Why It Matters
Washington state agencies are being asked to brace for significant fiscal strain heading into the next two-year budget cycle, with the governor’s office signaling that maintaining current spending levels may not be financially sustainable. The warning sets the stage for what could be the most consequential budget debate the state has faced in years.
What Happened
Gov. Bob Ferguson’s budget director, K.D. Chapman-See, sent a memo to state agency leaders on Friday alerting them to looming shortfalls in both the operating and transportation budgets for the next biennium. The directive made clear that a course correction is expected before budget requests are even submitted.
Agencies were instructed to pause the phase-in of most new programs and to refrain from proposing additional spending expansions. Ferguson also asked agency directors to review all programs created or expanded since January 2019 and to identify areas where Washington delivers higher service levels than comparable states.
Chapman-See did not mince words in the memo. “There will be significant budget shortfalls next biennium in both operating and transportation budgets,” she wrote, adding that “a ‘business as usual’ approach will not meet the need of this moment.”
All agency budget requests must be submitted to the Office of Financial Management by September 14.
By the Numbers
The scale of Washington’s current spending underscores the difficulty of the task ahead. The state’s two-year operating budget currently stands at approximately $80 billion — nearly double the roughly $43.7 billion two-year budget signed in 2017.
By contrast, the state’s population grew by only 14.2% between 2015 and 2025, meaning spending has expanded far faster than the population base supporting it.
A new income tax targeting millionaire earners was expected to provide some relief, but its revenue will not be fully available until the second half of the upcoming budget cycle. Roughly 42% of that revenue is already earmarked for tax relief provisions — and the tax itself faces active court challenges as well as a likely ballot initiative that could curtail or eliminate it.
Zoom Out
This is the third consecutive legislative session in which Washington lawmakers will face a substantial budget gap. The first deficit session was addressed through a combination of spending reductions and a new tax package. The second drew on the state’s rainy day reserve fund and a series of one-time budget maneuvers. With those options largely exhausted, the coming session offers fewer easy off-ramps.
Washington’s situation mirrors a broader pattern in states that expanded government services significantly during the post-pandemic revenue surge. As federal relief funding dried up and revenue projections moderated, states across the country have been forced to revisit spending commitments made during flush years. The fight over how to respond — whether through cuts, new taxes, or structural reform — is already taking shape in Olympia. The battle to determine who will lead the state House is expected to shape how aggressively lawmakers pursue each of those options.
What’s Next
Agency leaders have until September 14 to submit their budget requests, which will form the foundation of the governor’s proposed budget later this year. Lawmakers will then take up the spending plan when the legislature convenes in January 2027.
The income tax on high earners remains a wild card. If courts strike it down or voters repeal it at the ballot, the revenue gap widens further. If it survives, its contribution to the next budget cycle will still be limited given the timing of collections and the portion set aside for tax relief.
Ferguson has not yet outlined specific cuts or priority areas he intends to protect, but the memo signals that agencies should expect hard conversations ahead. With little political appetite for another round of reserve fund withdrawals, the next budget cycle may require more structural decisions about the size and scope of state government — a debate that will intersect directly with the ongoing contest for House leadership and the broader direction of the Democratic-controlled legislature.