Under the four-year balanced budget requirement, the maintenance level (the cost of continuing current services, adjusted for inflation and enrollment) of the adopted budget must balance within expected resources for the next biennium. The 2026 supplemental operating budget that was passed by the Legislature yesterday increased net new policy spending for 2025–27 by $621.3 million. The outlook estimates that the net cost of the new policies, plus planned spending, will be $178.9 million in 2027–29. That includes $1.336 billion in spending increases, offset by $1.238 billion in reductions.

The outlook assumes resources from two major pieces of legislation: the income tax bill (ESSB 6346) and the bill that would terminate the Law Enforcement Officers’ and Firefighters’ retirement system Plan 1 (LEOFF 1) in order to extract the expected surplus in the plan (E2SHB 2034). If both survive legal challenges, resources would be available in FY 2029, the last year of the 2027–29 biennium. Although the 2026 supplemental does not make appropriations for 2027–29, it does declare the intent of the Legislature as to how to use some of the new resources. These intentions are not binding on the 2027 Legislature, but the intentions are included in the outlook.

First, as passed by the Legislature, ESSB 6346 states that the Legislature intends to provide “access to breakfast and lunch for all children served without charge each school day.” Additionally, ESSB 6346 states that the Legislature “intends to create a city and county fiscal health account for future transfers from the general fund to mitigate a portion of the revenue loss to local government. Such transfers will be unrestricted and available for general use.” ESSB 6346 does not create the city and county fiscal health account, nor does it make any appropriations for free school meals.

The budget outlook includes $140.0 million in 2027–29 for free breakfast and lunch in schools. Sec. 508(6) of the budget bill also requires the state to produce a forecast of the number of children expected to participate.

Additionally, the budget outlook includes $200.0 million in 2027–29 for planned ongoing funding for a “proposed city and county fiscal health account beginning in FY 2029.” The budget bill does not refer to this at all.

Second, as passed by the Legislature, E2SHB 2034 would transfer surplus assets from LEOFF 1 to a new pension surplus holding account on June 30, 2029. The bill also specifies that during 2027–29, money in the pension surplus holding account may be transferred to the general fund–state.

Sec. 935(5) of the operating budget bill states that in 2027–29, it is the intent of the Legislature to transfer $539.0 million from the pension surplus holding account to the climate commitment account.

Additionally, Sec. 802 of the budget bill states the Legislature’s intention to transfer $880.0 million from the pension surplus holding account to the budget stabilization account on June 30, 2029.

Other major increases or decreases assumed for 2027–29 related to new policy in 2026 include:

• $230.6 million for Working Families Tax Credit remittances, pursuant to the expansion of the program in ESSB 6346.
• $191.4 million for response to federal H.R. 1, including $169.3 million to fund services for lawfully present non-citizens who will lose Medicaid eligibility.
• $109.8 million to implement ESSB 6346.
• $86.2 million for new debt service on capital budget bonds.
• $25.4 million to continue to operate the Stafford Creek Corrections Center.
• Savings of $638.1 million from the changes made to Working Connections Child Care enrollment and rate policies in SHB 2689.
• Savings of $75.0 million by reducing the Transition to Kindergarten program.
• Savings of $42.2 million from reducing school bus depreciation payments.
• Savings of $38.3 million to phase out nursing home “rate add-ons associated with policies that have been previously incorporated into rebased rates.”

(For an overview of the impact of policy changes in 2025–27, see here.)