Harger: Governor Ferguson admits Washington’s 2027-29 budget is in trouble. His own OFM director is preparing for it to be worse

Governor Bob Ferguson posted on X over the weekend that Washington faces serious budget challenges. The shortfall will be significant, he said, and the full picture comes in December.

The picture is already clear. It’s just clearer inside his own office than it is on his X account.

On June 4, Ferguson’s budget director sent a letter to every state agency telling them three things. Stop expanding programs. Prepare significant cuts. Don’t count on the new millionaires tax to cover anything.

That last sentence is the news.

The millionaires tax is the new income tax on high earners that Democrats in Olympia passed this spring after refusing to cut spending to balance the 2025-27 budget. It doesn’t start collecting until 2029. A court challenge is pending. Initiative supporters are gathering signatures right now for a measure that would allow voters to reject the tax outright.

Office of Financial Management Director K.D. Chapman-See told her agency directors directly: Do not budget as if any of this revenue is real.

Governor Ferguson said no new taxes in 2025. Then he signed Washington’s largest tax increase in state history

This is the gap.

We’ve heard this from him before.

In 2025, Ferguson said he’d look for savings and efficiencies before agreeing to raise taxes. Then, in May, he signed a $78 billion operating budget with more than $9 billion in tax increases over four years. State Representative Travis Couture, R-Allyn, called it the largest tax increase in state history. New business and occupation taxes. A broadened capital gains tax. A “Tesla tax” on electric vehicle credits. Then this spring he backed and signed the Millionaires Tax, a 9.9% income tax on residents earning over $1 million a year, projected to raise about $4 billion annually once collections start in 2029.

The governor who promised to look for cuts first, then signed the largest tax increase in state history, is now promising again to look for cuts first.

In the same June 4 letter, Chapman-See told every cabinet agency to prepare for the most challenging budget cycle “any of us has yet faced in these roles.” That internal letter is where the state is being honest with itself.

Washington’s 2027-29 budget math already doesn’t work, even before federal Medicaid cuts hit

The legislature’s own analysts project a $4 billion shortfall for the two-year budget that begins in 2027. That’s the cost of keeping the state doing what it’s already doing. No new programs. No expansions. No raises. Holding still costs $4 billion more than the state will have.

Every revenue forecast since has been revised downward, cutting roughly $2 billion combined across the current budget and the next. None of it has stopped.

Now the federal Medicaid changes arrive. H.R. 1, the 2025 federal budget law, adds work requirements, more frequent eligibility checks, and tighter rules on how states pay for Medicaid. Washington’s Health Care Authority says over 620,000 Apple Health enrollees will face them. OFM estimates up to $1.3 billion a year in lost hospital reimbursements, plus hundreds of millions in lost state savings.

It hits in the same budget cycle as that $4 billion gap.

Andrew Villeneuve says Washington’s budget is shrinking. Here’s why that argument doesn’t hold up

Before I lay out my case, the strongest version of the other side deserves space. Andrew Villeneuve of the Northwest Progressive Institute made it on “Seattle’s Morning News” recently. Villeneuve says the budget isn’t actually growing. He points to a longtime OFM metric: state expenditures per $1,000 of personal income. Washington spent $214.21 per $1,000 in 1995. By 2023, it was $170.25. By his metric, the state spends less of what it produces, not more. He also argues that the $80 billion figure excludes the all-funds total, which is closer to $193.7 billion once you add capital and transportation.

I take his point seriously. He’s not wrong about his math.

But Villeneuve admitted something in the same interview that does most of the work of answering him. I asked what he tells the listener who has watched their property taxes, sales taxes, and car tabs all rise faster than their paycheck.

“Property taxes have skyrocketed for those who bought modest homes that are now worth a lot more,” he said. “And we’re seeing the cost pressures just absolutely everywhere.”

That’s the listener’s experience. That’s the part the per-$1,000 chart doesn’t capture.

