Yesterday the Economic and Revenue Forecast Council (ERFC) met to provide guidance to the budget outlook workgroup in preparation for the official budget outlook. (The outlook will be adopted April 22.) The workgroup asked how to handle the accounting assumptions made in the conference committee’s estimated outlook and the intended 2027–29 appropriations and transfers.

Accounting Assumptions

As we note in our report on the 2026 supplemental operating budget, the budget only balanced by making two unusual accounting assumptions. First, it assumes higher reversions than normal. (Reversions are appropriations that are not ultimately spent.) Until 2023, the outlook included a standard assumption that reversions would be 0.5% of general fund–state appropriations. Beginning in 2023, the Legislature and the governor have assumed varying, higher reversion percentages. Higher reversion assumptions mean higher ending balances.

Second, for the first time, the 2026 supplemental increased the assumption for prior period adjustments—from $20 million a year to $125 million a year. (This also increases the ending balance.) These adjustments are used to correct errors in prior fiscal years. The ERFC meeting materials include some information on why the new assumption was chosen. Apparently the 10-year average of actual prior period adjustments (plus annual comprehensive financial report adjustments, for which the outlook has never included an assumption) is $180 million.

The ERFC decided to use the conference committee’s assumptions for both reversions and prior period adjustments in the official outlook. Office of Financial Management Director Chapman-See said,

I think it’s important . . . that we treat the budget outlook process as a tool that continues to evolve with our state and with our state’s budget, and that we take in and adjust for new information, that we evaluate our assumptions as the budget changes, as our experience changes. We have many forecasted programs, we forecast revenue on a quarterly basis because these things change over time. So I think using the more recent data is very well warranted and gives us a more accurate picture of the state’s overall fiscal situation.

It’s true that reversions and prior period adjustments have been higher in recent years. And I agree that the outlook’s assumptions should be regularly evaluated. However, the way the ERFC has been changing accounting assumptions mid-budget cycle is absolutely not giving us “a more accurate picture of the state’s overall fiscal situation.” Instead, these are accounting gimmicks that allow the Legislature to increase appropriations while still technically balancing the budget. They help to solve the budget problem on paper, but not in fact.

Additionally, I don’t think the recent changes in accounting assumptions are comparable to the quarterly revenue forecast process. The revenue forecast is estimated by an independent body. The accounting assumption changes have been made by budget writers during the budget-writing process.

2027–29 Promises

The budget and the income tax bill state that it is the intent of the Legislate to make some major appropriations and transfers in 2027–29. These include $140 million for free school meals, $200 million for a proposed city and county fiscal health account, and a transfer of $880 million to the budget stabilization account. Although these intentions are not binding on the 2027 Legislature, the conference report outlook included them.

This runs afoul of the budget outlook statute, which states: “Estimates of ensuing biennium expenditures must exclude policy items including, but not limited to, legislation not yet enacted by the legislature.”

Nevertheless, the ERFC voted to include these items in the official outlook.

The fact that the intended appropriations and transfer will be included in the outlook will not make them legally binding on the 2027 Legislature—they will not be part of the maintenance level for the next budget because the Legislature has not yet made a policy level decision to fund them.

But including the intentions could make them more politically binding. As Rep. Ormsby said, “This is something that we had contemplated several times during the legislative session about having resources in the out biennium. What assurances can we give to the Legislature, to the executive branch, to the public that we intended to make good on the commitments.”

Standardizing Assumptions Would Improve the Outlook Process

Washington’s four-year balanced budget requirement is an important sustainability tool and we would be worse off without it. Credit rating agencies consistently cite the requirement in assigning Washington high credit ratings.

Unfortunately, the recent gaming of accounting assumptions has made the outlook less transparent. The current budget only balances because the Legislature increased the accounting assumptions, deviating from prior norms.

As I argued in January, the ERFC should just stop including any forward-looking assumption about reversions or prior period adjustments in the outlook. Barring that, the ERFC should agree ahead of each biennium on what these assumptions should be. At that point, assumptions could be adjusted to reflect recent experience. But once the assumptions are agreed to, they should remain in effect for every budget proposal during the biennium. This would improve transparency and ensure proposal comparability.