Washington Gov. Jay Inslee released a proposed balanced, belt-tightening, biennium budget for 2025-27 in response to $12.6 billion in increased costs to the state due to inflation.
Washington is among several states facing a budget shortfall, Inslee said in a statement.
"The costs to maintain current services and program levels for the next four years went up by approximately $12.6 billion due to inflation, higher projected caseloads in several safety net programs, expansion of popular programs like early learning, and workforce costs," Inslee said. "Revenues dipped lower than forecasted due to lagging home sales and collections for sales and capital gains taxes."
Fitch has a neutral sector outlook for state and local governments.
But Fitch Senior Director Michael Rinaldi cautioned in last week's report that
"identifying sustainable revenue to support affordable housing, homeless assistance, mental health, and community safety — programs that local government spending is largely tethered to — may prove challenging, crowding out resources for other critical needs and/or increasing dependence on non-structural solutions that could weaken financial resilience and overall credit quality."
The state holds a Aaa rating/stable outlook from Moody's Ratings, AA-plus/positive outlook from S&P Global Ratings and an AA-plus/stable outlook from Fitch Ratings.
"Washington's spending growth, absent policy actions, will likely be marginally above its solid pace of revenue growth, requiring regular budget management actions to ensure ongoing structural balance," Fitch analysts wrote in October.
Fitch's report came out ahead of the state's plans on Oct. 28 to issue $891.4 million in various purpose general obligation refunding bonds, $659.2 million in motor vehicle fuel tax and vehicle related fees general obligation refunding bonds on Oct. 28.
The state saved $153.1 million on the deal, according to the Washington treasurer's office.
"Despite increased volatility in the bond market, Washington bonds continue to remain attractive to investors," State Treasurer Mike Pellicciotti said after the deal priced.
Inslee claims his proposed budget holds steady or minimizes spending reductions in priority areas.
"All three of our state's budgets face challenges in 2025, but I am confident we can work together — urban, rural, Democrats and Republicans — to put together a final capital budget that delivers on the real needs of Washingtonians," said Sen. Yasmin Trudeau, D-Tacoma, vice chair of the Senate Ways & Means Committee for the capital budget.
The budget allocates $905 million for 5,000 additional affording housing units, homelessness services and eviction and foreclosure prevention. It spends $719 million to continue expanding access to mental health and substance use treatment and recovery services; and $6 million to continue full funding for Career Connect Washington and $182 million to maintain the Washington College Grant financial aid program.
It adds an additional $1.3 billion for K-12 schools to support increased costs for maintenance, supplies, technology and educator compensation.
It allocates $510 million to improve provider subsidy rates for Working Connections Childcare, $48 million for increased Early Childhood Education and Assistance Program rates school and right-sizing the program to reduce unused part day slots and create 750 school day slots.
"Rolling back our work in areas like mental health, housing and education is something we cannot afford, particularly at the moment we're finally seeing the results of years of work and investments," Inslee said. "This is a budget that keeps us moving forward, puts working families first, and continues creating a fairer tax system."
The budget proposal will be an important foundation to our capital budget writing work this session," Trudeau said.
"I share the governor's commitment to continuing major investments in affordable housing and completing some of our state's most important infrastructure projects, like the new Western State hospital, so we can ensure all Washingtonians can get the care and services they need," Trudeau said.
The budget includes sustained funding for new ferries and improved service, and increased funding for fish barrier removal projects to meet the state's legal responsibilities.
Climate Commitment Act funding allows for additional bike and pedestrian projects and more transit services across the state. A funding gap for highway projects will require legislators to explore options to adjust delivery timelines or funding, Inslee said.
Inslee's plan "recognizes the growing costs of inflation, increasing caseloads for safety net programs, and the need to maintain critical investments in areas like housing, education, behavioral health and public safety," said Senate Ways & Means chair June Robinson, D-Everrett.
While lawmakers will need to navigate a difficult fiscal environment this year, "we have the opportunity to build a responsible, sustainable budget that reflects our shared values," Robinson said. "It's clear we must balance the need to protect essential services with smart, strategic choices that help working families, strengthen our economy, and address growing income equality."
