In his first supplemental budget, Gov. Bob Ferguson has laid out some salient guiding principles that should help steer the Legislature away from a tradition of runaway spending in the near term. But while providing a useful roadmap for lawmakers, Ferguson also places some risky financial bets on Washington’s future, including a $1 billion tapping of the state’s rainy-day fund.
The governor made clear that new taxes, such as the recently proposed payroll tax, are a nonstarter for closing what he called a $2.3 billion budget gap through June 2027. Lawmakers already passed $12 billion in new taxes earlier this year. The latest hole continues to be the result of ruling Democrats outspending the state’s tax revenues, even as those revenues have continued to rise. Ferguson has signaled they will need to learn to live within their means — at least for this session.
However, the governor also used his budget rollout to embrace a so-called millionaires’ tax, which could raise $3 billion a year starting in 2029. But his support, he said, was contingent on pairing a 9.9% tax on those who earn more than $1 million a year with reductions benefiting lower-income Washingtonians and small businesses who have been hardest hit by the state’s high cost of living.
That’s an important distinction. Many legislative Democrats decry a regressive state tax code but focus solely on bringing in more money from top earners rather than reducing the burden on those who can least afford the taxes. The governor is right to insist on balancing both of those sides, and he should continue to demand it.
“Even faced with a challenging budget, my north star is a stronger, more affordable Washington for every single Washingtonian,” the governor vowed.
More worrying, though, are some accounting tactics within Ferguson’s budget that merely make today’s strain tomorrow’s financial pain. The governor’s budget does not balance over a full four years — it only bridges the gap through mid-2027. Ferguson’s decision is shortsighted and is the kind of gimmick that earlier this year he warned the Legislature not to pursue.
The governor also proposes using $1 billion in funding from the rainy-day fund, leaving the state’s reserves at just 3% of general fund revenues. The state treasurer’s office recommends that number be at least 10%.
That move could prove detrimental to the state’s financial health, which previously has earned it a strong credit rating that makes borrowing money for projects cheaper. He must recognize that his bold transportation agenda, including pumping more than $3 billion in bond-funded fixes for roads, bridges and ferry construction, depends on those strong bond ratings.
If the state’s financial health is at stake, the governor could have gone further in making cuts. Conspicuously absent in Ferguson’s budget this year are any furloughs for state workers, though he and the Senate’s budget proposal earlier this year included them.
Elsewhere in his proposal, Ferguson has made hard choices. In education, he wisely proposes restoring or preserving critical funding for programs proven to help vulnerable youth graduate from high school, including Treehouse’s Graduation Success Program for those in the foster system, and the Ninth Grade Success Program Initiative to help those most at risk of dropping out. Yet his budget proposal includes a total of $147 million in cuts; especially worrisome is a plan to trim funding to poorer school districts that was designed to help level the playing field with more affluent ones.
Ferguson also suggests repealing some tax exemptions to help plug budget holes, including axing the ability of data center owners to avoid sales taxes on replacement servers and equipment. (The exemption still applies for data center construction.) The governor’s move makes sense at a time when the state’s electricity grid is increasingly straining under demand and driving up electricity bills.
His budget also appropriately takes $30 million in Climate Commitment Act dollars to top up the state natural resources department’s nascent efforts to make forests more resilient in the face of wildfire. But he will also use $569 million from those dollars, raised in carbon auctions, to fund the working families tax credit.
Ferguson notes the landmark law, passed by the Legislature in 2023, lists the tax credit as an acceptable use of the dollars paid by the state’s biggest emitters. But the governor’s impetus is opportunism in a time of budget pressure. The more than 6 in 10 voters who backed keeping the Climate Commitment Act in a 2024 initiative set an expectation for those funds — one the governor risks undermining.
While state lawmakers can quibble on the details over the course of the 60-day legislative session — and they should — the governor has, overall, set the tone and displayed guidance legislators need to do the work. Throughout the session, he should also remain a visible presence in Olympia. The budget will once again take center stage when the Legislature convenes Jan. 12.
