Gov. Bob Ferguson’s office has quietly delivered a jarring message to Washington’s state agencies: expect “significant budget shortfalls” next biennium and tap the brakes on many new programs. In a blunt June memo, the governor’s team told agency leaders to scrutinize spending on initiatives created or expanded since January 2019 and to hold off proposing fresh ones, with a fall deadline looming for budget requests and tough choices on statewide services all but guaranteed.
Memo directs agencies to tighten belts
In a three-page memo dated June 5, the governor’s budget director, K.D. Chapman-See, warned that “there will be significant budget shortfalls next biennium in both operating and transportation budgets” and instructed agencies to pause the phase-in of most new programs and avoid rolling out new initiatives, according to the Office of Financial Management. Chapman-See wrote that current revenue forecasts are unlikely to support maintaining all existing programs, let alone expansions, and asked agencies to identify areas where Washington provides especially high levels of service compared with other states. The memo starts the technical budget work that will feed into the governor’s 2027-29 proposal.
Why the shortfall is looming
The memo points to steep price inflation and rapid population growth, roughly 14.2% between 2015 and 2025, as major cost drivers that have pushed state spending higher, as reported by OPB. Lawmakers have also leaned on one-time fixes and rainy-day reserves in recent cycles, which leaves fewer cushions when revenues soften. Taken together, that mix is why the state is telling agencies to start hunting for savings now instead of banking on a rebound later.
Numbers: An $80 billion budget and fast growth
The latest revenue forecast pegs the 2027-29 two-year operating budget at roughly $80 billion, a scale of spending that has grown quickly in recent years, according to the Office of Financial Management. By comparison, the two-year operating budget signed in 2017 totaled about $43.7 billion, the Seattle Times reported at the time. Those long-term increases, amplified by inflation and new program commitments, are a big part of why officials say the next budget cycle will feel unusually tight.
Millionaires tax will not plug the hole, at least not yet
The memo notes that revenue from Washington’s recently passed income tax on high earners will not start arriving until the second half of the upcoming budget cycle, and that roughly 42% of the expected take is earmarked for tax-relief provisions, a caveat that limits near-term help, per coverage by the Washington State Standard. The new law, signed earlier this year, is already the subject of lawsuits and a likely referendum, creating uncertainty about how much money will show up and when, as reported by KUOW. That timing and legal risk leave agencies with little short-term cushioning, even with a high-earner tax technically on the books.
What agencies must do next
Agency directors were instructed to submit biennial budget requests by Sept. 14, 2026, to focus on maintenance-level needs, and to flag programs that could be scaled back or eliminated, according to OPB reporting on the memo. The guidance also tells managers to justify services that are unusually generous compared with other states, or that Washington provides when few others do. State budget offices now have a relatively short window to revisit staffing, contracts and rollout plans before lawmakers open formal budget hearings next year.
Legal and political risks
The income-tax law faces both court challenges and an organized repeal effort, any of which could delay implementation or shrink projected receipts and complicate budget planning. Local reporting has followed the lawsuits and referendum push. For instance, the Lynnwood Times has laid out the legal challenge and the timelines opponents are pursuing, underscoring the political uncertainty that hangs over the projected revenue. That uncertainty is now central to Olympia’s calculations about what dollars can safely be counted on in the near term.
For Washington residents, the memo signals that agencies from higher education to health care and K-12 supports may have to delay or trim back some programs in the coming biennium as officials try to match rising costs with available revenue. The governor’s office and the Office of Financial Management will use agency submissions to assemble a budget proposal for lawmakers to debate during the 2027 legislative session. Elected leaders and agency heads now face the unglamorous work of ranking priorities in a period of limited near-term cash.
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