Today the Economic and Revenue Forecast Council (ERFC) adopted the official outlook for funds subject to the outlook (NGFO) based on Gov. Inslee’s supplemental operating budget proposal. The ERFC estimates that, at the end of the outlook period, the governor’s budget would leave an unrestricted NGFO ending balance of $76 million and total reserves of $2.186 billion. (I wrote about the governor’s operating budget proposals here and here.)

The maintenance level (the cost of continuing current services, adjusted for enrollment and inflation) is estimated to increase by $870.4 million in 2023–25 and by $1.308 billion in 2025–27. The K–12 budget area has significantly higher costs in the second biennium. The K–12 maintenance level change is estimated to be $189.5 million in 2023–25 and $424 million in 2025–27. Major increases include special education and bilingual instruction enrollment changes, special education safety net adjustments, and school employee health benefits. They are offset by reductions in overall student enrollment.

The new policies proposed by the governor would increase appropriations by $1.085 billion in 2023–25 and $1.241 billion in 2025–27. Budget areas that have significantly higher second biennium costs include:

• K–12: Policy level changes would increase spending by $141.7 million in 2023–25 and $304 million in 2025–27. These changes include paraeducator compensation, student meals, and a higher special education funding cap.
• Low Income Health Care and Community Behavioral Health: Policy changes would increase spending by $273 million in 2023–25 and $451 million in 2025–27. These changes include reimbursement rates for civil commitment providers and implementation of a Medicaid waiver that would provide payments to behavioral health facilities.

The outlook methodology notes that the governor’s proposal would use $144.5 million in unappropriated federal coronavirus state fiscal recovery funds for behavioral health programs that are currently funded from the general fund–state (GFS), “in order to ensure that the use of these federal funds are maximized prior to the December 31, 2026 expiration date.” This saves $144.5 million in the NGFO for 2023–25.

Every outlook includes a reversion assumption. Reversions are appropriations that aren’t ultimately spent. Typically, the state has assumed that reversions will be 0.5% of spending. As I showed in this post, reversions have been higher than that recently. The official outlook assumes that reversions will be 1.2% of spending in FY 2024 and 2025, and then drop back to 0.5% for FY 2026 and 2027. On top of that, the outlook assumes reversions related to the K–3 class size requirement of $44 million in 2023–25 and $20 million in 2025–27. (The K–3 reversions occur when districts don’t meet the statutory class size requirements.) In all, reversions are estimated to total $859 million in 2023–25 and $375 million in 2025–27.

Altogether, the governor’s proposal would leave an unrestricted NGFO ending balance of $2.774 billion in 2023–25 and $76 million in 2025–27. The budget stabilization account (BSA, or the rainy day fund) balance would be $1.330 billion in 2023–25 and $2.110 billion in 2025–27.

Total reserves include the unrestricted NGFO ending balance, the BSA, and the Washington rescue plan transition account (WRPTA). The governor would transfer the balance of the WRPTA to the GFS, so the WRPTA balance would be zero going forward. Collectively, total reserves would be 11.9% of NGFO revenues and other resources at the end of 2023–25 (mostly in the unrestricted NGFO ending balance) and 5.9% at the end of 2025–27 (mostly in the BSA).

As I wrote yesterday, the Office of the State Treasurer recommends that reserves be at least 10% of annual revenues. The governor’s total reserves as a percent of just revenues (not other resources) would be 12.1% at the end of 2023–25 and 6.0% at the end of 2025–27.