Yesterday, Gov.-elect Ferguson released a 16-page overview of his budget priorities for 2025–27. This is not a full budget and there are not a lot of specifics. However, it does provide an outline of his budget principles going into the legislative session.

In our Anatomy of the Projected State Budget Shortfall report, we identified several choices the Legislature made as the causes of the problem. These included sweeping the rainy day fund in 2021 even though revenues were increasing, enacting the Fair Start for Kids Act in 2021 but not fully implementing it until 2025–27 (beyond the budget window), using some federal pandemic relief money for ongoing state programs, and assuming 4.5% revenue growth in the third and fourth years of the outlook even though the revenue forecast projected slower revenue growth. (See our report for more details on the 4.5% assumption, which is allowed in statute.)

Importantly, the governor-elect endorses several principles that would improve budget sustainability:

• “Avoid Legislation that Includes Spending Hikes after the Outlook Biennium.” Using the Fair Start for Kids Act as an example, the governor-elect writes, “We must cease passing legislation that delays implementation beyond the ensuing biennium.” Such bow waves “undermine the spirit of the four-year balanced budget requirement.”
• Maintain reserves. The governor-elect notes, “Draining the Rainy Day fund is an unsustainable budget practice with long-term consequences toward maintaining our bond rating.”
• Stop assuming 4.5% revenue growth in the third and fourth years of the outlook period. “The unreasonable assumption of 4.5 percent revenue growth for the current biennium materially contributed to our current budget shortfall.”

I’ll write about the governor-elect’s specific funding and savings ideas in a separate post, but I do want to discuss his suggestion of across-the-board cuts for most agencies. Often across-the-board cuts are derided as a blunt instrument. I think that is often unfair, given the opacity of the state budget.

Washington is lucky to have an excellent fiscal data website. However, total spending data is reported only by very broad categories within agencies. For example, in the Department of Commerce, it’s possible to see how much has been spent on “community services and housing” over time, but it’s not possible to see how much has been spent on permanent supportive housing or the housing and essential needs program. In the Department of Children, Youth, and Families, it’s possible to see how much has been spent on “early learning,” but it’s not possible to see how much has been spent on the Early Childhood Education and Assistance Program (ECEAP) or Working Connections Child Care (WCCC).

The state would greatly improve the transparency of the budget by showing spending data by programs within the broad categories. Until then, it is nearly impossible for the public to discern how spending could be cut or shifted to better reflect current state priorities.

As the governor-elect writes, “Agency leaders are best positioned to know which programs and personnel are most effectively serving the people. Across-the-board reduction targets empower agency leaders to make the hard choices necessary to streamline their teams and prioritize their most effective programs.”

Meanwhile, three bills have been pre-filed that would make budget process changes:

• HB 1225 would require budgets to balance over four years using the official revenue forecast, not the 4.5% annual revenue growth assumption. It would also require agencies to submit zero-based budget reviews in their budget requests. (This would happen on a rotating basis, so 20% of agencies would submit reviews a biennium.) Additionally, the bill would split the operating budget into eight separate appropriations bills that would have to be enacted in a specific order (e.g., the first would be for bond retirement and the second would be for K–12).
• SB 5145 would require that every new spending program expire in 10 years and include a “state spending performance statement.” The statement mirrors those currently required for tax preferences (which also expire after 10 years).
• SB 5151 would limit the growth of spending from funds subject to the outlook to the “average of the sum of annual median wage growth for each of the prior 10 fiscal years.” If revenues exceed this spending limit, property tax rates would be reduced.