This legislative session, state lawmakers passed the Millionaires Tax – a historic piece of progressive revenue legislation that will go into effect in 2029. However, at the same time, the legislature relied on budget cuts, small tax code changes, and budget maneuvers to balance the final supplemental budget for the 2025-2027 biennium. This included cuts to key programs like low-cost childcare, education (early learning and K-12), and healthcare services, and drawing down funds from the Budget Stabilization Account (or the Rainy Day Fund). To respond to increased costs that will be incurred by state agencies to maintain current program levels, lawmakers revised the overall operating budget up to $80.2 billion for 2025-2027.   

How the final budget is balanced 

The legislature used a combination of strategies from the House and Senate proposals to balance the budget: 

• Moving funds from the Rainy Day Fund to the general fund: Lawmakers transferred $880 million from the Rainy Day Fund to the 2025-2027 general fund. Looking ahead, lawmakers plan to use surplus funds from the Law Enforcement Officers’ and Fire Fighters’ Retirement System (LEOFF) 1, which was included from the passage of House Bill 2034, to increase the amount of funds transferred back into the Rainy Day Fund in the 2027-2029 biennium. 

• Relying on budget transfers and not new revenue to address federal cuts: Due to Congress’s harmful H.R. 1 bill, lawmakers used $425 million from the general fund to make up for cuts to key programs and services across health insurance, food assistance, and housing security. This diverts funds away from other key parts of Washington’s budget that serve community needs. 

• Making small progressive tax code changes, which are offset by some regressive choices: Lawmakers rightfully passed bills to end a few tax breaks and exemptions. The legislature ended a business and occupation (B&O) tax exemption loophole related to the insurance premium tax; removed a tax exemption for prescription drug warehousing and reselling; and ended a sales and use tax exemption for data center equipment. However, legislators also reversed an increase to the estate tax passed in 2025. This shift, along with necessary funding to set up the Millionaires Tax in the Department of Revenue, brought the net revenue increase for the 2025-2027 biennium to only $36 million.  

While it won’t have an effect on the state budget until 2029, we are excited about the passage of the Millionaires Tax and the inclusion of funding to implement this monumental new revenue tool in the 2026 supplemental budget.

Cuts included in the final revised budget 

Lawmakers relied on cuts to key programs that support families across Washington to balance the budget.  

Child care and early learning: 

• Cuts to Working Connections Child Care (WCCC) - $143 million: These cuts change WCCC payments from a prospective, enrollment-based policy to an attendance-based policy. This change reduces payments to childcare providers based on a child’s number of absences in a month and harms childcare providers as they cannot increase enrollment to offset unpredictable absences. Lawmakers also eliminated the enhanced WCCC subsidy rate that providers receive in Clark, Benton, Walla Walla, and Whitman counties, compared to their lower standard regional rate. 

• Cuts to the Transition to Kindergarten program – $27 million: Even though lawmakers directed the Office of Superintendent of Public Instruction (OSPI) to continue to prioritize qualified children and families for slots, they reduced funding, resulting in a loss of one-third of the Transition to Kindergarten slots statewide. This program has been successful in closing opportunity gaps for kindergarteners in Washington.  

K-12 education: 

• Cuts to Local Effort Assistance (LEA) programs – $25 million: These cuts remove the scheduled increase in payments to school districts that receive LEA payments, which will reduce payments from $250 to $150 per student. LEA payments support school districts in areas with low property values and high property tax rates. Reducing funding for LEA means that lower income areas that struggle to raise enough revenue for their schools will have even less to support their students.  

• Cuts to school bus funding – $26 million: This funding decrease reduces annual payments to school districts to replace aging school buses. 

• Cuts to Running Start – $7 million: These cuts reduce the Running Start credit enrollment cap per student from 1.4 to 1.3 full-time equivalency credits, meaning that 11th and 12th graders in the program would lose tuition funding for around 10 college credits per school year. However, this funding reduction would sunset in the 2028-2029 school year contingent upon Millionaires Tax revenue going into effect. 

Health and Human Services: 

• Cuts to supports for people with disabilities – $6 million: This reduction impacts the family support program and employment and day program for adults with developmental disabilities. 

• Cuts to assisted living - $21 million: This cut equates to a one-year delay in updating payments to assisted living facilities to match increased current costs. 

• Cuts to nursing homes – $10 million: This reduction phases out the low-wage equity add-on, inflation add-on, and minimum wage add-on in updating payments to nursing homes to match increased current costs. 

Immigration justice 

• Cuts to Apple Health Expansion (AHE) – $31 million: Legislators have signaled their commitment to protect funding for AHE, which provides health care for immigrants who are otherwise ineligible for federal health care assistance. However, due to reduced funding, this program will change from a Managed Care Organization (MCO) structure to a Fee for Services (FFS) program, which will provide health coverage to more individuals but at a lower quality. 

