Today is the first day of fiscal year 2027, which is the second year of the 2025–27 biennium.

Washington’s current budget troubles are the direct result of the Legislature appropriating significantly more than was expected in revenues in 2023–25. Ultimately, actual spending from funds subject to the outlook (NGFO) in that biennium exceeded ongoing NGFO revenues by $4.8 billion. The Legislature adopted substantial new taxes in 2025 and 2026, but the 2026 supplemental operating budget increased the estimated gap between spending and revenues to $4.9 billion for 2025–27.

Under the June revenue forecast, NGFO revenues are forecasted to continue to increase from one biennium to the next, but slower economic growth is estimated to reduce revenues compared to the revenues assumed in the 2026 supplemental. That said, unexpectedly high capital gains tax collections are estimated to temporarily offset those reductions for 2025–27. Altogether, the June forecast improves the outlook and reduces the estimated gap between spending and revenues in 2025–27 to $4.0 billion.

Otherwise, since the end of the legislative session, the fiscal news has been mostly negative:

• Moody’s and Fitch revised Washington’s credit outlook from stable to negative.
• The Office of Financial Management expects “significant budget shortfalls next biennium.”
• Several budget-related lawsuits have been filed against the state.
• The backfill for the state liability account that was included in the 2026 supplemental may not be sufficient.

Meanwhile, several tax and policy changes take effect today, including:

• The B&O tax is applied to first-mortgage loan interest of high volume mortgage lenders (SHB 2089).
• The sales tax is applied to data center refurbishments (ESSB 6231).
• Estate tax rate increases adopted last year are repealed (ESB 6347).
• The temporary B&O tax surcharge on income over $250 million no longer applies to wholesale sales of food and food ingredients (ESSB 6346).
• The sales tax no longer applies to temporary staffing services when used to supplement hospital staffing (ESSB 6346).
• The sales tax on live presentations no longer applies to before-and-after school care at schools; non-profits; musical, dramatic, or comedic performances; one-on-one instruction; or music lessons (ESSB 6346).
• The sales tax no longer applies to various services purchased by libraries, schools, and school districts (ESSB 6346).
• The motor vehicle fuel tax increases by 2% to 56.5 cents per gallon (ESSB 5801).
• Benefits are available under Washington’s long-term care program.