Ben Mitchell
Director of Advocacy & Policy, Foundation for Tacoma Students
Washington state is facing a significant projected budget deficit. Thus far, it seems as though Democratic lawmakers and the Governor have been working on separate tracks when it comes to developing a plan for the deficit. While the legislature is the branch of government that has the power to craft the budget, Governor Ferguson came out last week with a proposal for budget cuts that would address a decent chunk of the deficit. But not all of it, and it seems like raising new revenue is going to have to be part of the equation.
Nested within the overall budget challenge is a very tough finance landscape for K-12 school districts. The tightening of the state budget means that the K-12 funding cavalry in the form of big new state allocations is not coming this year. But, the state legislature might allow school districts to raise more money from local levies than they are currently allowed to do. This could help more affluent districts that tend to be able to pass levies more easily, but for most school districts it would not solve the underlying funding inequalities between poor and wealthy communities.
Budget cuts are looming
The single biggest contextual factor in state policy and politics this year is the enormous hole in the state budget. At a high-level, here’s what we know about the why and what of the budget situation at the beginning of March:
Last fall we started to hear publicly of a significant budget deficit. By the end of 2024 it was clear that revenues for the state were not growing fast enough to keep pace with spending obligations.
Shortly after being sworn in, Governor Ferguson instructed state agencies to identify 6% in budget cuts for his team to consider. Four-year universities were asked to find 3% in cuts.
In the legislature, lawmakers have been wary of advancing legislation that requires new spending, and have also put a lid on budget provisos – the prevailing Plan B for advocates and lawmakers when you can’t get a bill to move forward.
People in and around state government, including us, have been going through the stages of grief for the last four months with all of this. And now at the end of February we’re in the bargaining phase.
This was exemplified by Governor Ferguson’s press conference on February 27th where he presented his plan for about $4 billion in new spending cuts over the next four years. The Governor also supports another $3 billion in reductions that former Governor Inslee proposed, bringing the total amount of proposed spending reductions to about $7 billion over four years.
Notable areas for budget reductions proposed by Governor Ferguson include:
State employees
Most state employees would be subject to one unpaid furlough day per month for the next two years, saving about $300 million.
Healthcare
The state Health Care Authority, which administers various health benefit and insurance programs including Apple Health, or Medicaid, got about $300 million in cuts over two years. The focus of the cuts is to the reimbursement rates for certain health care services.
Temporarily closing unused wards at Western State psychiatric hospital in Lakewood saves about $90 million over two years.
Basic needs
Reduction in state funding for food banks from $128 million every two years, to $82 million.
State agency discretionary spending
Reductions to out-of-state and in-state travel, ending some unneeded building leases, and reducing state-funded marketing campaigns, studies and task forces.
While the overall approach was to spread the cuts fairly evenly in terms of a percentage of their overall operating budget, some agencies and program areas were not subject to cuts. This includes public safety agencies, namely the state prison system and the state police, as well as investments in homelessness and housing assistance.
Key to our interests at FFTS is that funding for K-12 education and the community and technical college sector was left untouched by the Governor. That only represents the table stakes for K-12 interest groups, including us at FFTS, who would like to see an increase in basic education funding. (More on that below).
New revenue?
The amount of the budget deficit has been a bit of a moving target so far. Democrats in the legislature have been talking about a roughly $12 billion deficit, while Governor Ferguson referenced a $15 billion shortfall. So that means that the reductions proposed by the Governor still come up short by $5 billion to $8 billion.
That leads to the open question of new taxes or tax increases in order to help close the budget gap. It seems like the writing is on the wall that this is going to be part of the equation to square the budget circle, but from the outside it’s very unclear what exactly is going on among Democrats.
Nobody has put forward a serious proposal for closing the budget deficit only through cuts. Governor Inslee was legally required to put together a budget proposal that did not include any new revenue, but that proposal was not released publicly. The proposal that Inslee did recommend to the legislature included a new wealth tax, and an increase to the business and occupations tax. Democrats in the Senate and House and Senate have also been saying publicly for months that they believe new taxes or tax increases are necessary.
