Gov. Bob Ferguson on Tuesday proposed a $79 billion operating budget that avoids general tax increases but cuts or delays an array of state services while tapping the state rainy day fund and redirecting nearly $570 million in Climate Commitment Act money.
The supplemental budget plan — Ferguson’s first as governor — is an adjustment to the roughly $78 billion 2025-27 budget passed by the Legislature earlier this year, which included $9 billion in tax increases over four years.
Since Ferguson signed that budget into law, inflation and lower than expected tax receipts have eaten into the state's finances, opening up what the governor's budget office estimated was a $2.3 billion shortfall.
Ferguson proposes dealing with that deficit largely through cuts across state agencies and shifting money around. For example, he would tap the state rainy day fund for $880 million.
He's also proposing to shift $500 million from the Climate Commitment Act to cover the state's working families tax credit, which gives rebates to lower-income taxpayers, a proposal criticized by clean energy groups in the state.
Climate Solutions, a Northwest-based clean energy economy nonprofit, said CCA funds should be used for their intendedpurposes like reducing climate pollution and expanding affordable clean energy and energy efficiency rather than backfilling the tax credit. They argued that diverting a majority of CCA funds would not meaningfully improve affordability for working families.
In a letter accompanying his budget, Ferguson said his budget cut about $800 million across state government, while adding money to protect or expand some programs.
In building this budget, my team and I focused on maintaining critical services. We continued newer initiatives only where the cost of turning back or halting progress would be greater than the savings achieved on paper," Ferguson said in the letter.
Citing federal cuts from the Trump administration and the state's regressive tax code, some Democrats are already proposing additional taxes on wealthy individuals and businesses — including serious talk of an income tax on millionaires, which Ferguson endorsed in his opening remarks at a Tuesday news conference about the budget.
His supplemental budget plan largely avoids tax increases, but does target a couple business tax breaks, including eliminating a sales tax exemption for data centers when they buy new equipment. That repeal could generate $63 million, according to the proposal.
Ferguson's proposal is just the first draft of budget writing. The state House and Senate, both with solid Democratic majorities, will propose their own budget plans in the upcoming legislative session, which starts Jan. 12.
Lawmakers have floated several plans to close the budget shortfall. One introduced by progressive Democrats would impose a 5% tax on employer payroll expenses above $125,000, applying only to the top 1%, about 3,500, of Washington companies.
Employers already subject to Seattle's JumpStart payroll tax would be exempt. The tax is expected to generate about $3 billion annually, with collections beginning in 2026 to the state's general fund. Starting in 2027, 51% of the revenue would be directed to a new "Well Washington Fund" to support higher education, housing, health care and Supplemental Nutrition Assistance Program benefits, with the remainder going to the general fund.
Ferguson says he is “not a big fan” of that proposal. “I'm focused on what I think is achievable and what makes our tax system far less regressive,” he said.
Senate Democrats have also discussed a 9.9% income tax on individuals and households earning more than $1 million annually, a measure estimated to raise $3 billion per year from roughly 20,000 households. Ferguson said he supports the tax as long as lawmakers do not rely on it to balance the budget.
No legislation has yet been filed.
Republicans oppose new tax increases, including the $9 billion tax package approved last session. Rep. Travis Couture, R-Allyn, the ranking Republican on the House Appropriations Committee, last week unveiled a budget framework that relies on no new taxes and reduced spending.
Couture's plan contends that lawmakers have consistently spent more than revenues allow, shifting costs to future taxpayers. Proposed savings would come from cutting what he called "bloated management," ending state-funded health care for undocumented immigrants, using surplus CCA funds for tax relief and suspending certain state programs until additional oversight is in place.
Senate Republicans said they are “cautious” about Ferguson’s proposal, with Puyallup Sen. Chris Gildon saying it is “essential” that the governor avoid “flip-flopping” on Democrats’ tax proposals in the upcoming session. He criticized Ferguson’s proposal to end the preferred tax rate for data centers as “economically short-sighted.”
“Ultimately the top priority has to be a budget our state can afford,” Gildon said in a Tuesday statement.
Lawmakers will undoubtedly have to make "incredibly hard choices," said lead budget writer Sen. June Robinson, D-Everett, calling Ferguson’s budget "a responsible starting point and solid foundation" for the Senate as it prepares to build its own supplemental budget plan.
In the House, budget writer Rep. Timm Ormsby, D-Spokane, said budget gaps continue as a result of an “antiquated and insufficient revenue system and federal actions.”
“Filling those gaps without causing catastrophic harm to the programs and services Washington residents rely on is our top priority,” Ormsby said.
State Superintendent Chris Reykdal was quick to criticize Ferguson's "austerity approach" on Tuesday, saying his budget doesn't take "inequality into account." Reykdal said he rejects the notion that cuts to services are the only option "because fair taxation isn't possible." A better approach, he argues, is to shift the tax burden to wealthy Washingtonians instead of relying heavily on state property taxes from middle-class families.
"The idea that we either need to cut from one direct service that our communities rely on in order to fund another public service is wrong," he said.
Business groups including the Association of Washington Business, Bellevue Chamber of Commerce, Seattle Metropolitan Chamber of Commerce and Washington Roundtable urged the governor to consider how existing and proposed policies are driving up costs.
"While we understand that this budget proposal seeks to address the deficit through a combination of using one-time funds, shifts to the economics of certain industries, and policy adjustments, the reality is that the state’s budget is still unsustainable, and that is what leads to the tradeoffs that don’t serve Washingtonians well, they said in a joint statement.
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