The 2026 legislative session produced a mixed bag of results in the areas of finance and budget. The state’s continued budget shortfalls dominated the conversations this session. They were only overshadowed by the debate and eventual passage of a tax on millionaires (SB 6346). There were a couple of bright spots for cities and towns, and the budget impacts, outside of the sweep of $375 million from the Public Works Assistance Account into the general fund (backfilled with bonds), weren’t as bad as they could have been.

One of AWC’s priorities this session was preserving state-shared revenue distributions to cities, and we were generally successful. The only loss was $5 million in cannabis revenue sharing to cities and counties. This change seemed to result from an overall restructuring of cannabis revenue distributions throughout the budget. There were no other reductions to shared revenues. For more information on budget impacts to cities, see the budget matrix. Unfortunately, it appears that the state’s budget challenges aren’t over, and shortfalls are already being predicted for the next biennium, so look for these funding debates to continue in the 2027 legislative session.

The bill instituting the tax on millionaires demanded a great deal of attention this session. While the tax on annual income above $1 million is notable—and likely subject to legal and ballot box challenges—the most noteworthy portion of the bill for cities involved new state and local sales tax exemptions on hygiene products, diapers, over-the-counter medications, and some of the new sales taxes on services that will reduce local sales tax collections beginning in 2029. The Legislature responded to AWC’s concerns by indicating the intention to create a $200 million account in 2029 to address impacts to cities, counties, and transit districts.

Last session, the Legislature established sales tax on a number of services through SB 5814. That bill created a lot of concerns and confusion; this session brought more changes and some clarity in the form of SB 6113, which provides technical clarifications. and SB 6346, the tax on millionaires, which repeals some of the sales tax on services effective in 2029 (if the bill survives legal challenges).

The true bright spot of this session for local government finances was HB 2442, an omnibus revenue flexibility bill from Finance Committee Chair Rep. April Berg (D–Mill Creek). This bill has several provisions but notably creates a new councilmanic sales tax for children and family programs, expands the time frame for voter-approved levy lid lifts, and provides for greater flexibility for existing housing revenues. Additionally, changes to make single-city fire districts a more financially feasible tool for communities to fund fire services were amended into HB 2442 when the stand-alone bills (HB 2224/SB 6037) failed to advance.

While the bill eliminating the annual lodging tax report (HB 2120/SB 5879) did not pass, the Joint Legislative Audit & Review Committee (JLARC) has determined that, due to resources, it will not collect and compile 2025 data from cities and counties to report in 2026.