Criminal legal system 

• Cuts to alternatives to arrest and incarceration – $1.4 million: This cut impacts funding to city and county programs that provide alternatives to arrest and incarceration, specifically, Alternative Response Teams, Arrest and Jail Alternatives, and Law Enforcement Assisted Diversion lose funding.  

• Cuts to reentry medical services – $7.1 million: Eliminates funding that supports people who’ve been incarcerated or in juvenile rehabilitation centers as they transition back into their communities with reentry medical services through the Medicaid Transformation Project. 

Programs funded in the final budget 

The revised final budget includes investments in some important community needs. While this is good news, we are disappointed that additional new progressive revenue tools – like the wealth tax and the high-salary payroll tax – were not passed. These revenue-raising tools could have met vital program and service needs for residents across the state.  

Below are a few key investments in the final budget to highlight: 

Immigration justice: 

• Funding for the Washington Migrant and Asylum Seeker Support (WA MASS) program – $25 million maintained: WA MASS was established in 2024 to provide housing, job, and language support services to newly arrived migrants and asylees. 

• Immigrant Workers Protection Act – $325,000 in new funding: This legislation ensures that immigrant workers are informed of their rights and alerted of upcoming workplace audits. Funding is provided to the Attorney General’s office to implement this legislation. 

Direct cash: 

• Ending the practice of withholding Social Security benefits from young people in Extended Foster Care – $613,000 in new funding: Currently, the Department of Children, Youth, and Families keeps this money to offset the cost of providing care. This bill ensures that young people in Extended Foster Care can keep the money that is rightfully theirs and helps them to have greater financial stability as they navigate adulthood. 

• Avoiding transferring funds from Climate Commitment Act (CCA) to the Working Families Tax Credit (WFTC): Despite initial proposals to use funds from the CCA to fund the WFTC, funding for environmental programs that help communities respond to the climate crisis will not be reduced, and the WFTC continues to be fully funded.  

Criminal legal system: 

• Funding for the statewide Reentry Legal Aid Program – $250,000 in new funding: This project supports individuals leaving incarceration with vacating convictions, clearing criminal records, and terminating legal financial obligations. 

• Funding for survivors of crime – $19.4 million maintained: The legislature included much-needed funding for Crime Victims Advocacy services statewide. 

Missed opportunities in the final budget 

In the midst of this historic, yet deeply challenging short session, it is important to highlight a few missed opportunities to make progress toward better, more equitable systems across Washington.  

First, funding for State v. Blake resentencing support proposed by the House did not make it into the final budget. This funding provides resentencing support related to the state Supreme Court decision that Washington state’s drug possession law was unconstitutional. We hope the legislature sees the value and continued success of this work and returns to fund these support efforts in the next biennial budget. 

Second, the final supplemental budget unfortunately included an increase of $53 million to the Monroe Correctional Complex, where $16.6 million is earmarked to increase the number of beds. Budget and Policy Center maintains that supporting the growth of the prison industrial complex is a deeply harmful and misguided use of state funds, particularly under the current budget deficit, where substantial cuts are being made to programs that support everyday people. 

Finally, it is extremely disappointing that lawmakers did not pursue additional new progressive revenue tools that could have made an impact on budgets in the near-term. Had lawmakers passed policies like the high-salary payroll tax on employers and the wealth tax this session, we would have the ability to balance future budgets in more equitable ways, protecting critical support programs that continue to see devastating cuts. Between these two revenue options, an estimated $3 billion to $6 billion a year was left on the table. Additionally, the rollback of the estate tax increases made in 2025 means wealthy individuals maintain their tax preferences. Further, lawmakers also did not utilize the opportunity to gain revenue by closing the Qualified Small Business Stock (QSBS) exemption, a significant loophole within the capital gains tax recently widened by federal law passed by Congress last summer. By keeping the QSBS exemption in our capital gains tax, that loophole still remains in Washington.

Preparing for the next budget-making legislative session 

The Budget and Policy Center remains clear that Washington needs more equitable systems so that everyone in our state can achieve their fullest potential through sustainable, well-funded programs. We welcome closing tax loopholes and ending tax breaks for large and profitable corporations and the wealthy few, expanding progressive taxes such as the capital gains tax, and enacting additional, bold new progressive revenue tools, like the Millionaires Tax, to meet anticipated budget needs for the 2027-2029 biennium. 

However, budget cuts, small tax code changes, and budget maneuvers are short-sighted and not sustainable solutions in difficult economic and political times. We urge lawmakers to stay committed to the long-term needs of our state and continue the work of transforming our outdated and upside-down tax code. How we fund the services and programs we all rely on matters, and for too long Washington has relied on people with the least to pay the most. We remain committed to working with partners across the state in advocating for bold progressive revenue policies and holding lawmakers accountable to a future where everyone in Washington state is able to enjoy a bright economic future, health, freedom, and joy.