A state income forecast released on Wednesday shows that the state will collect almost $500 million less than lawmakers expected earlier this year. This is mostly because capital gains tax receipts have dropped and people are spending less.
For the fiscal year that ends on June 30, 2025, Washington’s economy is expected to bring in $66.5 billion. That’s $477 million less than what lawmakers and Gov. Jay Inslee thought they would have in February to pay for new spending.
In the next few months, spending gaps might need to be filled by reserves until the next governor and the Legislature make spending plans for the 2025 session.
David Schumacher, who is in charge of the Office of Financial Management and Inslee’s budget, said, “This won’t need any big changes.” He said it was a “modest amount” and that there were $2.4 billion in savings.
The message was repeated by Sen. June Robinson, D-Everett, who is the head of the Senate Ways and Means Committee.
She said, “For the very short term we are okay.”
The amount of capital gains tax paid is $324 million less than what was planned in February. David Reich, Washington’s top economist, told the Economic and Revenue Forecast Council that less shopping in stores caused sales tax collections to drop by $224 million. On the bright side, he said that estate taxes and real estate deals brought in more money than planned.
Even though the latest forecast shows one of the biggest drops in income in recent months, Schumacher and the legislative budget writers, who are council members, aren’t worried just yet.
Washington’s budget cycles happen every two years. The report released on Wednesday comes at the halfway point of the current two-year period. A new fiscal year will begin on July 1.
Inslee will put forward a budget for the two years of 2025–2027 in December. There will be two more reports before that. In March of next year, there will be another estimate that will help the House and Senate write their spending plans.
“Is this just a blip?” “Is this a trend toward less?” asked Rep. Ed Orcutt, R-Kalama. He said that each of those predictions would make it clearer.
But there’s another worry. The budgets that Washington politicians write have to balance over two bienniums. Reich thinks that between this budget and the next, income will drop by a total of $666 million.
“We will be in the red at the end of the 2027 biennium because of a drop of $666 million,” Orcutt said.
In November, voters may think about an election measure that would get rid of the capital gains tax, which could make the budget picture even more complicated. According to Wednesday’s predictions, that’s not likely to happen.
“By the end of the year, we’ll know if the initiative will have even bigger effects on the budget,” said Sen. Lynda Wilson, R-Vancouver, who is in charge of writing the Senate budget.
The top budget writer in the House, Timm Ormsby (D-Spokane), said that Democrats are waiting to see what the market and the voters do.
As of now, he said, “We’re not committing resources to anything other than what our current obligations are. We’re going to let the dust settle where it will.”
