Changing tides as state budget falls $500 million short

Jun 27, 2024, 12:50 PM

Photo: The State of Washington's Capitol Building in Olympia....

The State of Washington's Capitol Building in Olympia. (Photo courtesy of the Washington State Government)

(Photo courtesy of the Washington State Government)

State revenue forecasts reveal that collections will fall nearly $500 million short of earlier expectations. This decline is primarily attributed to decreased capital gains tax receipts and reduced consumer spending.

Washington’s economy is projected to generate $66.5 billion for the budget cycle through June 30, 2025. However, this figure is $477 million lower than the February forecast that lawmakers and Governor Jay Inslee relied upon for new spending initiatives.

According to The Washington State Standard, reserves may be necessary to bridge funding gaps until the legislature and the next governor develop spending plans during the 2025 session.

Director of the Office of Financial Management David Schumacher reassured that these adjustments won’t require drastic changes. With $2.4 billion in reserves, the situation remains manageable.

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Sen. June Robinson, D-Everett, chair of the Senate Ways and Means Committee, echoed the message.

“For the very short term we are okay,” she told The Standard.

The decline in capital gains tax payments accounts for $324 million of the revenue gap, while reduced retail spending led to a $224 million dip in projected sales tax collections. Estate taxes and real estate transactions exceeded expectations.

Despite this recent revenue dip, Schumacher and legislative budget writers remain cautiously optimistic.

Washington operates on a two-year budget cycle and the current report arrives midway through the biennium. Washington State Governor Jay Inslee will propose a budget for the 2025-2027 biennium in December, with two more forecasts to follow before then.

“Is this a blip down? Is this a downward trend?” Rep. Ed Orcutt, R-Kalama, asked, a question that subsequent forecasts will clarify.

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However, there’s another concern: the need to balance budgets over two bienniums. Forecasts indicate a total revenue reduction of $666 million between the current budget and the next.

Voters could further impact the budget by considering a ballot measure in November to eliminate the capital gains tax. The forecast assumes that won’t happen.

Senator Lynda Wilson, the lead Republican on the Senate budget-writing committee, anticipates clarity by year-end regarding the budget’s fate, based on voter decisions.

Timm Ormsby, the top House budget writer, emphasized that Democrats are waiting to see how the economy and voters shape the situation, committing resources only to existing obligations while allowing the dust to settle.

Bill Kaczaraba is a content editor at MyNorthwest. You can read his stories here. Follow Bill on X, formerly known as Twitter, here and email him here

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Changing tides as state budget falls $500 million short