Gov. Inslee told the Everett Herald last week that the state faces a big budget gap in 2019–21:

“We are about one-and-a-half billion dollars underwater going into the next biennium,” Inslee said. That’s the projected deficit before putting in more money to improve the mental health system, expand early childhood education and do “some of the other things we’d like to do,” the governor said.

The dollar figure is new but the gist is in keeping with the 2019–21 budget instructions David Schumacher, the director of the Office of Financial Management (OFM), gave agencies in June:

Despite the strong economy, agencies are reminded that balancing the 2017-19 biennial budget required both major tax increases and use of one-time reserves.

For the 2019-21 biennium, forecasted revenue growth is not likely to meet current demands on the state’s resources, including mandatory caseload and cost growth, maintenance of the K-12 and health care systems, and spending increases for critical mental health programs, employee compensation and other services. . . .

As the state phased in McCleary funding over the past six years, demand grew for new and expanded programs in other areas. With so many pent-up needs, competition will be fierce for 2019-21 and 2021-23 resources in virtually every part of the budget.

Additionally, collective bargaining agreements for public sector employees have been submitted to OFM. Altogether, these agreements are expected to cost $1.135 billion in 2019–21, if approved by the Legislature. (For example, general government employees would get a 3 percent pay raise in fiscal year 2020 and another 3 percent raise in FY 2021.)

The governor did not provide any details as to what went in to the $1.5 billion figure—we’ll have to wait until he proposes his budget in December to find out. The official four-year outlook from April showed a slim unrestricted ending fund balance of $88 million in 2019–21 (this is based on carrying forward 2017–19 spending, so it doesn’t get at new policy changes). But that estimate is based on the February revenue forecast, so it doesn’t include a combined $1.376 billion that has since been added to the revenue forecasts for 2017–19 and 2019–21. (And there will be another revenue forecast on Nov. 20.)

The September revenue forecast includes an updated balance sheet for the current biennium: The 2017–19 unrestricted ending fund balance is projected to be $1.899 billion and the rainy day fund balance is projected to be $1.352 billion. This is a better cushion to have going in to 2019–21 than was anticipated in April.

Still, as Schumacher also told agencies, “It is essential that agencies consider the state’s long-term outlook in developing their 2019-21 budget requests. Washington’s economy is cyclical, and the current growth cycle will eventually slow.” This is important to keep in mind; as it is, we may not fare well should a recession occur in the next biennium. Further, Washington is only the 30^th most fiscally solvent state, according to the Mercatus Center. (We wrote about this ranking in a guest post for Opportunity Washington last week.)