “But as we’ve grappled with the reality of the state’s fiscal situation, I believe we worked diligently to write a budget that addresses the challenges we have and continues to fund the core services that the people of Washington expect us to fund.”
Republicans have staunchly opposed new taxes, saying the budget could be balanced on cuts alone. Republican budget writers also argue that the taxes included in the plan will hurt everyday Washingtonians the most. “I’m deeply concerned about the budget they came up with,” said Senate Minority Leader John Braun, R-Centralia. “They just took advantage of the situation to run taxes.”
Here’s what else to know about the final deal:
New taxes and fees
The final budget, as approved by the Legislature, includes $4.3 billion in new taxes over the next two years.
Most of that – about $2 billion – comes from increasing the business and occupation tax, which all businesses must pay based on the value of their products, proceeds and income. The changes to the tax include raising the base rate for wholesaling and manufacturing companies and imposing surcharges on big banks. And all businesses earning more than $250 million annually will face an additional temporary 0.5% surcharge.
The other major increase comes from updates to the state’s sales tax that would add retail taxes to software development, web design and IT training. It also would repeal an exemption for some digital services like advertising and impose a new tax on cigarettes and nicotine products. These would bring in about $1.1 billion for the state.
The budget deal also adds to the capital gains tax, applied to the sale of stocks, bonds and other assets; and to the estate tax, imposed on the transfer of an estate after someone dies.
The final budget also includes new revenue generated from increased fees for state park passes and hunting and fishing licenses. Starting later this year, the cost of a Discover Pass will go up from $30 to $45. Hunting and fishing licenses will go up 38% overall.
State employees’ compensation
Despite earlier discussion of cutting state employees’ pay and benefits and requiring furloughs, the final budget honors previous agreements between state workers and the government.
The budget does not include any furlough days or cuts to pay and benefits. Instead, it allocates $1 billion to pay for employee raises over the next two years.
State savings account remains untouched
Lawmakers chose not to drain the rainy-day fund, the state’s savings account. Some Democrats had discussed using the account to backfill the budget shortfall, but this idea received pushback from Ferguson and State Treasurer Mike Pellicciotti.
By July 2027 the fund will have amassed $2.1 billion, and by July 2029 it will reach $3 billion.
Closures, delays and other cuts
Budget areas hit hardest by cuts include behavioral health; the Department of Children, Youth and Families; higher education and health care. Some of the biggest savings come from facility closures and delays in program expansions.
Starting this year, more families were supposed to receive access to state subsidies for child care or free early-learning programs in the coming years. Eligibility for subsidies was set to expand to include families with household incomes reaching 75% of the state median income, or about $8,190 a month for a family of four. The state’s early-learning program was going to become an entitlement in 2026.
But those expansions are now delayed until after 2029. Their deferral will save the state more than $1 billion.
Washington’s free early-learning program for children from birth to age 3 is not funded at all in the final budget, but Robinson said it could reopen in future years if the Legislature chooses to fund it. That program serves around 200 children from low-income families who receive care as well as health and support services.
Legislators’ original budget proposals included the closure of Rainier School, a state-funded habilitation center for people with disabilities. Instead of shuttering completely, the center will end new long-term admissions immediately. Those currently living there can remain until their death, and former long-term residents can return to Rainier within one year after transitioning to the community, if they choose. The policy is a compromise that puts the state on the road toward completely closing the school.
Other significant cuts impact foundational public health services, behavioral health facilities and higher-education grants for low-income students. There are also cuts to abortion access funding aimed at helping health centers maintain staffing and services during an influx of out-of-state patients after the Dobbs decision.
Some new spending
Don’t be fooled by the cuts and delays. The final budget also includes significant new spending.
K-12 education is among the areas seeing the biggest increase, a top priority for Democrats. The biggest-ticket item is additional funding for special education, which will receive $775 million through June 2027.
The budget also includes funding to assist local governments as they backfill an expected loss of funding caused by the state and local document recording fee. That fee is charged when someone files a document with the county auditor, and the revenue goes toward homelessness services. That fund was expected to see a shortfall, in part because of declining real estate transactions.
The budget would also provide funding for a new juvenile rehabilitation center at Stafford Creek Corrections Center. Former Gov. Jay Inslee had proposed opening a new facility to house young men who choose to move out of Green Hill School, a juvenile center that has faced severe overcrowding in recent years.
An additional $100 million in grants will fund hiring for local law enforcement, a major priority for Ferguson.
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