​Washington’s 2025–27 “Band-Aid Budget”: New Taxes, Cuts, and Future Fiscal Risks

​Washington’s 2025–27 “Band-Aid Budget”: New Taxes, Cuts, and Future Fiscal Risks

The Washington Research Council’s July 2025 report, “The Band-Aid Budget,” takes a close look at the state’s recently approved 2025–27 operating budget. The central message of the report is that while the legislature managed to balance the budget on paper, it did so in ways that do not address the underlying financial challenges the state is facing. Instead of fixing long-term issues, the budget relies on tax increases, spending cuts, and short-term savings, which may lead to more problems in the future.

The report explains that Washington entered the 2025 legislative session with an $8.6 billion shortfall over the next four years. Even with this gap, the legislature increased spending, pushing total appropriations to $77.9 billion for 2025–27, 8.2 percent more than the previous budget. To cover these expenses, lawmakers passed tax increases that would raise $9 billion over the outlook period and made cuts or delays to existing programs worth nearly $7 billion. Much of the new money was directed toward employee pay and benefits, while other areas of the budget saw reductions or slowed growth.

Although these actions technically balance the budget by 2029, the report emphasizes that the financial picture remains fragile. The reserves left at the end of the biennium are very small—only $80 million in 2027, and are likely to shrink even further because of the updated revenue forecasts. In addition, several choices, such as delaying obligations, relying on temporary tax increases, and assuming unusually high reversions of funds, make it very likely that the state will face another shortfall by 2026.

The report also highlights that lawmakers avoided using the state’s rainy-day fund for regular spending, which is a positive step toward stability. However, it warns that the budget still carries risks tied to new taxes, one-time savings, and unfunded costs that will occur in the next few years. These risks are compounded by the possibility that revenue may not meet expectations or unexpected expenses.

Although the 2025–27 operating budget avoids an immediate crisis, it does not offer a long-term solution. The state has postponed dealing with its structural budget problems, and, unless future lawmakers make significant changes, Washington will continue to face recurring financial challenges. For a full review of the numbers, policy choices, and potential outcomes, readers are encouraged to review the complete report at https://researchcouncil.org/wp-content/uploads/BandAidBudget.pdf.