The Legislature went straight from a marathon debate on the millionaires tax to release and pass the supplemental operating, capital, and transportation budgets in the last two days before adjourning on March 12.
The final supplemental operating budget passed the Senate and House on the last day of the session (SB 5998). The final $79.4 billion operating budget balances the funding gap from federal budget reductions, increased caseloads, and growing state liability with program reductions and account transfers, including the following:
- $375 million sweep of the Public Works Assistance Account (PWAA) that is backfilled by $279.5 million in new bonds in the capital budget;
- $880 million from the budget stabilization account (BSA);
- $880 million transfer from restatement of the LEOFF 1 pension fund (HB 2034) in 2029 to backfill the BSA and $539 million to the Climate Commitment Account;
- $1 billion set aside for state self-insurance due to liability obligations; and
- $400 million transfer from the Climate Commitment Act to the Natural Climate Solutions Account in the capital budget to provide funding for shifted state bond funding and new programs, including local disaster and flood response funding.
The operating budget also assumes changes to some of the new state taxes passed last session, including the early expiration in 2029 of a B&O tax surcharge on large businesses and repeal of SB 5814 (services sales taxes) in 2029 in the millionaires tax bill (SB 6346). It also assumes rolling back the estate tax rate increase passed last year (SB 6347).
The capital budget (SB 6003) includes significant additional funding for housing and backfills the $375 million sweep on June 30, 2027, from the PWAA to the general fund with bond funding.
Impacts to cities in proposed supplemental budgets
For more detailed information, see the budget matrix.
Operating budget
- Public Works Assistance Account: Transfers an additional $375 million to the state general fund, backfilled in part with bonds in the capital budget
- Public defense: Does not increase funding for the public defense caseload mandate
- Local government fiscal health: Four-year budget outlook includes intent to transfer $200 million from the general fund to a new account beginning in 2027-29 for local sales tax impacts from millionaires tax bill (SB 6346) to be shared between cities, counties, and transits
- State-shared revenues for cannabis: $5 million reduction to cannabis revenue-sharing to cities and counties
- Growth management planning grants: Reduces flexible planning grants by $2.9 million and adds $500,000 for permit processing improvement grants
- Alternative Response Team Grants: Reduces $600,000 from AWC-administered grant program, bringing the total grant funding available in the next fiscal year down to $1.4 million. This was part of a series of reductions to diversion programs.
- LEOFF 1 pension surplus: Shifts $880 million from the LEOFF 1 pension restatement (HB 2034) to the BSA by June 30, 2029, as repayment for funds transferred from the BSA to the general fund and $539 million to the Climate Commitment Account
Capital budget
- PWAA funding and sweeps to general fund in FY 2027:
- Program funded at $389.5 million, which is an increase of $14.5 million
- $375 million transfer to general fund
- Sweep backfilled with $279.5 million in new bond funding, $100 million in existing bond backfill, and $10 million for emergency grants for 2025 weather events funded from Natural Climate Solutions Account transfer.
- Housing Trust Fund investments:Additional $123 million, including:
- $55 million for first-time low-income homeownership
- $50 million for multifamily rental housing projects
- $40 million for affordable housing preservation
- Reduction of $57 million in funding for permanent supportive housing
- Additional investments in housing and shelters:
- $21 million for identified projects
- $5 million for projects impacted by 2025 weather events
Transportation budgets
- WSDOT Local Programs capital budget: $180 million temporary diversion from existing local project appropriations; assumes delay in delivery of existing projects
- Assistance for 2025 weather events recovery: $15 million to assist cities
- Safe Routes to Schools grants:$34 million increase
- Pedestrian and Bicycle Safety programs & grants:$33.4 million increase
Proposed supplemental budgets pass out of Senate and House
February 27, 2026
After a flurry of budget hearings, the Senate and House supplemental operating budgets went from introduced to passed in each chamber by the end of the week.
The Senate supplemental operating budget passed the Senate floor on Friday, February 27, and the House supplemental operating budget is expected to pass off the House floor over the weekend (HB 2289/SB 5998). Once each chamber has passed its proposal, the budget negotiators will use the last two weeks of the session to negotiate a compromise for passage in the final days before they adjourn.
AWC testified at the budget hearings to express opposition to the continued sweeps of the Public Works Assistance Account (PWAA) and cuts in the House budget to cannabis state-shared revenues. We also asked that increased funding for public defense be included to address the Washington State Supreme Court’s caseload mandate.
AWC supports increased funding for housing and funds addressing the impacts of last year’s weather events.
See AWC’s budget matrix for more details on all the supplemental budgets, including city impacts.
Transportation and capital budgets include housing funding but sweep PWAA funds
February 25, 2026
Supplemental transportation and capital budgets were released, showing a more complete impact of revenue sweeps to the state general fund.
The supplemental transportation budgets (HB 2306/SB 6005) were released in the morning on February 23, and supplemental capital budgets (HB 2295/SB 6003) released in the afternoon, with hearings in the afternoon and the following morning.
