by Jake Goldstein-Street and Bill Lucia, Washington State Standard
February 22, 2026
Democrats in the Washington Legislature on Sunday proposed tapping the state’s rainy day savings account and slashing hundreds of millions of dollars for a child care program for low-income families to balance the state’s budget into next year.
But under their plans, the state’s main operating account would have a more than $900 million deficit in the first year of the upcoming budget cycle, which begins July 1, 2027, before rising back into the black the following year.
“This has been a particularly challenging supplemental budget to put together,” said Senate Ways and Means Chair June Robinson, D-Everett.
Majority Democrats in the House and Senate pitched a pair of supplemental budget blueprints that lawmakers will consider before the legislative session ends March 12, a deadline now less than three weeks away.
Senate Democrats’ plan for the current two-year budget calls for funneling about $1 billion toward skyrocketing legal payouts. The House plan provides roughly $400 million for these costs. Both chambers call for pulling north of $700 million from the rainy day account.
Neither follows Gov. Bob Ferguson’s proposal to use nearly $600 million from the state’s cap-and-trade program to pay for tax rebates that go to low- and middle-income households.
The House would send $330 million from the carbon auctions to the rebates, and more than $200 million to the state’s construction budget. The Senate doesn’t redirect any of the climate funding to the tax credits. In the House plan, the shifted climate dollars would later be replaced using surplus money from a pension account for police and firefighters.
The Senate’s $79.3 billion two-year plan is nearly $1.5 billion larger than the roughly $77.8 billion in operating budget spending that lawmakers and Ferguson approved last spring. The House plan checks in with around $79.2 billion of proposed spending.
While overall spending would increase under each plan, Democratic budget-writers said much of that is due to rising demand for services and programs in areas like higher education, child care, and health care. They also blamed Republican-backed changes at the federal level for creating hundreds of millions of dollars in added costs for the state. And they pointed to inflationary pressures.
“We did make actual reductions,” said Rep. Timm Ormsby, D-Spokane, the lead budget writer for House Democrats.
The biggest category of new spending in the budget is for the rising lawsuit payouts. These cases often involve claims of government misconduct that date back decades. Many of them stem from the state’s child welfare system.
“If we weren’t paying for the tort liability costs, we actually wouldn’t be spending more,” Robinson said.
House Republicans’ budget lead blasted the proposals, saying Democrats in Olympia have a “spending addiction.”
“In the middle of another predictable multi-billion-dollar deficit, Democrats chose to spend more than Washington was projected to bring in and grow government by another $2 billion,” Rep. Travis Couture, R-Allyn, said in a statement. “They drained the Rainy-Day Fund, launched an unconstitutional income tax, and raided a pension system — all to avoid making hard decisions.”
Rep. Travis Couture, R-Allyn, in the House Appropriations Committee on Dec. 4, 2025. (Photo by Jacquelyn Jimenez Romero/Washington State Standard)
Democrats are trying to pass a 9.9% tax on household income above $1 million. But lawmakers don’t expect revenue from it to flow to the state’s coffers until 2029. Both the House and Senate legislation assume upward of $2 billion in the next two-year budget from the tax.
Lawmakers’ proposals don’t include much new revenue in the current budget, which runs to June 30, 2027. But they do take up Ferguson’s ideas for cutting a few tax breaks to raise money.
Senate lawmakers could not immediately provide a figure for how much spending they would cut in the current two-year budget, but said their plan included $2.4 billion in savings over four years. Over $800 million of that total was tied to changes to the child care program for low-income residents.
The House also suggests cutting spending on the child care program, but by less.
House lawmakers pegged their overall spending reductions in the current two-year budget at around $1.1 billion.
Robinson noted the Senate proposal also includes cuts to long-term care facilities and a program to transition children into kindergarten.
Schools would still receive state support for the transition-to-kindergarten program, but only for students who qualify for free or reduced lunches. Districts would need to come up with their own funding for other children.
Both budget proposals are set for committee hearings Monday afternoon, with votes from those panels scheduled Wednesday. Votes from the full chambers are planned to follow on Friday and Saturday, paving the way for negotiations on a final package.
How we got here
This year’s budget debate follows a 2025 legislative session, when lawmakers enacted billions of dollars in controversial cuts and additional taxes to solve a budget shortfall estimated as high as $16 billion. Since then, tax revenue has been below expectations, adding financial strain.
Ferguson, a first-term Democrat, released his budget proposal in December. Democratic budget-writers incorporated some, but not all, of his recommendations into their legislation. The supplemental budget framework they are working on will make adjustments to the state’s current two-year spending plan. This budget cycle runs from July 1, 2025, to June 30, 2027.
The governor’s plan drew jeers upon its release for proposed cuts to popular programs and moving climate dollars to tax credits for working families.
Since then, lawmakers have gotten good news: Revenue is up.
Last week, the state economist said collections are predicted to increase $827 million in the current two-year budget compared to expectations from last November. This update put projected receipts for the current biennium above the figures the Legislature used last spring to craft the budget.
“That revenue forecast was a welcome relief so that we didn’t have to do some of the draconian cuts that we had been considering,” Ormsby said.
