
Ben Mitchell
Director of Advocacy & Policy, Foundation for Tacoma Students
For the first time since the great recession year of 2009, Washington is facing a significant budget deficit. The big question going into the session is how lawmakers are going to deal with this. And since Democrats have unified control, to a large degree this is a question about them. With a new Governor-elect, and an influx of new lawmakers, it’s a hard situation to handicap at this point.
But we see opportunity in this. This biennium is a chance for new leaders in the legislature and at state agencies, and of course for the new Governor, to put their stamp on things. As always, we think education should be at the top of the priority list, and the next four months will give us a sense of whether or not we’re entering a new phase of governance in Washington.
There's a giant hole in the state budget
The Washington State Standard published a fantastic primer on the state budget that walks through the high-level process for how Washington’s budget comes together. As that piece explains, the important thing to know is that lawmakers write two-year budgets, and by law, the budgets must be balanced over the next four years. This requires lawmakers to plan ahead and avoid a scenario where they’ll be faced with a big hole in the budget.
However, the key factor going into the legislative session is that we are in fact facing a big budget gap. The gap is between $10 billion to $12 billion in our state’s operating budget over four years, which represents about 7-8.5% of the total operating budget. The gap may also grow to $15 billion to $16 billion after new contracts for public employees are accounted for.
These numbers are the difference between the costs of state services and programs, and the money expected to be available to pay for them through mid-2029. You can think of this situation as state agencies need $10 billion to $12 billion in order to deliver already-promised commitments in education, human services, health care, public safety and other day-to-day government operations. To say nothing of any spending on new programs or expansions of existing programs.
A confluence of factors led to this point:
While Washington’s economy is on solid footing, revenue growth has slowed from an average of over 8% per year over the last seven years, to less than 3% per year projected between now and 2029.
The caseload forecast is up, which refers to more people accessing existing publicly-funded social services, health care, education and other programs.
Laws that were passed four years ago expanded programs. To make the budget math work, lawmakers delayed implementation so that the costs were outside of the budget outlook at the time. But now those programs are phasing in and hitting the budget for the first time.
Inflation hits the state budget just like a household’s budget.
There’s no more federal COVID-related funding that we were able to use to offset rising costs over the last few years.
It should be said that many states are facing similar budget deficits. And most states don’t require a long-term budget forecast like we do in Washington, so there might be others where things would look just as bad if they did the kind of analysis that we do here.
Spending cuts and maybe new revenue are on the horizon
Over the last month the outlines of potential cutbacks to programs and new or revised taxes have started to emerge. First was an order from Governor Inslee for a spending freeze at state agencies. This paused nonessential hiring and contracts, and restricted purchases and travel.
Then in late December Governor Inslee released his last official budget proposal. Even though he is the outgoing Governor, Inslee is required to submit this proposal as part of the budget process. And given how quickly things have to move during the legislative session, his proposal serves as a de facto starting point for negotiations.
On the spending cuts side, Inslee’s budget proposal includes ideas that add up to about $2 billion in savings over four years. A significant portion of these proposed cuts is to planned increases to early learning and child care programs that are built into the Fair Start for Kids Act that was enacted in 2021. There is also a proposal for a four-year freeze on bonuses that K-12 teachers receive who complete a professional development program to become nationally board certified.
But the real workhorse to erase the shortfall in Inslee’s budget proposal is on the revenue side. Outgoing-Governor Inslee threw his support behind the idea of a new wealth tax, and also an increase to taxes on businesses. The wealth tax in Inslee’s budget would be levied at 1% on worldwide wealth of more than $100 million. According to the governor’s office, this tax would affect about 3,400 people in Washington, and raise about $10.3 billion over four years. The business tax idea is to increase the rates of the existing business and occupation taxes in two phases. The first phase would be temporary and targeted at larger businesses, serving as a bridge until the new wealth tax comes fully on-line. Then in 2027 all business and occupation tax rates would be increased by 10%.
Governor Inslee’s budget does include some new spending. But in general, the spending picture is one in which we’re working to maintain already existing entitlements and obligations that people rely on across our state. There just is not much room for any new discretionary spending.
