In the Seattle Times today, Paul Roberts writes about the downward revisions to Washington’s credit outlook. The credit rating agencies cited the recent trend of spending outpacing revenues and the use of reserves to balance the budget.

According to the Times,

Democratic state lawmakers, who control the state budget process, say they’re more than aware of Pellicciotti’s check-engine light.

Concerns over depleted reserves and budget imbalances were a big reason lawmakers backed the state’s new income tax less than a year before a statewide election, said Senate Majority Leader Jamie Pedersen, D-Seattle.

Nevertheless, the Legislature increased the gap between spending and revenues this year. When the Legislature approved the 2025–27 biennial budget in 2025, the gap between spending and revenues for the biennium was estimated to be $2.654 billion. After the 2026 session, the estimated gap for 2025–27 is $4.918 billion.

The gap increased even though the revenue forecast for the biennium increased, and the increase to the gap was not solely due to increases in the cost of providing current services. The Legislature added $620 million in net new policy appropriations, including $1.59 billion in policy increases. Thus, the Legislature could have chosen differently; it could have maintained reserves if it had added less new spending or made additional cuts to existing spending.

Additionally, according to the Times,

Over the next 12 to 18 months, Pellicciotti said the rating agencies will want to see that Washington is on track to replenishing its reserves before fiscal year 2029, which begins in mid 2028.

That’s putting still more pressure on lawmakers for next year’s legislative session.

It has also further raised the stakes around the new “millionaires’ tax” of 9.9% on household earnings over $1 million annually. The tax, which Democrats promoted as a way to address long-term budget imbalances, faces major legal hurdles.

Those challenges to the law mean it can’t yet be factored into future budgets, says Sen. Pedersen.

“So all of that will go into what the next legislature decides it wants to do” next session, he said.

First, Washington hasn’t had “long-term budget imbalances.” Biennial revenues from funds subject to the outlook have increased every biennium since the Great Recession. The current budget imbalance is due to the fact that the state spent $4.842 billion more than it collected in revenues in 2023–25. (Our report on the causes of the shortfall is here.)

Second, as I’ve shown, the income tax itself won’t save the day for budget writers. (See also this editorial from the Times.)

Third, I am puzzled by Sen. Pedersen’s claim that the income tax “can’t yet be factored into future budgets” due to legal challenges. The 2026 supplemental budget officially balances over four years in part because it includes income tax revenues for FY 2029.