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Key Findings

1. Washington’s current 2019-21 budget is $53.3 billion. This level of spending is $8.6 billion, or 19% higher, than the 2017-19 budget.

2. Although the fundamentals of Washington’s budget process are strong, the decision to enact large spending increases has put additional pressure on the ending fund balance and reserves.

3. Realizing there is no recession proof tax structure, Washington’s tax base and economic activity has produced substantial revenue growth prior to the global COVID pandemic and subsequent government restrictions on economic activity.

4. Washington voters have already rejected 10 straight income tax proposals.

5. Every state in the country and the federal Internal Revenue Service (IRS) unequivocally states a capital gains tax is an income tax.

6. There are serious budget implications of relying on a highly volatile capital gains income tax in a recession.

7. Acting early to reduce spending will help reduce the size of the problem for the next state budget (2021-23).

8. Facing a budget deficit in 2010, then Governor Chris Gregoire issued a proclamation to reopen state employee contracts.

9. Among the actions lawmakers should take immediately is to freeze new spending increases, rely on the state’s emergency reserves and encourage federal officials to provide flexibility for the original CARES Act funding.

10. It is important these reductions happen while avoiding tax increases that would further burden families and employers as they try to recover from the governmentimposed economic restrictions.

Introduction

Washington’s economic outlook has dramatically changed due to the global COVID pandemic and Governor Inslee’s subsequent order in March to lock-down the state economy. When the 2020 legislative session opened in January, the state was in the midst of strong economic growth leading to the opportunity for tax relief. Instead, lawmakers used that tax growth to increase the state budget even higher. Then the global COVID pandemic turned the state’s financial outlook upside down. Washington’s current 2019-21 budget is $53.3 billion. This level of spending is $8.6 billion, or 19% higher, than the 2017-19 budget. This paper provides a snapshot of historical state spending and revenue growth, the projected budget deficit created by the economic lock-down policy, and options to help lawmakers address the budget deficit. 

Read the complete Policy Brief here