Just months after Democrats approved the largest tax increase in state history, Washington’s operating budget is already sinking into deficit territory.
The Washington State Economic and Revenue Forecast Council (ERFC) released its latest quarterly projections Tuesday, showing state revenues falling sharply despite Governor Bob Ferguson’s passage of the Democrats $12.2 billion, four-year package of new taxes and fees.
According to the forecast, projected Near General Fund revenue collections through 2029 are down about $903 million compared with June’s outlook. Analysts cited a weaker taxable sales forecast for retail and construction, declining agency revenues, and a drop in real estate excise tax receipts.
That translates into a $421 million shortfall in the current 2025–27 operating budget, which took effect July 1. Longer-term, the 2027–29 budget cycle is projected to fall another $477 million short, bringing the state’s four-year outlook close to $1.2 billion in the red.
Construction Slowdown Tied to Policy Choices
Forecasters specifically flagged weaker construction activity as a major driver of lost revenue. Critics say that’s no surprise after Governor Bob Ferguson signed rent control into law earlier this year, a policy that developers, economists, and industry leaders repeatedly warned would reduce housing construction and stall new projects.
Those warnings now appear to be playing out, with fewer projects breaking ground and taxable construction revenue slipping just as the state bet on higher collections to fund record spending.
Republicans Blast Majority’s Spending Priorities
Republican lawmakers, who opposed the tax package, said the shortfall proves their warnings were correct.
Sen. Chris Gildon (R-Puyallup), a member of the ERFC, said Democrats’ budget was “underwater this soon” because of misplaced priorities.
“The ‘Save Washington’ plan proposed by Senate Republicans, which didn’t outspend the available revenue, looks better all the time,” Gildon said. “Instead, the majority repeatedly rejected our plan in favor of charging ahead with all those tax and fee increases, using a wildly exaggerated budget shortfall as justification.”
He also pointed to additional unfunded liabilities, including over $1 billion in lawsuit payouts, IT projects budgeted for only a single year, and more public-employee raises, as warning signs that the true deficit will be even deeper.
Rep. Travis Couture (R-Allyn), ranking Republican on the House Appropriations Committee, called the latest forecast a “wake-up call.”
“Slowing growth was predictable, but Democratic budget writers ignored the warnings and plowed ahead with record spending. Now the numbers confirm what we’ve been saying all along: that they have spent us into oblivion,” Couture said.
He warned that litigation over new tax expansions and pending union contracts could push the actual shortfall as high as $2.5 billion.
Republicans also blasted Democrats for doubling state spending over the past decade while leaving major problems, homelessness, the drug crisis, K-12 struggles, and affordability, unresolved.
Ferguson Points to Trump While Ignoring Own Record
Governor Ferguson, meanwhile, sought to shift blame to Washington, D.C. He argued that cuts enacted at the federal level were straining state finances.
“Unfortunately, we are also grappling with the impacts of President Trump’s Big Betrayal Bill, which includes billions in cuts to Washington state for programs such as Medicaid and food for hungry kids,” Ferguson wrote on X.
But Ferguson’s critics note that he and legislative Democrats already slashed Medicaid themselves, reducing provider reimbursements and cutting behavioral health coverage. At the same time, Ferguson pushed through rent control measures that helped trigger the construction slowdown now dragging down revenues.
“Governor Ferguson cut Medicaid with one hand, raised taxes with the other, and kneecapped new housing with rent control,” one GOP lawmaker said. “Now he wants to blame Trump for a budget hole his own policies created.”
A Growing Crisis
With state revenues projected to decline for two consecutive quarters and spending commitments locked in, lawmakers face the prospect of returning to Olympia to address a ballooning shortfall. Democrats, however, have shown little interest in reversing course.
For now, Washington taxpayers are left facing the consequences of a budget that is bleeding red ink less than 90 days after taking effect, and a governor deflecting blame while standing on a record of cutting Medicaid, raising taxes, and imposing rent control that slowed construction and shrank state revenue.
