With the 2022 supplemental operating budget, 2021–23 appropriations from funds subject to the outlook (NGFO) are 24.3% higher than 2019–21. That is the largest biennial increase going back at least to the early 1990s. (The average biennial spending growth was 9.1% from 1993–95 through 2019–21.) Further, this is the first time a mid-biennium supplemental budget has increased spending by more than the increase in the original biennial budget.

These spending increases were possible due to a substantial budget surplus. The budget uses 80.3% of the surplus for new spending (including appropriations to the transportation and capital accounts), 14.3% for reserves, 4.2% for tax cuts, and 1.2% for transfers to other funds. We previously argued that the Legislature should follow time-honored precepts: restore reserves, avoid using one-time funds for ongoing projects, set aside funding for already-planned spending, and lower tax burdens. In the end, the Legislature fell short on several of these principles, although it did meet others of them in its own way:

• Including the Washington rescue plan transition account (WRPTA), reserves are estimated to be about 13.0% of revenues and other resources at the end of 2023–25. But the Legislature put only the bare minimum in the budget stabilization account and is now keeping most reserves in the WRPTA, which is not protected by the constitution.
• A very high share (71.6%) of NGFO appropriations in 2021–23 is used for one-time items, but the $1.757 billion in new ongoing spending items for 2021–23 are estimated to cost $4.454 billion in 2023–25.
• Legislators shifted some funds from the operating budget to the transportation budget, but they neglected to fund last year’s new early learning and child care program with revenue from tax sources other than the unreliable capital gains tax.
• They provided targeted business tax relief, but they did not broadly cut taxes.

Despite the large surplus, the enacted budget leaves low unrestricted NGFO ending balances in both 2021–23 ($222 million) and 2023–25 ($374 million). Nevertheless, the supplemental has sufficient reserves to cover the loss of capital gains tax revenue over four years, should the Superior Court ruling that it is unconstitutional stand.

That the budget balances over four years while increasing spending so substantially is a testament to the strength of Washington’s economy. But, worryingly, nearly half of the four-year surplus was used for new ongoing spending. Going forward, legislators must be judicious in their use of the unrestricted WRPTA reserves to ensure that enough remains in the account to help maintain this new, high level of spending in the event of an economic downturn.

Read the report here.