However, Governor Ferguson has not yet come out with a stance on new taxes or tax increases. In his press conference last week he emphasized that his team has been focused on the cost cutting analysis so far, and said: “we’re not going to tax our way out of this thing. Not going to happen.”
Maybe consensus emerges for another billion or two in cost savings, but unless there’s a secret strategy for the Governor to identify another $5 billion to $8 billion in budget cuts over the next four years, and then roll Democrats in the legislature, it looks like raising some amount of new revenue is a foregone conclusion.
We knew going into the session that revenue options being looked at by Democrats include a payroll tax on companies that pay high wages, increasing our already-existing capital gains tax, and a wealth tax. In the first half of the legislative session some specific ideas have emerged.
There’s the possibility of tweaking the business and occupation tax rate by increasing an existing surcharge applied to advanced computing businesses, i.e. Microsoft and Amazon. Right now those businesses pay an additional surcharge on their business activities in Washington, and the proceeds from that surcharge are deposited into something called the Workforce Education Investment Account (WEIA). That pot of money can only be used for higher education, including financial aid, school operations, staff compensation, workforce development. Currently the surcharge tax has a cap where no single business will pay more than $9 million per year, regardless of how large their business is in Washington. A bill sponsored by Representative Julia Reed would remove that cap, and bring in an estimated $630 million over four years.
Another bill from Representative Reed would apply a 7.5% tax to excess compensation of high paid hospital administrators. And then a bill from Representative Beth Doglio would broaden that approach to any highly paid executive, applying a 10%-25% surcharge on executive pay that is more than 50-150 times the median salary of their average employee.
The bottom line emerging with all the revenue options and strategy is that there’s not one easy lever to pull. It’s going to take a mix of tax tweaks and spending cuts to come up with $12 to $15 billion over four years, and the implementation of any new taxes will also take time to ramp up. That’s likely what is behind a proposal to borrow from our state reserve fund, which would create a bridge for the next few years while new tax schemes are brought on line.
Over the next three weeks budget writers in the Senate and House will release their budget proposals, and presumably Governor Ferguson will come out with a stance on revenue options. A crucial factor in this will be the next revenue forecast update on March 18. This will be the last official forecast during the legislative session and will provide a basis from which the overall budget will be built. The concern is that the March forecast will report a decline from the last revenue update, further exacerbating the overall budget deficit. The worry comes from a combination of a slightly cooling economy, projected increases in the enrollment in state entitlement programs like the Washington College Grant, and the uncertainty around what to expect in terms of federal funding.
We’ll see what happens.
Lots of dead bills
Last Friday, February 28, was the fiscal committee cutoff. This is the deadline for bills to make it past level two of the legislative session videogame:
Level 1: Get voted out of policy committee in house of origin (House or Senate)
February 21 deadline
Level 2: Get voted out of fiscal committee in house of origin
February 28 deadline
Level 3: Get approved by Rules committee to move to a vote of the full chamber
March 12 deadline
Level 4: Get majority vote of full house of origin
March 12 deadline
Levels 5-8: Switch to opposite chamber, repeat steps 1-4 over there
Level 9: Get signed into law by Governor
With a few important caveats, any bill that did not get voted out of the Ways and Means Committee in the Senate or the Appropriations Committee in the House by last Friday is D-E-A-D. From here the next deadline is March 12, when bills have to get a vote from either the full Senate or House and be advanced out of their house of origin and pass Levels 3 and 4.
All that stress with the budget deficit means that there’s not much appetite for advancing bills that require new spending, and that a lot of bills burned through all their lives before they could make it out of level 2.
Here’s where things stand with the high priority education bills we’ve been working on or tracking: (😁 = Very good shape; 🙂 = good shape; 😬 = dicey; 😵 = dead; 🤔 = I have no idea)
House Bill 1587 – Encouraging local government partner promise scholarship programs within the opportunity scholarship program.