AWC testified at the operating and capital budget hearings to express opposition to the continued sweeps of the Public Works Assistance Account (PWAA). While we appreciate the intent of the Senate proposal to backfill funding for PWAA projects using bonds, we are concerned about the timing of the significant sweeps and the implications for current and future projects. The state’s continual reliance on diversions from PWAA resources erodes the certainty and reliability of dedicated infrastructure dollars for cities. Read our updated coverage of the PWAA diversions.
AWC supports additional investments in the Housing Trust Fund, affordable housing and shelters, and assistance for communities and infrastructure impacted by the flooding last year.
Following is a summary of key impacts to cities in the budgets. See AWC’s budget matrix for more details on impacts, and the February 23 article for an overview of supplemental operating budget impacts.
Capital budgets
- PWAA sweeps to general fund in FY 2027
- House: $75 million
- Senate: $375 million (with $340 million in new funding)
- Housing Trust Fund investments
- House: Additional $164.5 million, including:
- $65 million for first-time low-income homeownership
- $50 million for multifamily rental housing projects
- $40 million for affordable housing preservation
- Senate: Additional $128 million, including:
- $45 million for affordable housing preservation
- $38 million for multifamily rental housing projects
- $35 million for first-time low-income homeownership
- Additional investments in housing and shelters
- House:
- $31.5 million for identified projects
- $20 million for grants and technical assistance for manufactured home communities
- Senate: $10 million for identified projects
- Environmental and climate resiliency funding increases
- House:
- $37 million for Floodplains by Design grants
- $11 million for Salmon Recovery Funding Board (SRF) grants
- $9 million for Urban and Community Forest grants
Transportation budgets
- WSDOT Local Programs capital budget
- House: $83.8 million reduction to Move Ahead WA and Connecting WA accounts; assumes delay in delivery of existing projects by locals
- Senate: $37.3 million reduction to Move Ahead WA and Connecting WA accounts; assumes delay in delivery of existing projects by locals
- Assistance for 2025 weather events recovery
- House: $3 million to assist counties and cities
- Senate: $15 million to assist cities
- Safe Routes to Schools grants:
- House & Senate: Increases funding by $34 million
- Pedestrian and Bicycle Safety programs & grants:
- House & Senate: Increases funding by $33.4 million
Budget season began with release of Senate and House supplemental budget proposals, including a devastating $375 million sweep of the PWAA
February 23, 2026
Budget season began with a Sunday release of House and Senate supplemental operating budget proposals impacting cities. The supplemental operating budgets (HB 2289/SB 5998) were released over the weekend, with transportation (HB 2306/SB 6005) and capital budgets (HB 2295/SB 6003) released today.
AWC will be testifying at the operating budget hearings to express opposition to the continued sweeps of the Public Works Assistance Account (PWAA) and in support of increased funding for public defense. Given the timing of the budget release, watch for more details on city impacts in AWC’s CityVoice on February 25.
The February 16 state revenue forecast showed additional revenues for the next four years, with an additional $827 million for 2025-27 and $1 billion for 2027-29, which gave budget writers some cushion to restore some of the funding reductions assumed in the Governor’s budget. The forecast also included economic data from last year that had been unavailable during the federal government shutdown last fall. Those expected revenue increases will be partially offset by increased state caseload forecasts that will drive increased state expenses.
Senate budget proposal
The Senate’s $79.4 billion supplemental budget proposal relies on a combination of program reductions, revenue increases, and transfers of revenues from accounts including the PWAA. It also invokes an exception to the four-year balanced budget requirement due to the current state economic uncertainty.
- Changes to revenue: Assumes $2.9 billion in new revenue and $493 million in revenue reductions including:
- $2.3 billion from imposition of the tax on millionaires (SB 6346);
- $435 million reduction from estate tax rate changes (SB 6347); and
- $50 million reduction from exempting schools from the services sales tax enacted in 2025 (SB 6351).
- Rainy day fund: Uses $750 million from the budget stabilization account (BSA).
- State liability fund: Creates a $979 million liability fund from changes to state agency assessments for self-insurance liability premiums to address the state’s potential liability for older juvenile custody-related claims.
- PWAA: Transfers $375 million from the PWAA to the state general fund.
House budget proposal
The House’s $79.9 billion operating budget proposal relies more significantly on transfers and relies on the exception to the four-year balanced budget requirement.
- Overall reduction: Assumes an additional $760 million in state budget reductions.
- Rainy day fund: Shifts $800 million from the BSA.
- LEOFF 1:Transfers $880 million to the general fund from excess funds not needed for existing benefits from the LEOFF 1 pension to the BSA on June 30, 2029.
- State liability fund: Creates a $962 million liability fund from changes to state agency assessments for self-insurance liability premiums to address the state’s potential liability for older juvenile custody-related claims.
- PWAA: Transfers $75 million from the PWAA to the state general fund.
- Working Families Tax Credit: Shifts $330 million from the Climate Commitment Act to fund the Working Families Tax Credit.
Impacts to cities in proposed supplemental operating budgets
- Public Works Assistance Account:
- House: Transfers an additional $75 million to the state general fund.
- Senate: Transfers an additional $375 million to the state general fund.
AWC strongly opposes both transfers, which undermine this critical infrastructure funding source.
