Today the Economic and Revenue Forecast Council approved an official budget outlook based on the 2023–25 operating budget. It includes the impacts of the governor’s vetoes and the appropriations in 2E2SSB 5536 (the drug policy bill that was adopted during the May 16 special session).

As passed by the Legislature on April 23, the budget balanced over four years and left an estimated unrestricted ending balance in funds subject to the outlook (NGFO) of $105 million in 2025–27. With the vetoes, the enacted 2E2SSB 5536 appropriations, and other adjustments, the official outlook estimates that the enacted budget leaves an unrestricted NGFO ending balance of $23 million in 2025–27. Total reserves, including the unrestricted balance, the budget stabilization account (BSA), and the Washington rescue plan transition account, are estimated to be $2.952 billion at the end of 2025–27 (8.1% of revenues).

A few notes about the balance of this budget:

• 2021–23 revenues are so much higher than 2019–21 that they would normally trigger a transfer of extraordinary revenue growth from the NGFO to the BSA. The transfer doesn’t technically have to happen this biennium, as employment growth in 2019–21 averaged less than 1% a year. But, as I wrote earlier this year, the Legislature should have followed the spirit of the constitutional provision and chosen to save the extraordinary revenues. Instead, they were spent.
• The outlook assumes higher levels of reversions (appropriations that aren’t ultimately spent) than normal. Typically, the outlooks assume that 0.5% of appropriations will not be spent. That assumption is temporarily increased to 1% in FY 2023 and 0.8% in FY 2024. With this change, estimated reversions are $256.0 million higher over the outlook period than they normally would be.
• The outlook also assumes higher reversions related to K–3 class sizes. The state allocates K–3 class size funding based on demonstrated class sizes. As class sizes were lowered, outlooks assumed higher reversions based on the assumption that it might take some schools longer to comply. The January 2023 outlook assumed that class size reversions would be $10 million in 2021–23 and $0 thereafter. The adopted 2023 supplemental reduces K–12 appropriations for 2021–23 by $34.3 million “due to a decrease in school districts meeting class sizes of 17 students to 1 teacher.” Then, the outlook for the enacted budget assumes K–3 class size reversions of $65 million in 2023–25 and $30 million in 2025–27.