The largest spending reduction in the 2026 supplemental operating budget is related to SHB 2689, which would make various changes to Working Connections Child Care (WCCC) and child care subsidy payment policy. (Neither SHB 2689 nor the supplemental operating budget have yet been signed by the governor.)

Under current law, families are eligible for WCCC when household income is at or below 60% of the state median income. Under the Fair Start for Kids Act (FSKA), which was enacted in 2021, this income limit was scheduled to increase to 75% in FY 2026 and to 85% in FY 2028. (These dates were later delayed to FY 2030 and FY 2032, respectively.) SHB 2689 would repeal the planned increases to the income eligibility limit, leaving it at 60% of state median income.

FSKA also specified that child care subsidy base rates must equal the 85^th percentile of the market for licensed or certified child care providers. SHB 2689 would reduce that to the 75^th percentile of the market beginning FY 2028.

Additionally, under current law, once a child is enrolled and attends one day in the month, the provider is paid for the full month. In 2025, the Legislature required the prospective payment of state subsidies to child care providers. This policy was scheduled to begin July 1, 2026. SHB 2689 would repeal the prospective payment policy and return to paying based on attendance. However, under SHB 2689, the provider would be able to claim payment for the full month only if a child attends for at least 16 days a month. (Payments would be lower for children who attend fewer days.) Beginning July 1, 2026, providers would not be able to claim a subsidy base rate that differs from the rate in their region.

According to the fiscal note, these changes would reduce appropriations from funds subject to the outlook (NGFO) by $93.6 million in 2025–27 and $461.6 million in 2027–29. The 2026 supplemental books savings of $143.3 million in 2025–27 and $638.1 million in 2027–29 due to SHB 2689. The reason for the discrepancy is not clear, but the fiscal note does state that the true fiscal impact is indeterminate due to the lack of established rate levels for the prior policies. It notes, “Cost and savings assumptions . . . are for illustrative purposes.”

The exact amount of savings from these policy changes may be uncertain, but they will certainly save money for the state. Further, given that the income eligibility expansion is not a priority for the Legislature, the decision to repeal it now—rather than delay it again—is sensible. Otherwise, it would pop back up in the maintenance level for 2029–31.

The repeal of these FSKA provisions is an unsurprising consequence of the fact that the FSKA was enacted in an unsustainable way. Instead of prioritizing the program within ongoing revenues, the Legislature initially funded it with federal pandemic relief. Additionally, major provisions in the bill, including the WCCC income eligibility expansion and making the Early Childhood Education and Assistance Program (ECEAP) an entitlement, were scheduled to begin outside the budget outlook window. Using one-time money to begin this new spending program and structuring the program so that the costs would balloon in the future was a contributing factor to our current budget problems.

At the time, the Legislature said that capital gains tax revenues would fund the FSKA when the federal relief was gone. Then-Sen. Rolfes said, “When the capital gains tax kicks in, that picks up the slack for the one-time funds and the federal funds.” But capital gains tax revenues have never been dedicated to the FSKA. Preferring to fund other programs, the Legislature acted last year to delay various aspects of the FSKA so that the costs would again fall outside of the budget outlook window.

SHB 2689 would repeal the WCCC income eligibility expansion, but it would leave the ECEAP entitlement in statute. The entitlement is currently scheduled to become effective in school year 2030–31. The Legislature also passed (and the governor has signed) ESB 5872, which creates the “preK promise account” to accept private donations related to ECEAP—including the donations pledged by the Ballmer Group last year. The 2026 supplemental budget would authorize the use of $170.0 million from the preK promise account for 2025–27 to “support up to 10,000 new ECEAP slots beginning in the 2026-27 school year.”

Meanwhile, ESSB 6346, which would establish an income tax (and has not yet been signed by the governor), would direct 5% of annual income tax revenues to the fair start for kids account, beginning in FY 2030. A fiscal note for the version of ESSB 6346 that was passed by the Legislature is not yet available, but based on earlier estimates, 5% of the total would be about $150 million a year. It will be interesting to see how those funds are used.