Status – 🙂 (Level 3)
Passed the Appropriations Committee.
What this bill does
Allows local governments who want to create a college promise program to access matching funds through the Washington State Opportunity Scholarship.
Amended in Appropriations to limit the state matching amount for any single local government to $250,000 per year.
House Bill 1273 – Improving student access to dual credit programs.
Status – 🙂 (Level 3)
Passed the Appropriations Committee.
What this bill does
Improves high school student access to career and technical education programs by enhancing collaboration between K-12 and higher education, developing statewide articulation agreements, and improving administrative systems.
Amended in Appropriations to only maintain an existing pilot program. No new programming.
Senate Bill 5164 – Providing student navigational supports to increase postsecondary enrollment.
Status – 😵 (Level 2)
Our top priority bill this session did not get a vote from the Ways and Means committee. The bill is unfortunately dead, but we’ll work with lawmakers and partners to try and get funding for some of what the bill proposed to do.
What this bill does
Expands the financial aid outreach specialist pilot program, and creates a financial aid training program for educators and community partners.
Senate Bill 5402 – Modifying financial aid eligibility
Status – 😵 (Level 2)
Did not receive a hearing in the Ways and Means Committee.
What this bill does:
Expands the reach of the Washington College Grant to make attendance at any public 2-year or 4-year college or university tuition free for families making up to 70% of the state median family income.
House Bill 1557 – Establishing the Washington guaranteed admissions program and requiring student notifications
Status – 😵 (Level 2)
Did not receive a vote in the Appropriations Committee.
What the bill does:
Formalizes the Washington Guaranteed Admissions Program in state statute, and promotes universal participation in the program among K-12 school districts.
Senate Bill 5352 and House Bill 1404 – Increasing student access to free meals served at public schools
Status – 😵 (Level 1)
The Senate bill never got out of the K-12 Education Committee, and the House Bill never got a hearing in the Appropriations Committee.
What these bills do:
Mandates free meals for all public school students in Washington State starting in the 2026-27 school year.
Senate Bill 5007 – Supporting students who are chronically absent
Status – 😵 (Level 2)
Did not receive a vote in the Ways and Means Committee.
What this bill does:
Enhances training for educators, expands dropout prevention programs, provides grants for community partnerships
Increasing basic education funding remains a priority
Increasing funding for basic education is in the mix, but a lot of local school districts are still going to face budget headwinds this year. Before we unpack that situation, here’s the update on where the relevant legislation stands for the “Big Three” basic education funding issues:
Materials, supplies and operating costs, also known as MSOC
Transportation
Special education
Materials, supplies and operating costs
Senate Bill 5192 and House Bill 1338 – Concerning school operating costs
Status – 🙂 (Level 3)
SB 5192 and HB 1338 both passed their respective fiscal committees.
What these bills do:
Increases the funding formula for materials, supplies, and operating costs.
The bills were amended in the fiscal committee to reduce the amount of the increase from what was initially proposed.
Transportation
Senate Bill 5187 and House Bill 1579 – Providing adequate and predictable student transportation
Status – 😵 (Level 2)
Neither bill was ever brought up for a vote in the fiscal committees.
What these bill do:
Provides additional funding for transportation for students who are homeless, and requires an analysis of overall school district transportation costs and the development of a new model.
Special Education
Senate Bill 5263 – Concerning special education funding
Status – 🙂 (Level 3)
Passed the Senate Ways and Means Committee.
What this bill does:
Removes the 16% student enrollment cap for special education funding, and boosts the funded amount for each student. Does not include extra funding boost for special education students who spend more time in a general education classroom.
As things stand now, this bill would provide the most amount of new funding overall for special education compared to the other bills that are still alive.
House Bill 1357 – Special education funding and support for inclusionary practices
Status – 🙂 (Level 3)
Passed the House Appropriations Committee.
What this bill does:
Increases the funding formula for special education students, but does not remove the 16% cap. Includes a school-level pilot program to support inclusion of special education students in general education classrooms.