In the end, Senate budget writers assumed a shortfall in the ballpark of $1.8 billion in the current two-year budget, compared to $2.3 billion for the governor’s office. The House was working around a larger deficit estimate.
Raising money…
The Senate plan calls for raising about $114 million in new revenue through mid-2027. It agrees with Ferguson’s proposal to cut tax breaks for data center equipment and prescription drug warehousing and reselling that Ferguson initially floated. In fact, the Senate proposal goes further on the data centers to remove all their tax breaks, bringing in an extra $30 million.
About $56 million in the Senate plan would come from sunsetting a tax exemption on insurers. Ferguson also proposed eliminating this tax break.
Meanwhile, lawmakers want to reverse increases in the state’s estate tax that Democrats passed last year. The tax applies to transfers of property at time of death. The state Senate approved a bill to lower the estate tax last week. Lawmakers have cited concerns about people moving out of state or taking other steps to avoid the tax.
Reducing it is factored into both the House and Senate budget legislation.
That change is a $45 million hit for the state in this budget, according to the Senate proposal. In the next two-year cycle, lowering the estate tax will cost the state about $390 million.
Both the House and Senate plans propose rolling back sales taxes on services. But that wouldn’t be until 2030, in the latest version of the income tax proposal, which awaits action in the House after passing the Senate last week. The income tax bill is written so that if the tax is overturned in court, other policy changes embedded in the legislation would also be repealed.
The Legislature is also moving to exempt schools from the new sales tax this year, which would decrease revenue for the current budget by roughly $15 million, amid concerns it was unintentionally straining school district finances. The same levy would be eliminated for food banks, too, under pending legislation.
Robinson sees “general alignment” between the Senate and House budget plans.
“I don’t anticipate huge differences that are going to get us hung up,” she said.
State Rep. Timm Ormsby, D-Spokane, during an annual legislative preview event in Olympia, on Jan. 9, 2026. (Photo by Bill Lucia/Washington State Standard)
House Majority Leader Joe Fitzgibbon, D-West Seattle, said the two chambers are more aligned than they have been at this stage in past years.
“We will get it done,” Ormsby said.
… And spending it
The biggest portion of new spending in the proposals looks to address the state’s ballooning lawsuit payouts due to alleged government misconduct. Washington spent roughly $500 million last year in settlements and jury verdicts in these cases.
The Senate plan includes roughly $1 billion to pay for this. Robinson called this a “significant down payment,” but she expects to need to revisit the issue for more funding in future budgets. The House has $1.3 billion through mid-2029 planned for this issue.
Lawmakers are considering tweaks in the legal process to reduce the costs, but it’s unclear how much of a dent that could make.
The second biggest pot helps the state respond to federal changes to safety net programs in the “big, beautiful bill” congressional Republicans approved last year. This includes money to help fund long-term care for noncitizens who no longer get federal aid, and to build out the state’s IT infrastructure to enforce new work requirements for Medicaid and food stamps.
In total, the Senate plan includes roughly $400 million of net spending related to the federal legislation through mid-2029. The House is thinking more like $500 million.
The Senate taps $750 million from the state’s rainy day reserves. Ferguson proposed a $880 million withdrawal. The House agrees with the governor’s level of siphoning. Robinson said it was “extremely challenging to think about a budget this year without using any of it.”
Under the Senate plan, the state would end this budget cycle with nearly $1.3 billion in reserves and $3 billion at the end of the next biennium. But the state’s operating budget balance would dip to just $101 million by the middle of 2027 before sliding into negative territory. The House has similar reserve figures, with a projected ending balance this biennium of nearly $250 million.
The Senate proposal also scoops $375 million from an account providing loans to local governments for public works projects, diverting the money elsewhere. But the state’s separate construction budget will backfill much of that, Robinson said. The House also includes a sweep of some of those public works dollars.
One of the biggest differences between the proposals arises from the governor wanting to use proceeds from the state’s carbon auctions for the Working Families Tax Credit. The Climate Commitment Act explicitly allows for the auction dollars to be used this way, but the idea was “very unpopular within our caucus,” Robinson said.
“It’s not what people want that money to be used for,” she added.
Sen. June Robinson, D-Everett, chair of the Senate Ways & Means Committee on Dec. 4, 2025. (Photo by Jacquelyn Jimenez Romero)
This month, the House approved legislation to backfill the climate dollars with $569 million from a state pension plan for police and firefighters that Democrats argue is excessively overfunded and has been closed to new members since 1977. This account would also refill the state’s reserves after the $880 million transfer, under the House framework.
The House also proposes 3% across-the-board cuts to state agencies with over 100 full-time employees. Each chamber’s budget proposal includes tens of millions of dollars in cuts to the state’s higher education institutions, namely the University of Washington and Washington State University.
Both the House and Senate use Climate Commitment Act funding for Department of Natural Resources programs to prevent and respond to wildfires. The department has pressed for that money after lawmakers fell behind on an eight-year plan for funding wildfire programs.
Democratic lawmakers plan to release separate spending proposals for transportation and capital projects Monday.
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