It's not clear yet what kind of new tax has the most support
There’s been cold water thrown on the idea of a wealth tax having to do with complicated implementation and questions around how reliable of a revenue source it would be. A study from the Department of Revenue called out potential difficulties in valuing what can be far-flung personal assets of the very wealthy, and the ability of people to exploit various loopholes in the tax code. There’s also the fact that if a person has more than $100 million in worldwide wealth, it’s not hard for that person to pick up and leave Washington for another state if they want to avoid the tax.
This is the inherent tradeoff with narrow versus broad-based tax schemes. A narrow tax might be an easier political sell, but it can be volatile to people or businesses leaving if it’s too narrow. A broad-based tax would probably be less popular, but the more people or businesses you have paying a tax, the more stable it is.
We know Democrats in the legislature are weighing these tradeoffs because in an extremely relatable mishap to anyone who has hit “reply-all” when they meant to hit “reply,” Senator Noel Frame mistakenly circulated an internal menu of revenue options that the caucus is considering. Among the possible revenue options laid out in the menu are a payroll tax on companies that pay high wages. The way it works is that a company would be taxed on the total compensation paid to employees that make more than a certain threshold. Other notable ideas are a more aggressive version of Inslee’s wealth tax idea, and an increase in our already-existing capital gains tax.
Even though it was a bit of flub for the revenue option ideas to become public, it’s not a bombshell news story. Democratic leaders in the legislature have been saying publicly for a few months that their priority is to protect existing programs and services, and that in order to do this they’re looking to raise taxes. And many of the proposals outlined in the menu have been kicked around in recent years.
Incoming Governor Ferguson sees things differently
Incoming Governor Bob Ferguson will also influence conversation. He released his own set of budget priorities that have a decent amount of tension with Inslee’s lame-duck budget proposal.
Regarding new revenue, Governor-elect Ferguson states that:
“I am focused on identifying opportunities for savings first and will only focus on revenue after we have scrubbed the budget for savings and reductions. I am deeply skeptical that we can rely on balancing the budget through an untested wealth tax.”
Ferguson’s plan is not a full-fledged, detailed budget, and more of an outline of priorities. In all, Ferguson is seeking $4.4 billion in spending reductions, compared with Inslee’s plan for about $1 billion in the 2025-27 biennium. On the bright side for our interests at FFTS, Ferguson declared K-12 education off-limits to cuts. But more disappointingly, he proposes a 3% cut to public 4-year colleges and universities. Ferguson also proposed a 6% cut to all other state agencies, but the details of this are unspecified in his priorities document and it seems that agencies will be asked to develop their own proposals for finding 6% in cuts for the biennium.
Ferguson also proposes about $800 million in new programs, including $240 million per biennium to provide free school lunches for all Washington students, which is in line with progressive Democrats, and FFTS’ policy platform.
The difference in tenor between Democratic lawmakers and Governor Ferguson when it comes to the budget is pretty stark. The legislature has the authority to create or cut taxes, and to create or cut programs. But the Governor has the veto pen and a public profile much larger than members of the legislature. It’s not clear where this is headed, and if there’s gamesmanship at play. But it will be a big storyline to watch in the next few months.
There are a lot of new faces in legislative seats
A combination of lawmaker retirements, switches due to redistricting, departures for higher office, and gubernatorial appointments means that there will be more than 30 new people in various seats in the House and the Senate.
It represents a significant turnover in the legislature. Think of your own place of work and what it would be like if more than 20% of your colleagues were either brand new or in new roles. Something like that would come with normal pains of change, and that’s what lawmakers and legislative staff will be working through this year. It also means that more experienced lawmakers will have the chance to step into new leadership roles, and together with those who already hold leadership positions, they’ll be relied upon to steer the ship through a challenging budget environment.
Bills, bills, bills
Even though the legislature doesn’t formally convene until January 13, lawmakers are allowed to begin filing bills in early December. There are several education bills that we’ve designated as high priorities so far.
But before we summarize what’s on the table so far, we recommend checking out the page on the legislature’s website that summarizes how a bill becomes a law. It’s a quick read, and will give you a nice civics primer.
As a supplement to that, this video from Vox is a great – and accurate(!) – spin on the Schoolhouse Rock classic:
Our top priority - college outreach
The reasons we have seen a decline in the rates of college enrollment in Washington are varied and situational. That calls for policy that invests in individualized support to students, and the best form of individualized support is a skilled and trusted adult whose purpose is to help a student navigate the gap between high school and college.