- Public defense:
- House: Does not include any much-needed increased funding that AWC has advocated for on behalf of cities.
- Senate: Includes $57,000 for SB 5912, which reintroduces a statewide indigent defense task force.
- LEOFF 1 pension surplus:
- House: Shifts $880 million from the LEOFF 1 pension surplus to the BSA by June 30, 2029, as repayment for funds transferred from the BSA to the general fund.
- State-shared revenues for cannabis:
- House: $5 million reduction to cannabis revenue-sharing to cities and counties.
- Senate: Fully funds state-shared revenues.
- Growth management planning grants:
- House: Reduces flexible planning grants by $2.9 million, reduces climate planning grants by $8 million, adds $1 million for permit processing improvement grants.
- Senate: Reduces flexible planning grants by $2.9 million, adds $1 million for permit processing improvement grants.
- Alternative Response Team Grants:
- House: Reduces $600,000 from AWC-administered grant program.
- Senate: Remains included at $2 million.
Dates to remember
HB 2289 is scheduled for a hearing in the House Appropriations Committee on Monday, February 23, at 4 pm.
HB 2306 is scheduled for a hearing in the House Transportation Committee on Monday, February 23, at 4 pm.
SB 5998 is scheduled for a hearing in the Senate Ways & Means Committee on Monday, February 23, at 4 pm.
HB 2295 is scheduled for a hearing in the House Capital Budget Committee on Tuesday, February 24, at 8 am.
SB 6003 is scheduled for a hearing in the Senate Ways & Means Committee on Tuesday, February 24, at 4 pm.
SB 6005 is scheduled for a hearing in the Senate Transportation Committee on Tuesday, February 24, at 4 pm.
Governor’s budget proposals sweep more of PWAA, increase funds for housing
January 9, 2026
Gov. Bob Ferguson’s supplemental budget proposals include more funding for housing, but sweep an additional $75 million from the Public Works Assistance Account.
The Legislature passed the 2025-27 biennial budgets (operating, transportation, and capital) at the end of the 2025 session, in which it faced a budget shortfall projection of $16 billion over four years. Changes in revenues and decreases in federal funding have since resulted in another shortfall in the current budget. The Governor was required to propose supplemental budgets that bring the state back into balance.
The proposed budgets released on December 23, 2025, balance declining state revenues, increased caseload costs, and shortfalls from federal budget reductions through a combination of program reductions, shifts in funds from the Climate Commitment Act auctions for the Working Families Tax Credit, and use of the state’s rainy day fund. The $79 billion operating budget balances revenues and expenses over the next two years, invoking an emergency exemption from the requirement for a four-year budget outlook.
The Governor also took the opportunity during this budget release to express support for a “millionaires’ tax,” a new state tax of 9.9% on individuals with an annual income of more than $1 million, but the proposed budget does not rely on any new revenues from that tax proposal.
The proposed transportation budget allocates approximately $1 billion each for bridge preservation and highway paving projects for state-owned assets over the next decade. It includes no funding for local preservation work.
The proposed supplemental operating (HB 2289/SB 5998), capital (HB 2295/SB 6003), and transportation (HB 2306/SB 6005) budgets for the current 2025-27 biennium are scheduled for hearings in their respective fiscal committees the first week of the 2026 legislative session.
AWC is planning to testify on the proposals’ impacts to cities and remind legislators of city budget priorities for the biennium, including continued support for funding for the Public Works Assistance Account.
Proposed supplemental budget changes impacting cities are summarized in AWC’s budget matrix and include:
Operating Budget
- Public Works Assistance Account: transfers an additional $75 million to the state general fund – AWC will again oppose this transfer, which undermines this critical infrastructure funding source
- Housing: provides task force funding to create a new Department of Housing; reduces permanent supportive housing by $4.5 million due to federal reductions
- Growth management planning: reduces 2027 formula planning grants by $3 million; increases climate planning grant funding by $3 million; adds $1 million for local grants for permit review processes
Capital Budget
- Housing Trust Fund: increases funding by $223 million
Transportation Budget
- Safe Routes to Schools grants: increases funding by $33 million
- Pedestrian and Bicycle Safety programs & grants: increases funding by $33.4 million
- Motor vehicle fuel tax revenue distribution to cities: provides an additional $22.4 million
The hearings will focus on the Governor’s proposals to address reductions in revenues since the budgets were adopted last year. The Legislature will introduce its own proposals next month after the next state revenue forecast.
Dates to remember
HB 2289 is scheduled for a hearing in the House Appropriations Committee at 4 pm on Monday, January 12.
SB 6003 is scheduled for a hearing in the Senate Ways & Means Committee at 4 pm on Monday, January 12.
SB 5998 is scheduled for a hearing in the Senate Ways & Means Committee at 4 pm on Tuesday, January 13.
SB 6005is scheduled for a hearing in the Senate Transportation Committee at 4 pm on Tuesday, January 13.
HB 2306is scheduled for a hearing in the House Transportation Committee at 4 pm on Wednesday, January 14.
HB 2295is scheduled for a hearing in the House Capital Budget Committee at 1:30 pm on Thursday, January 15.