One year after Democrats approved the largest tax package in state history, and just months after ramming through a state income tax, Gov. Bob Ferguson is warning that Washington faces another massive budget “shortfall.”
In a post on X, Ferguson said he and his administration are preparing for significant financial challenges ahead of the 2027-29 budget cycle. “My team and I are working closely with our agencies regarding our budget outlook,” Ferguson wrote. “That said, we know the shortfall will be significant.”
My team and I are working closely with our agencies regarding our budget outlook. This letter from the Office of Financial Management Director lays out the challenge well. There’s a lot of information still to come before I propose my budget in December, including two caseload… pic.twitter.com/M4Jrei11d8
— Governor Bob Ferguson (@GovBobFerguson) June 6, 2026
The governor’s comments came after Office of Financial Management Director K.D. Chapman-See sent a letter to state agencies warning that they should prepare for what could be “the most challenging budget” state officials have faced in their current roles. The letter directs agencies to begin identifying significant spending reductions and warns that the state faces substantial shortfalls in both its operating and transportation budgets.
“To be direct, there will be significant budget shortfalls next biennium in both operating and transportation budgets,” Chapman-See wrote.
The letter attributes the looming deficit to inflation, population growth, federal funding reductions, economic uncertainty, and court decisions that carry major funding obligations.
But critics say Olympia is trying to blame economic conditions for a problem created by years of aggressive spending growth and chasing away wealthy Washingtonians and businesses with massive tax burdens.
Ryan Frost, director of budget and tax policy for the Washington Policy Center, argued that state spending has far outpaced both inflation and population growth over the last decade.
Gov. Ferguson’s Office of Financial Management (OFM) is warning every state agency to brace for the “most challenging budget” they’ve faced.
I wrote a few months ago that if the 2027–29 budget grows at its historical average pace, the state would spend every dollar of the new… https://t.co/a8UzhHfSfo pic.twitter.com/B5hpNtuyGA
— Ryan Frost (@Frost_RyanW) June 6, 2026
“Gov. Ferguson’s Office of Financial Management is warning every state agency to brace for the most challenging budget they’ve faced,” Frost said. “Now OFM is confirming the shortfall is real, but they are blaming inflation, population growth, and economic uncertainty for the shortfalls ahead.”
Frost pointed to data cited in OFM’s own letter showing inflation increased 39 percent over the last decade while Washington’s population grew 14.2 percent.
“Outpacing inflation and population growth by this margin for years shows this is a spending problem,” Frost said. “Don’t let them rewrite the truth.”
State Rep. Travis Couture, R-Allyn, offered a similar assessment. “Gov. Ferguson and Dems raised taxes, raided pensions, swept accounts, drained reserves, and will still come up short again,” Couture said. “That is not a revenue problem. That is a spending addiction.”
Gov. Ferguson and Dems raised taxes, raided pensions, swept accounts, drained reserves and will still come up short again. That is not a revenue problem. That is a spending addiction.
— Travis Couture (@TravisSCouture) June 6, 2026
Couture argued that lawmakers continue to view higher taxes as the solution. “A revenue problem requires higher taxes. A spending problem requires discipline.”
Bob Ferguson’s OFM says inflation is partially to blame for causing our budget deficit. Yet, state spending, revenue, and costs have skyrocketed past inflation while household income barely keeps up. Long before tariffs, long before any war. It’s a spending problem. Nearly all of… pic.twitter.com/bPAt88mJez
— Travis Couture (@TravisSCouture) June 7, 2026
The budget warning comes just months after Democrats approved what supporters called a “millionaire’s tax,” imposing a 9.9 percent tax on annual income above $1 million.
Supporters argued the new tax would help stabilize state finances and ensure wealthy residents paid more into the system. Critics warned it would accelerate the departure of high-income earners, investors, entrepreneurs, and business founders who contribute a disproportionate share of state tax revenue.
Since then, several prominent Washington business leaders have announced they are leaving the state.
Starbucks founder Howard Schultz revealed he had relocated to Miami, Florida, just days after the tax was signed into law. In a subsequent Wall Street Journal op-ed, Schultz criticized Seattle’s political leadership for treating business as “the adversary of the public good” and warned that anti-business policies were discouraging investment.
More recently, Zillow, Expedia, and Glassdoor founder Rich Barton announced he had moved from Seattle to Las Vegas, posting on social media:
“Officially a Las Vegas resident. Kids are launched, empty nest achieved, and we’re excited to start this next chapter.”
Barton joined a growing list of high-profile executives who have chosen to leave Washington in recent years, including Amazon founder Jeff Bezos, who relocated to Florida.
The departures come as Washington faces increasing questions about its economic competitiveness and long-term revenue outlook. Over the last year, several major employers have announced layoffs, relocations, or major out-of-state expansion plans.
Starbucks recently announced a $100 million expansion in Nashville, where it plans to move or hire 2,000 workers over the next five years while reducing portions of its Seattle footprint.
Janicki Industries selected Montana for an $800 million manufacturing expansion expected to create more than 2,000 jobs, after company leadership warned that Washington’s regulatory environment was making future growth more difficult.
Meta has laid off nearly 1,400 workers in King County this year while scaling back portions of its Bellevue expansion and reducing office commitments throughout the region.
Other companies, including Genie Industries, Novanta, Republic National Distributing Company, Delta Camshaft, and Seattle Kosher, have cited rising costs, taxes, regulations, or other business pressures while announcing layoffs, closures, relocations, or operational reductions.
Meanwhile, downtown Seattle office vacancy rates remain above 35 percent, as employers including Amazon, Microsoft, Meta, and others continue shrinking office footprints.
Despite the state’s new taxes on high earners and businesses, OFM is warning agencies not to assume revenue from the newly enacted Millionaire’s Tax will be available to support agency requests because the tax faces ongoing legal and political challenges.
The agency is now directing departments to pause most program expansions, identify significant reductions, and prepare for what officials describe as a period of fiscal uncertainty.
For critics, the timing is difficult to ignore: Washington enacted a new income tax on high earners, watched several prominent wealthy residents leave, saw companies continue directing jobs and investment elsewhere, and is now being told by the governor’s own budget office to prepare for a significant shortfall.