The personal-income denominator he uses has been distorted upward by one of the most concentrated tech wealth booms in American history. Median household income in Washington grew 54% over a decade, buoyed by Microsoft, Amazon, and the rest of the corridor. The cashier in Auburn, the retiree in Spokane, the construction worker in Everett, the small-business owner in Tacoma didn’t see their income grow 54%. They saw their property taxes, car tabs, sales tax, utilities, and gas prices rise instead.

Measured that way, the government looks cheaper than it actually feels to the people paying for it.

On scope, Villeneuve is right about the $193.7 billion all-funds number. But analysts focus on the operating budget because it funds the programs the debate is actually about: schools, Medicaid, behavioral health, homelessness. The capital budget builds buildings. The transportation budget funds roads. Including them changes the number, not the question. OFM’s own June 4 letter sourced its growth analysis to the operating budget.

Washington’s operating budget doubled in a decade. Inflation, population, and income growth don’t explain it

Ten years ago, Washington’s main operating budget was around $38 billion for a two-year cycle. Today it’s $80.2 billion after the 2026 supplemental. It has more than doubled.

Over that decade, inflation rose 39%. Population rose 14%. Median household income rose roughly 54%. None of those numbers come close to explaining the budget more than doubling. If spending had kept pace with inflation and population growth, the budget would be around $60 billion today. The $20 billion gap between $60 billion and $80 billion is the problem in one number.

This is also where the spending went.

Washington spent roughly $130 million a year on homelessness and housing a decade ago. Today, the state spends close to $900 million a year on the same problem. Seven times more. Homelessness has continued to rise.

The Climate Commitment Act (CCA), which didn’t exist before 2021, has collected nearly $4 billion through a new CO2 tax on emitters. Of $174 million in agency-level funding, roughly $90 million goes to staffing and overhead, and less than $16 million reaches actual projects. Most of the new climate revenue pays to administer the new climate revenue. In other words, it’s paying for the bureaucrats, not anything that would tangibly reduce carbon in the air.

After the 2021 Blake decision struck down Washington’s drug possession laws, the legislature committed more than a billion dollars to new behavioral health programs.

Per capita K-12 education spending is up 39 percent since 2012, adjusted for inflation, some of it court-ordered under McCleary. Test scores in math and English have declined consistently over the same period.

In four consecutive two-year budgets, lawmakers in Olympia approved spending that exceeded projected revenues. By $1.9 billion in 2019-21. By $2.6 billion in 2021-23. By $4.1 billion in 2023-25. By an estimated $6.5 billion in 2025-27. Each one was worse than the last. Each one was passed anyway.

Federal COVID money built Washington’s new layer of government. Then the federal credit card got cut up

Much of this expansion was launched on temporary federal money. When COVID hit, federal relief came pouring in. Some of it was necessary. Local governments, schools, and hospitals were trying to operate through a global emergency. None of that is in dispute.

The dispute is what happened next.

Olympia treated the temporary federal money as the floor for the next budget, instead of the emergency it was. New programs launched. Agencies expanded. Staffing plans built around a federal revenue line that was always going to expire. When the money ran out, the state kept paying the programs. The bridge was gone. The buildings on top of it were still there.

Chapman-See’s June 4 letter directs agencies to look specifically at programs created or expanded after January 1, 2019. That date isn’t random. It’s roughly when the spending curve went vertical.

Former Democratic Governor Christine Gregoire said the quiet part out loud

Former Democratic Governor Christine Gregoire has now publicly said what Republicans in Olympia have argued for years: the shortfall traces to legislative choices that let spending outrun realistic revenue, year after year, far more than to federal cuts or inflation.

A former Democratic governor is now on the record. The watchdog framing of this story isn’t partisan anymore.

Olympia knew the math. They had it for years. They knew the federal money would expire. They knew their own analysts were projecting deficits in the next budget before the current one ended.

They built more government anyway.

Now the bill is here. The governor says hard choices are coming. His budget director has already told every agency to start making them. The Millionaires Tax money isn’t assured. The federal money isn’t coming. The forecasts keep getting worse.

The math has been there for years. It just finally stopped waiting.

Charlie Harger is the host of “Seattle’s Morning News” on KIRO Newsradio. You can read more of his stories and commentaries here. Follow Charlie on X and email him here. 

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