The House Appropriations Committee Chair is proposing a 2026 supplemental operating budget that would increase appropriations from funds subject to the outlook (NGFO) by $2.074 billion (2.7%). This is $211.6 million less than proposed by the Senate Ways and Means Committee Chair.

Of the increase, $1.734 billion is maintenance level (the cost of continuing current services, adjusted for enrollment and inflation) and $341 million is net new policy.

The proposal would increase taxes, use the rainy day fund, and make an odd assumption change.

The tax changes would increase revenues by $40.9 million in 2025–27 and $1.887 billion in 2027–29. Some of the proposed tax changes include:

• ESSB 6346, which would impose an income tax. This would increase NGFO revenues by $2.092 billion in 2027–29.
• HB 2707, which would increase business and occupation (B&O) taxes for prescription drug resellers. This would increase revenues by $26.5 million in 2025–27 and $154.6 million in 2027–29.
• HB 2708, which would apply the sales tax to data center refurbishments. This would increase revenues by $63.0 million in 2025–27 and $140.5 million in 2027–29.
• HB 2487, which would clarify that only entities paying the insurance premiums tax may claim a B&O exemption. This would increase revenues by $55.6 million in 2025–27 and $17.2 million in 2027–29.
• HB 2089, which would apply the B&O tax to interest on loans originated by any high-volume mortgage lender. (Currently, interest on loans originated by lenders in more than 10 states is subject to tax.) Note that most of the revenue increase from the policy change would go to a dedicated account outside of the NGFO. The bill would increase NGFO revenues by $1.0 million in 2025–27 and $4.9 million in 2027–29.
• HB 2736, which would roll back the estate tax rate increases that were adopted last year. This would decrease revenues by $44.8 million in 2025–27 and $390.0 million in 2027–29.
• HB 2257, which would make various tax administration changes, including to last year’s ESSB 5814 and ESHB 2081. As passed by the Finance Committee, the bill would roll back the sales tax on services from ESSB 5814 for K–12 schools, school districts, and education service districts. The budget assumes this bill would reduce revenues by $55.6 million in 2025–27 and $121.9 million in 2027–29.
• HB 2442, which would allow more local governments to impose local real estate excise taxes and make other changes to authorized local taxes.

Other resource changes in the proposal include:

• All capital gains revenues in 2025–27 would be deposited in the NGFO. (Normally, the portion above $500 million a year goes to the common schools construction account.) This would increase NGFO revenues by $394.6 million in 2025–27.
• A transfer of $880 million from the budget stabilization account (BSA, or the rainy day fund) to the NGFO in 2025–27 for general use. (Another $141 million would be appropriated from the BSA for fire costs.)
• A transfer of $75.0 million from the public works assistance account to the NGFO in 2025–27.

The House Chair’s proposal assumes reversions of 1% in FY 2026 and 0.9% thereafter. This is the level assumed in the official outlook for Gov. Ferguson’s proposal, but, as I’ve written, it is much higher than normal. Higher reversions mean larger ending balances.

Oddly, the proposal also assumes an extraordinarily high level of prior period adjustments. Prior period adjustments are normally included in the outlook’s resources section to take actual experience into account. These adjustments are normally assumed to be $41 million a biennium. For example, both the governor’s and the Senate Chair’s proposals assume $93 million in 2025–27 and $41 million in 2027–29. The House Chair assumes $314 million in 2025–27 and another $314 million in 2027–29. The budget documents do not provide an explanation. If the normal assumption was used, the ending balances would be smaller.

The House Chair’s proposal would leave an unrestricted NGFO ending balance of $247 million in 2025–27 and $566 million in 2027–29. Note, though, that the ending balance would be -$979 million in 2028. (The enacted 2025–27 budget also left a negative ending balance in 2028: -$56 million.)

The House Chair’s 2025–27 ending balance relies on the high reversion and prior period adjustment assumptions and one-time resources. (Appropriations would exceed ongoing revenues by $4.616 billion for the biennium.) Total reserves (including the BSA and the unrestricted ending balance) would be just 3.3% of revenues.

The House Chair follows the Senate’s lead in providing an estimated outlook and balancing over four years without assuming 4.5% annual revenue growth in 2027–29. It is important to consider the long-term effects of the proposals, even though the Legislature is not required to follow the four-year balanced budget requirement this year.

The House Chair’s proposal assumes passage of E2SHB 2034, which would extract the expected surplus in the Law Enforcement Officers’ and Firefighters’ retirement system Plan 1 (LEOFF 1). Of the surplus, $880 million would be deposited in the BSA on June 30, 2029, to backfill the amount transferred from the BSA to the NGFO in 2025–27. Thus, total reserves at the end of 2027–29 would be $3.335 billion (7.8% of revenues).

As in the Senate proposal, though, the balance at the end of four years relies on the income tax, which would almost certainly face legal and ballot challenges. Without the income tax revenues, the budget would leave an unrestricted ending balance of -$3.058 billion in 2027–29.