Washington state to face more budget challenges after new gloomy revenue forecast

Shauna Sowers, The Seattle Times on Sep 25, 2025

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OLYMPIA, Wash. — Washington state's latest revenue forecast dropped this week and the news is bleak: The state expects to bring in about $903 million less over the next four years than what lawmakers were counting on — adding even more pressure as the state already faces a massive budget shortfall.

Come January, lawmakers will be back in Olympia, trying to balance the state's two-year supplemental budget. It won't be easy with more cuts and additional taxes on the table.

Legislators already worked to shore up an estimated $12 billion to $16 billion budget hole by cutting services and approving a sweeping package of additional taxes to the tune of more than $9 billion. With collections continuing to fall short, Senate budget chair June Robinson, D-Everett, says “barring a miracle,” budget writers face a tough reality of looking to more painful cuts, additional taxes or both.

“It's going to be hard to find cuts because we just went through a big cut exercise earlier this year, and took anything that was palatable to budget writers,” she said, adding it is unlikely that cuts made this year will be restored.

For everyday Washingtonians, those decisions will likely hit close to home.

“Looking at what happened last session is kind of key to understanding where we could be in the next session,” said Rep. Travis Couture, R-Allyn, a top Republican on the House Appropriations Committee.

He said beyond more possible cuts or additional taxes, lawmakers will once again have to consider whether to “kick the can down the road” by delaying programs — like they did last session with child care and early learning funding.

“If you're on some kind of public benefit, public assistance you might be directly under the bull's-eye for this session coming up if spending cuts are decided,” he said.

Couture also stressed the impact of higher taxes on Washingtonians already grappling with rising costs for rent, groceries, gas and child care.

If more reductions are made in 2026, it could mean more state worker layoffs, reduced food assistance and further funding cuts to higher education, an area where lawmakers have “more discretion, Robinson said.

All the options are “pretty ugly,” she said, after this year's deep round of cuts. When asked about the possibility of a new wealth tax, Robinson said it's still unclear whether it will be seriously considered again. Even if it does pass, she pointed out, it could take time before it brings in any real revenue.

The latest report from the state's Office of Financial Management shows projections for the 2025-27 budget cycle dropped by $412 million since June. That puts expected revenue at $412 billion for the current biennium, which began July 1.

For the 2027-29 cycle, projections are down another $477 million from June, now expected to total $79.5 billion.

This isn't a new trend: Revenue estimates were already declining back in March before lawmakers even gaveled out of the 2025 legislative session.

OFM says the shortfall is driven largely by a drop in real estate excise tax revenue, weaker retail sales, and slower construction activity.

Gov. Bob Ferguson called the latest forecast “disappointing, but not surprising.” Ferguson previously urged budget writers to consider cuts before relying too heavily on new taxes, though he ultimately signed off on the new revenue package passed during the session.

Earlier this year, a sweeping $77.8 billion operating budget for 2025-27 was passed by Democrats to the displeasure of Republicans and some moderates.

Adding to the challenge, a nonpartisan analysis from OFM in early September estimated that new tariffs could cost the state around $2.2 billion over the next four years. That doesn't even include the estimated multibillions in pending lawsuits and tort claims against the state, including a new lawsuit from Comcast, which is challenging a business tax the Legislature passed last session before it takes effect Oct. 1.

The final revenue forecast will come out in November and will give lawmakers a clearer picture as they prepare for the 2026 session.

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