The Senate Ways & Means Committee chair is proposing a 2026 supplemental operating budget that would increase appropriations from funds subject to the outlook (NGFO) by $2.286 billion (2.9%) over enacted appropriations for 2025–27. This would bring revised appropriations for the biennium up to $80.144 billion.

Of the increase, $1.734 billion is at the maintenance level (the cost of continuing current services, adjusted for enrollment and inflation) and $552 million is net new policy. (I’ll have more on the spending changes in a subsequent post.)

The proposal would increase taxes, use the rainy day fund, and make other changes to resources and assumptions.

Some of the proposed tax changes include:

• ESSB 6346, which would impose an income tax. This would increase NGFO revenues by $2.342 billion in 2027–29.
• SSB 6231, which, as amended by Ways & Means, would repeal all data center sales and use tax exemptions (not just the refurbishment portions proposed by the governor). This would increase revenues by $93.3 million in 2025–27 and $210.4 million in 2027–29.
• SB 6228, 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.
• SB 5949, 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.
• SSB 6129, which would make several changes to the taxation of cigarettes and other products containing nicotine. It would increase revenues by $20.0 million in 2027–29.
• ESB 6347, 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 $389.9 million in 2027–29.
• SB 6351, which would specifically exempt before-and-after school programs and arts and cultural nonprofits from the sales tax on services that was adopted last year. This would reduce revenues by $15.2 million in 2025–27 and $33.7 million in 2027–29. (This change is included in the income tax bill as passed by the Senate, which rolled back the sales tax on services effective Jan. 1, 2030. SB 6351 would make the change for these specific programs effective July 1, 2026.)

Altogether, NGFO revenues would increase by $113.9 million in 2025–27 and $2.319 billion in 2027–29.

Additionally, the proposal would:

• Direct all capital gains revenues in 2025–27 to the NGFO. (Normally, the portion above $500 million a year goes to the common schools construction account.) This would increase NGFO revenues by $395 million in 2025–27.
• Transfer $750 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.)
• Transfer $375.0 million from the public works assistance account to the NGFO in 2025–27.

The proposal assumes reversions of $801 million in 2025–27 and $843 million in 2027–29. Reversions are appropriations that are ultimately not spent. Higher reversion assumptions increase the estimated ending balance. As I have written, the assumption has been creeping higher in recent years. (Typically, it had been 0.5% of general fund appropriations, plus additional reversions for specific cases.) The budget documents don’t specify the percentage, but reversions assumed in the Senate chair’s proposal appear to be higher than assumed for the enacted 2025–27 budget, even accounting for the higher appropriations level.

The proposal would leave an unrestricted NGFO ending balance of $101 million in 2025–27 and $999 million in 2027–29. Note, though, that the ending balance would be -$917 million in 2028. (The enacted 2025–27 budget also left a negative ending balance in 2028: -$56 million.)

The 2025–27 ending balance is quite small and relies on a high reversion assumption and one-time resources. (Appropriations would exceed ongoing revenues by $4.754 billion for the biennium.) Total reserves (including the BSA and the unrestricted ending balance) would be just 3.2% of revenues.

I really appreciate that an estimated outlook was provided, even though the Legislature does not technically have to abide by the four-year balanced budget requirement this year. The proposal would balance over four years without assuming 4.5% annual revenue growth in 2027–29. (Assuming 4.5% revenue growth would allow the budget to balance within an additional $2.027 billion in phantom revenues.) Under the proposal, total reserves at the end of 2027–29 would be $3.034 billion (7.1% of revenues).

However, the balance at the end of four years relies on the income tax, which, if passed by the Legislature, would almost certainly face legal and ballot challenges. Without the income tax revenues, the budget would leave an unrestricted ending balance of -$3.029 billion in 2027–29.