Compared to Senate Bill 5263, this bill would provide less new funding overall for special education.
House Bill 1267 – Adjusting funded special education enrollment
Status – 😵 (Level 2)
Did not receive a vote in the Appropriations Committee.
What this bill does:
Removes the 16% special education student enrollment cap, and mandates oversight to prevent overidentification of special education students.
Senate Bill 5307 and House Bill 1310 – Concerning special education funding
Status – 😵 (Level 1)
Neither bill received a vote after their initial hearings.
What these bill do:
These are identical companion bills that remove the 16% student enrollment cap for special education funding, and boost the funded amount for each student. They also offer an extra funding boost for special education students who spend more time in a general education classroom.
The prioritization of the Big Three basic education funding issues has crowded out a lot of other K-12 policy that has a price tag. And while adequately funding basic education remains essential, it’s important to remember that our K-12 funding distribution is regressive overall.
The one funding stream we have that is actually based on student academic needs and concentrations of poverty is the Learning Assistance Program. We see this as the best funding tool we have at the state level to address opportunity gaps and boost student achievement. There was a bill from Senator T’wina Nobles that would have increased the funding levels for the Learning Assistance Program, and added hundreds of new schools to the program. It had a big price tag of $179 million, and it never got out of the K-12 and early learning policy committee because of the tight budget environment overall and the prioritization of the Big Three.
School districts are facing a very tough budget landscape
Local school boards and administrators across the state are dealing with some major stressors when it comes to their budgets. The details of the situation vary from district to district, but there’s a common confluence of issues:
The end of federal COVD relief funding has left holes in budgets.
In some places student enrollments are down.
There is rising concern that there will be a reduced level of federal funding.
Many districts are carrying more staff than they have before.
Special education costs are crowding out other spending.
However things shake out with K-12 education funding during the legislative session, it’s not going to amount to a new windfall for districts. That means that over the next few months, when most school boards and district leaders are putting together their budgets, many districts will face the prospect of downsizing spending.
Parents and school staff certainly resist budget reductions, and so it’s hard for this to not become contentious at the district level. School districts facing the biggest budget shortfalls might have to consider several unappealing options:
Reducing labor costs through furloughs, layoffs, or compensation negotiations.
Closing schools.
Dipping into district reserves.
Other districts will be able to avoid pulling those levers, and will figure out how to rightsize their budget with more marginal cuts spread across several areas.
For the school districts that are facing budget cuts, their leadership should ask which programs or investments have demonstrated more or less value for students? That feels uncontroversial, but to make choices with that lens school board members need good data that focuses on impacts for students. As districts consider a range of cost reduction scenarios, it will also be important to have lots of communication with parents, staff, and labor groups.
Loosening up restrictions on locally generated funds
One last K-12 education funding wrinkle that could be a help to school districts would be a change to how they can levy local property taxes to pay for enrichment programs. It’s widely understood that wealthier school districts tend to have an easier time passing local levies, and that over time this produces large funding disparities with poor communities having less funding for education. The fix for this in Washington has been to do two things:
Place a limit on the amount that school districts can levy and collect.
Use state money to help poorer school districts that can’t pass levies pay for enrichment programs.
For affluent school districts, this set-up potentially leaves local funding on the table when their voters might be willing to pay more in property taxes than the cap allows. For poorer districts, the state funding through the local effort assistance program is less compared to what wealthier districts are able to collect from their tax bases.
The potential new wrinkle comes in the form of a bill sponsored by Representative Steve Bergquist that does a few different things related to school finance. It includes increases to the funding that school districts can raise from local levies. It also increases the funding for the local efforts assistance program for poorer districts that have trouble passing levies.
It’s an attempt to get at both sides of the issue: lessening restrictions on people’s own willingness to pay higher property taxes for education, and smoothing out unequal funding levels. A great analysis from the University of Washington breaks down the impacts of this bill. The authors show that the approach does indeed reduce funding disparities between rich and poor school districts, but ultimately does not resolve wealth-based disparities between school districts.
