Ben Mitchell
Director of Advocacy & Policy, Foundation for Tacoma Students
The 2025 legislative session adjourned on April 27. The final budget deal between Democrats in the legislature and the Governor was the big hang-up for the entire session, and three weeks ago it seemed more likely than not that lawmakers would need at least a few days of special session beyond the official end date to get things ironed out. While that wasn’t necessary, we’re not through the final chapter yet as Governor Ferguson has not said publicly if he is willing to accept all of the major pieces of the final tax and spending plan.
The Governor has until May 20 to sign the budget bill, and so with that big caveat, we have seven reflections on this year’s legislative session:
The state budget deficit was the result of legislative choices.
K-12 got more funding, but it got more regressive.
Higher education should be a higher priority.
Honoring state employee compensation commitments is a questionable priority.
Democrats opted for the more broad-based tax package.
Governor Ferguson is a bit of an enigma so far.
We should be worried about the budget outlook for 2026.
The budget deficit was the result of legislative choices
Stepping back from all the individual policy issues, spending cuts, and taxes, it’s important to remember that total state revenues are expected to grow 2.6 percent between the 2021-23 and 2023-25 biennia and 6.8 percent between the 2023-25 and 2025-27 biennia. In other words, the budget deficit was not the product of a recession like we had in 2008-09.
In Washington, we have a four-year balanced budget rule which requires that budget writers in the legislature and the Governor’s office put together a taxing and spending plan that projects a positive end balance over four years. As with any budget, lawmakers have to make a lot of assumptions, but one of the foundational pieces of information they have to work with is our state’s official revenue forecasts, which are updated multiple times per year.
What happened leading up to 2025 is that lawmakers appropriated more in spending than in forecasted revenues. For a long time spending tracked projected revenue very closely, without exceeding it. But then for 2023-25 biennium, the adopted budget had a large gap between spending and forecasted revenues. The issue was that the official revenue projections for 2023-25 flattened a bit – though did not go negative, remember there has not been a recession – but the spending obligations that lawmakers made continued on the trajectory we had in recent years of above average revenue growth.
The slower growth in revenue for the 2023-25 biennial budget had been expected by the Economic and Revenue Forecast Council, but a quirk in our balanced budget statute allows budget writers to assume that revenues will grow by at least 4.5 percent during the second two years of a four-year outlook, even if the official forecast does not project that level of growth. Beginning in 2022, and through 2024, operating budgets balanced over four years because lawmakers assumed 4.5 percent annual revenue growth.
This is not to say there’s anything nefarious going on, and we can’t claim at FFTS to have been raising alarm bells about this. We weren’t. But now with the benefit of hindsight, it should be said that balancing the budget over four years based on revenue assumptions that were not in the official forecast was a bad idea. It worked for a time, especially when we had a windfall of one-time COVID relief money from DC, but then it caught up to us. And the result was a painful legislative session that saw a lot of cuts to programs that us and others did not see coming, and that will be felt across the state.
K-12 got more funding but it got more regressive
The number that was being thrown around by K-12 interest groups coming into the legislative session was $3 billion in new funding that would go to increases for special education, materials, supplies, and operating costs (MSOC), and transportation. Where the final budget actually landed was about $429 million in increased spending in special education and MSOC. Transportation did not get an increase, and is actually lower than in previous budgets.
Special education was the biggest driver of the increase, getting about $350 million over the next two years. This is a big step down from the nearly $1 billion in new funding that was in the Senate budget proposal, but lawmakers did do away with the special education enrollment cap that assumed that there would not be more than 16 percent of students in any school district who would need special education services. Materials, supplies, and operating costs got an increase of $78 million, which is also a far cry from earlier proposals and will probably not be enough for most districts to cover increased costs for things like insurance and utility costs.
Zooming out, the overall picture of K-12 funding in Washington is that it looks more regressive today than it did four months ago. The reason for that was the decision by lawmakers to lift the cap on revenue that can be generated by local levies. This is a big boost to school districts with the highest value property tax bases and voters who are willing to tax themselves. Seattle and Bellevue are two good examples.
At one point the plan had been to pair the levy lift with a permanent increase to the Local Effort Assistance (LEA) program. This is one of the few progressive funding streams for education in our state, and is meant to offset the inequities that local levies create by funneling state money to poorer districts whose voters tend to be more averse to increasing their taxes. But the permanent increase to LEA didn’t stick in the final budget, and instead lawmakers put in a one-time increase of $137 million to LEA.
For us at FFTS, our stance is that if lawmakers are going to take steps backwards, and rely more on local school districts to pass levies and fund themselves, then they also need to codify a commensurate increase in statute to the LEA program in order to offset the inevitable inequities that will develop without it. Of course, there’s also the opportunity for lawmakers to do away with local funding of schools altogether and create an equitable K-12 funding scheme at the state level that sends more money to poor areas than rich areas. This idea is not on the table, and some part of the reason is that the wealthier areas in Washington are uniformly represented by Democrats.
Higher education should be a higher priority
While K-12 funding didn’t get close to what us and others would have liked to see this year, it could have been worse. Just ask higher education stakeholders. Excluding increases to higher education employee compensation – more on that below – overall higher education took a cut of about $185 million over two years, about 3 percent of the overall higher education budget.