At FFTS we’ve helped to shepherd bills in the Senate and House, Senate Bill 5164 and House Bill 1136, do two things when it comes to this kind of student outreach:
They propose a bold investment in more boots on the ground in the form of skilled adults who will work directly with students.
They propose an investment in ongoing financial aid training and professional development for adults who work with students in any capacity, and who may not have the technical understanding themselves of financial aid processes.
We face an uphill climb with these bills given the tough budget environment this year. But not an impossible one. Along with an array of partners and peers, we’ll be doing all that we can to support these bills as they move through the legislative process this year.
Meeting state obligations for basic education funding
When it comes to the K-12 school funding formula in Washington, our policy platform calls for a comprehensive analysis of Washington’s school funding model along lines of funding equity. But that’s a longer term project, and something that we know isn’t on the table this year.
What is on the table this year is a push to increase K-12 funding so that the state meets its obligations to provide for basic education. This includes more funding for school transportation, and basic operating costs. FFTS supports this short-term priority as a necessary first step before the more comprehensive project called for in our platform. Senate Bill 5187 tackles the transportation issue, while Senate Bill 5192 addresses general operating cost issues. House companions are yet to emerge.
Bringing the kids back
One of the biggest challenges schools in Washington and across the entire country face at the start of 2025 is the persistently high levels of student chronic absenteeism. Defined as missing 10% or more school days for any reason, rates spiked following the pandemic and remain high.
Washington has already taken an important step by having the Superintendent of Public Instruction commit to reducing chronic absenteeism by half over the next five years. Senate Bill 5007 aligns with this commitment and proposes enhancing training for educators, expanding dropout prevention programs, and providing grants for community partnerships, with a focus on proactive family engagement and support services. It’s also a bipartisan bill. We love to see it!
More tweaks to high school graduation requirements
The annual tradition of legislation that requires financial education as a high school graduation requirement in Washington is back in Senate Bill 5080. At FFTS we look at this as not a bad idea per se, and it’s definitely something that we hear students ask for. But we’d like to see lawmakers and interest groups break the habit of proposing piecemeal and siloed changes to high school graduation requirements, in favor of a more comprehensive and holistic approach.
The State Board of Education is launching an initiative in 2025 called FutureReady that attempts to do that, and it’d be nice if lawmakers could pump the brakes on ideas like Senate Bill 5080 while this project plays out.
Conservative trends in education show-up in Washington
Among the bigger trends nationally in K-12 education policy is the idea of providing parents with flexible cash that they can use on private school tuition or other education programs for their kids. Most commonly called “education savings accounts,” this is an idea that’s been around for a long time known and used to be called school vouchers. It’s a prominent idea among conservatives, and there are at least eight states that have these programs in some form. There’s no chance that we’ll create a program like this in Washington in the foreseeable future, and for good reason. But as a reminder that we don’t exist outside of national politics, Representative Travis Couture introduced House Bill 1140 that proposes to create a statewide education savings account program.
The 2025-26 biennium will be a test for Democrats
As you may have heard, 2024 was a tough year for Democrats nationally. But relative to the rest of the country, we showed overall support for Democratic governance in Washington. There was no erosion in Democratic majorities in the legislature, in fact they gained a seat in the Senate and seat in the House. Governor-elect Bob Ferguson won fairly comfortably as well.
And it’s also interesting to look at population growth trends among other solidly blue states. Oregon, California, Illinois, and New York have all been hemorrhaging population over the last few years, which could be interpreted as people voting with their feet. Meanwhile Washington is among a group of blue states that has maintained modest population growth.
So the story here seems to be one of a constituency that is at least satisfied if not supportive of our political leadership. But this is the first year in quite some time where the Governor and lawmakers have a truly hard challenge on their hands with regards to the state budget. And while we haven’t suffered the population loss of peer states, people aren’t clamoring to move here like they were 10 years ago, and like they are now in Texas and the Southeast. So a question for Governor-elect Ferguson and lawmakers is what can they do to not just maintain our relative island of stability through budget cuts and possibly new revenue, but make Washington into a model for blue-state governance? We want people here to feel that there is an excellent ratio of public services to taxes in Washington, and educational quality and student outcomes should be at the core of that project.