The state revenue forecast released on March 18 shows a lower forecast for state revenues, driven by slower state sales and B&O tax growth. The revised forecast decreased again by $479 million for 2025-27 and $420 million for 2027-29. That will add $900 million to the estimated $12-15 billion operating budget gap for the next four years as the Legislature finalizes plans to release budget proposals on Monday, March 24.

The decreased forecast reflects a slower than predicted return to pre-pandemic economic levels, particularly for state sales and B&O taxes and the continued effects of higher-than-expected inflation. The lower state sales tax is particularly important because it makes up more than 50 percent of the operating budget. On a positive note, education account revenues are up by $181 million for 2025-27 due to higher than anticipated capital gains taxes.

The Economic and Revenue Forecast Council (ERFC) cited several economic uncertainties including:

• assumptions about impacts to Washington from federal budget reductions and an expected five percent reduction in Washington’s federal workforce,
• economic impacts of tariffs,
• prolonged international instability and conflicts, and
• continued impacts from higher interest rates on the construction and retail industries.

The wider budget gap also adds to the risk of potential cuts to city budget priorities. Take time now to remind your legislators again about the importance of programs like the Public Works Assistance Account.  

For more information, see the full forecast here.

The ERFC also released a transportation revenue forecast on March 18, which showed slightly better news for the state’s transportation budget. Projected revenues in the 2025-’27 biennium are expected to be $7.1 billion, an increase of about 1.6%, or $114 million, from the November forecast. This is due mostly to an increase in gas tax collections, which makes up the largest share of the state’s transportation revenues. However, gas tax revenues are still on a long-term downward trajectory; the decline has simply slowed somewhat. Fuel prices have come down recently and gas consumption is up.

While the increase in projected revenues will have a positive impact on the transportation budget, it will make a small dent in the nearly $1 billion deficit projected for ’25-’27 which has resulted from large cost increases on transportation projects and declining revenues.

See the full transportation forecast here.

Lower revenue forecast sets the stage for tough decisions in 2025-27 budgets

December 6, 2024

The November revenue forecast was lower again, driven by continued slow real estate transactions and lower than expected sales and B&O tax collections. The Economic and Revenue Forecast Council (ERFC) forecast showed that revenues will be $89 million less than September for the 2023-25 biennium and $181 million lower than predicted for the upcoming 2025-27 biennium.

With an expected $10-12 billion structural gap over the next four years between operating expenses for current service levels and reduced revenues, requests to increase school funding by $3 billion, and pressure from transportation project costs, it sets the stage for tough decisions in the Governor’s proposed budget expected the week of December 16 and legislative decisions in the 2025 session. To help reduce costs, the Governor imposed a freeze on state agency hiring, services contracts, goods and equipment purchases, and travel on December 2.

State law requires the Governor to submit a budget without assuming new revenues by December 20. That becomes the starting point for House and Senate discussions on their budget proposals, which typically are released in March following the first quarter revenue forecast and passed as one of the last bills of the session before adjourning at the end of April.

The forecast estimates do predict some future increased growth due to slowing inflation and predictions of lower interest rates. But lower than expected sales and B&O tax collections, the temporary impacts of the Boeing strike, and continued slow real estate transactions drove the lower forecast. Slower real estate transactions will also continue to impact city funding due to reduced real estate excise tax collections, which fund programs for cities like the Public Works Assistance Account and city-county assistance funding, and lower than expected document recording fees that fund local homelessness programs.

The transportation revenue forecast also showed a slowdown in gas tax revenues placing pressure on funding for current projects. More information on that forecast is available here.

AWC’s budget priorities were sent to budget leaders earlier this fall. We encourage you to discuss them when you meet with your legislators.  

Revenue forecast relatively flat again

October 14, 2024

The September revenue forecast is $49 million lower for the current biennium as the state prepares the 2025-27 biennial Governor’s proposed budget for release in December. The estimates recognize future increased growth due to slowing inflation, but continued risks from international conflicts, the Boeing strike, and delays in federal action to lower interest rates.

The forecast does not include potential state revenue impacts of ballot measures proposed for the November election.