When estimating the fiscal impact of a policy proposal, a key component is the baseline. To what is the new policy being compared? What revenues are expected under existing law, and how would the proposal change that?

When agencies prepare fiscal notes during a legislative session, they all use the November revenue forecast as the revenue baseline—even if the fiscal note is prepared after the spring revenue forecast. This ensures that all the policy proposals during a session are comparable to each other. (That said, each fiscal note is—appropriately—a standalone estimate. As the Office of Financial Management writes, “A fiscal note should focus on the cost implication of only one bill, without considering the potential impact of other bills or speculation beyond language contained in the proposal.”)

For the June revenue forecast, the Economic and Revenue Forecast Council (ERFC) uses the fiscal note estimate for each enacted revenue bill, without adjustment for any economic changes that may have occurred since the prior November. Those legislative changes are folded into the broader forecast and are then adjusted for economic changes as necessary in the September revenue forecast. As actual revenues are collected, they are integrated into future forecasts. (Whether this method is the best way to incorporate new legislation in the revenue forecast might be a good question for Pew to consider, as part of its work for the Joint Legislative-Executive Committee on Budget Transparency and Fiscal Sustainability.)

The question of baseline has been nagging at me, given the fiscal impact statement for I-645. The Office of Financial Management (OFM) prepares fiscal impact statements for ballot measures; by statute, they must be completed in July. For I-645, which would repeal the income tax, the estimates in the fiscal impact statement were made by the Department of Revenue (DOR).

DOR estimates that I-645 would reduce revenues by $3.108 billion in fiscal year 2029. However, the June revenue forecast assumes income tax revenues of $2.698 billion in FY 2029, which was DOR’s estimate in the fiscal note for ESSB 6346, which imposed the income tax. According to OFM, DOR’s estimate of income tax revenues in the fiscal impact statement for I-645 updated the original fiscal note estimate with the economic changes from the June revenue forecast: “Specifically, projections of dividend income, stock income, personal income, and wages grew from the November to June forecasts, which has a positive effect on the amount of Washington taxable income.” (See also this Washington State Standard story.)

Effectively, the new estimate of income tax revenues updates only one portion of the overall forecast of funds subject to the outlook (NGFO). The September revenue forecast will re-evaluate the income tax estimate and the estimates for other legislation enacted this year (including the changes to sales taxes and business and occupation taxes in ESSB 6346).

So, DOR is now estimating the income tax will bring in $410 million more in FY 2029 than originally expected. But what is the baseline for the estimated $3.108 billion reduction from I-645? There are three potential candidates:

• Current revenues: Compared to current (FY 2027) revenues, I-645 would not reduce any state revenues, because the income tax is not yet being collected.
• Revenues expected by the Legislature when the 2026 supplemental budget was adopted: The Legislature expected income tax revenues to be $2.698 billion in FY 2029. Thus, the additional loss of $410 million would have no impact on enacted budget plans.
• The June NGFO revenue forecast: This is the closest baseline option, but the forecast did not fully update the estimates for new legislation. It is not directly comparable to the $3.108 billion estimate.

Thus, DOR’s update to the income tax estimate makes it more difficult to provide context for voters, because it is no longer comparable to other NGFO revenue estimates. If the full NGFO revenue forecast were updated as DOR has updated estimated income tax revenues, non-income tax revenues might increase or decrease compared to the adopted June forecast.

As it is, under the June forecast, NGFO revenues would still increase year-over-year even if I-645 passes. Additionally, even if the updated estimate of income tax revenues ends up being correct, it still wouldn’t close the NGFO budget shortfall.