The biggest area of cuts is to student financial aid, and actually this could have been worse too. In the end, budget writers made a tradeoff to permanently increase the income cut-off threshold for financial aid for students at public colleges and universities, but then cut financial aid levels for students at private non-profit schools, and eliminate state-based financial aid for students at private for-profit schools. It all nets out to a $12.5 million cut to the Washington College Grant program. The Bridge Grant program, which had provided a $500 stipend to the poorest students for non-tuition expenses was also eliminated, and saves $55 million over two years.
After financial aid, the second biggest area of cuts was a 1.5 percent across the board cut to all public four-year schools, and 0.5 percent across the board cut to all community and technical colleges. This saves $48 million over two years.
There’s no question that higher education is, at best, a second tier priority for lawmakers. To varying degrees across both parties, issues like housing, health care, and the environment are more important. And to be fair to them, that is probably reflective of the priorities of their voters. Higher education is in a tough spot politically. Investing in it has a high ROI, but there is growing public skepticism about college.
The higher education headline coming out this session is that financial aid was cut, and that will likely feed the narrative that college isn’t worth it.
Honoring state employee compensation commitments is a questionable priority
If you combine the increases in the final operating budget to state employee compensation, and higher education compensation, you get close to a $1.5 billion increase. This is for pay and benefit increases negotiated by former Governor Inslee’s administration and unions representing the state’s workers. (One major public sector union did get left out, the Washington Public Employees Association, who represent employees at many community and technical colleges).
Still, this is by far the largest category increase in the budget. Your mileage may vary on whether or not you think this is an important priority. On the one hand, we want public sector jobs to be attractive, and good compensation packages will attract talented people to these jobs. On the other hand, there was a proposal on the table for two years of one-day-per-month furloughs for state workers, while still honoring the pay and benefit increases, that would have saved $300 million over two years. It seems like a meltdown by unions and some lawmakers killed that idea, but it’s all about tradeoffs, and $300 million would have been enough restore all cuts to higher education financial aid and get K-12 MSOC funding up to the level that advocates were hoping for.
Democrats opted for the more broad-based tax package
The final operating budget includes five new tax bills that will bring in about $9 billion over four years. And while this is a smaller overall number than earlier tax package ideas would have brought in, it still enables an overall increase in operating budget spending in the 2025-27 biennium to nearly $78 billion, about $6 billion higher than our current two-year budget.
There was a lot of back and forth between the Governor and the legislative leaders on the question of new taxes, and it’s not clear if Governor Ferguson will accept the full package or veto any of the new tax bills. The final proposal sent to the Governor leaned away from the most narrowly targeted tax ideas like a wealth tax and a payroll tax. Instead, budget writers went with a blanket increase to the business and occupation tax, as well as a broadening of the sales tax to apply to more professional services.
There’s also a major change to a tax on technology companies that generates revenue that is supposed to be restricted to higher education and need-based financial aid. The tax is levied on the largest tech firms in Washington, and the new legislation dramatically increases the rate from 1.22 percent to 7.5 percent, and also the cap on tax payments from $9 million to $25 million. This change is estimated to bring in more than $1.6 billion in new revenue for higher education and workforce development over four years – which is A LOT – but the legislation allowed for these funds to be used for other purposes, and it looks like there was a transfer of revenue out of the higher education account to the general fund.
Governor Ferguson is a bit of an enigma so far
It started with an inaugural address that included a lot of normal, centrist platitudes about reforming government and fiscal discipline, and that threw people in and around government for a loop who were used to the more pliant and conventionally progressive former Governor Inslee.
But then after making some minor waves, through the entire legislative session it was very hard to know where Governor Ferguson stood on major legislation or key budget questions. At a few different points in the session the Governor held press conferences where he would say what he didn’t like, or lay out a few high-level principles with regard to taxes and spending. But he never came out publicly with a clear stance on taxes, or the most contentious pieces of legislation like parental rights, rent control, or unemployment benefits for striking workers. The Governor’s style seemed to throw lawmakers for a loop, and definitely frustrated Democrats who were operating this year with way less clarity on the standing of their priorities with the Governor. Maybe it will pay off for Governor Ferguson in achieving his goals, but we don’t really know what those goals are.
We should be worried about the budget outlook for 2026
This year’s budget situation was hard enough, and that was in a context where everything that’s been going on with the national economy and federal policy has not hit home yet. There’s eight months between now and the start if the 2026 legislative session, and between now and then it looks like there will be a massive cut in federal taxes, and maybe spending on programs that are major sources of state revenue like medicaid, Head Start, Title 1 and IDEA.
The overall economic outlook is dicey too. As a state, Washington’s economy is very trade exposed, and the Trump administration is not so much into that. There’s bleak news about huge drops in cargo at the Ports of Seattle and Tacoma, and Boeing is getting caught in the middle between the U.S. and China trade war.
We don’t want to make a prediction about the state’s economy, but there are worrying signs. It was hard enough for lawmakers and the Governor to deal with the self-inflicted budget shortfall this year, and an actual recession next year would be an exponentially harder problem.
