The Washington Research Council estimates that legislators face a gap of $8.6 billion between available resources and the cost of maintaining existing services over the next four years. The story of how this gap came to be is fascinating and largely owing to federal Covid spending.
Chart 1 shows actual and projected revenues and expenditures for state fiscal years 2015 to 2029. For revenues, the numbers are the actual amount received from FY 2015 to FY 2024 and forecasted receipts thereafter. For expenditures, the numbers are the actual amounts appropriated for fiscal years 2015 to 2025 and the cost of maintaining the programs funded in FY 2025, with adjustments for inflation and changes in the number of individuals qualifying for various entitlement programs, for fiscal years 2026 to 2029.
It is normal for state revenues to fall during recessions. However, there was no year-over-year revenue decline in the case of the recent COVID recession. Thanks to federal infusions owing to Covid, revenue actually boomed. From FY 2019 to FY 2021 inflation-adjusted per-capita revenue increased by a remarkable 12%. This is greater than the percentage growth over every other two-year period in the last 30 years!
State revenue forecasters did not predict this extraordinary boom. The February 2020 revenue forecast did not include any impacts from Covid, although forecasters acknowledged the virus to be a risk going forward. By June, forecasters had become
convinced that Covid would have a large negative impact on state revenues. As a result, they reduced the 2019–21 forecast by $4.5 billion (8.9%), the 2021–23 forecast by $4.4 billion (7.8%); and the 2023–25 forecast by $4.5 billion (7.5%).
These reduced June forecasts proved to be far too pessimistic. Quarter after quarter, collections exceeded expectations and forecasts were adjusted upward. Ultimately collections for the 2019–21 biennium actually exceeded the February 2020 pre-Covid forecast by $192 million (0.4%), while collections for the 2021–03 biennium exceeded the pre-Covid forecast by $3 billion (15.0%).
The explanation for the unanticipated boom in state revenues is the extraordinary expansion in federal spending enacted in response to Covid. Chart 2 shows federal spending for federal fiscal years 2018 through 2024. (The federal government’s fiscal year runs from October 1 to September 30.) The red line is a simple linear trend connecting the 2018 and 2024 spending values.
Inflation-adjusted federal spending increased by 50.6 % percent from FY 2019 to FY 2020. Had spending followed the linear trend, the increase would have been only 4.1%. Over the three years, excess spending compared to the trend totaled $5.4 trillion (2025 dollars). This surge in federal spending largely explains the surge in state tax revenues in fiscal years 2021, 2022, and 2023. Other states enjoyed similar temporary tax revenue surges.
In fiscal years 2021 and 2022, state revenues significantly exceeded expenditures, largely due to the under-forecasting of revenues. As a result, per-capita budget reserves (in 2025 dollars) grew dramatically, from $480 at the end of FY 2020 to $625 at the end of FY 2021 and then to $1,069 at the end of FY 2022.
In FY 2023 revenues and expenditures were roughly in balance. Expenditures then exceeded revenues by 6.1% in FY 2024 and are expected to exceed revenue by 12.7% in FY 2025. As a result, reserves declined to $867 per capita at the end of FY 2024 and are expected to fall further to $376 per capita at the end of the current fiscal year. Without additional revenues, continuing to fully fund existing programs would fully deplete budget reserves during FY 2027.
Legislators are looking for more money. Six tax bills would raise a total of $13.4 billion over the next four years.
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WA needs a DOGE!
It’s disingenuous to use a four year timeframe to describe a two year budget process. Perspective is everything. The biennial budget is about $80B. That equates to a 5% budget deficit. I won’t pretend that it is nothing, but a 5% budget problem is not insurmountable or particularly remarkable.
A most confusing article. If I read it correctly, there was a significant surplus in 2021 and 2022, and more or less even in 2023. So how in one year (2024) did the budget grow such a deficit? And how hard can it be to cut some of the recent programs that were based on the surplus? Last in, first out. Pretty simple.