Governor Inslee’s Proposed 2025-27 Biennial Budgets

Traditionally in Washington State, Governor’s release their projected budget to the legislature in December. We now have Governor Jay Inslee’s final budget. Most of the focus is on his proposed 2025-27 Biennial Operating Budget, with large tax increases aimed at keeping maintenance levels for state programs that expanded during his tenure, along with a mixture of cuts and some delayed implementations of previously  approved expenses. (Watching the North South Freeway budget with keen interest). New Governor Bob Ferguson will have a huge say in this budget as well.

Bottom line, Inslee’s budget calls for a $12 billion increase, to $79 billion in the upcoming 2025-27 biennium. Here is what he proposes:

Revenue

Governor Inslee is proposing two major tax increases and several other minor changes to revenue.

  • Wealth Tax: Creation of a Wealth Tax of 1% on residents with worldwide wealth exceeding $100 million — estimated to affect approximately 3,400 Washington residents. The wealth tax (the first such tax in the nation) is projected to generate approximately $3.5 billion per fiscal year if implemented starting on July 1 of next year, though the state Department of Revenue has cautioned that a wealth tax would be “daunting” to administer, risks capital flight by wealthy individuals and presents difficulties in estimation and enforcement.
  • B&O Tax Increase: Projected to generate $383 million in the current 2023-25 biennium and approximately $1.4 billion in the 2025-27 biennium, the B&O Tax increase would be a 20% surcharge applied to approximately 20,000 companies with annual income of more than $1 million in the “service and other activities” category (examples include lawyers and accountants and lobbyists). The tax rate would increase from 1.75% to 2.1% in October, 2025 through December, 2026. Beginning January 2027, the surcharge would expire, and all B&O tax rates would increase 10%, though some businesses will see no change due to their tax filing threshold and qualification for small business tax credits.

Savings

Inslee’s budget proposes about $2.0 billion in savings during the 2025-27 biennium, most notably through the following closures of facilities, which largely eliminates the cost of operating those facilities, and the delayed implementation of a relatively new child care program:

  • Mission Creek Corrections Center for Women in Belfair Closure: Decreasing need for lower-security beds cites as reason for closure.
  • Closing Three Department of Corrections Reentry Centers Closure: Low demand for services cited as reason for closure.
  • Two Residential Habilitation Centers (RHC’s) Closure: Though two RHC’s in the state would remain, the proposed closure of these facilities for individuals with developmental disabilities (the Rainer School in Buckley and the Yakima Valley School in Selah) is premised on a desire for community-based settings, though some residents of the two facilities slated for closure will likely be transferred to the two remaining RHC’s.
  • LEOFF1/LEOFF 2 Merger: A merger of the state’s LEOFF 1 and LEOFF 2 pension plans will allow a one-time sweeping of $1 billion to the general fund while still leaving a surplus in the combined LEOFF system (the LEOFF 1 system, which closed to new enrollees in 1977, has a large surplus).
  • Fair Start For Kids Delayed Implementation: A delay in expanded eligibility is proposed for child care subsidies under the state’s new Fair Start for Kids Act, which Inslee signed into law in 2021. The expanded benefits, while politically popular, were expected to cost billions of dollars.

Funding Increases

Inslee highlighted the following increases in funding contained in his 2025–2027 budget proposal:

  • Housing: $905 million for 5,000 additional affordable housing units, homelessness services, and preventing evictions and foreclosures (largely in the capital budget).
  • Behavioral health: $719 million to continue expanding access to mental health and substance use treatment and recovery services.
  • K-12: An additional $1.3 billion for K-12 schools to support increased costs for maintenance, supplies, technology and educator compensation.
  • Childcare and early learning: $510 million to improve provider subsidy rates for Working Connections Child Care. $48 million for increased ECEAP rates school and right-sizing of the program to reduce unused part day slots and create 750 school day slots. Expanded entitlement for ECEAP is delayed.
  • Public safety: $3.5 million to maintain the recent expansion of regional training opportunities for local corrections officers. $7 million for 60 additional state law enforcement officers, and $13 million for deployment of speed cameras to reduce work zone injuries and deaths. $33 million to open a new juvenile rehabilitation center.
  • College and career training: $6 million to continue full funding for Career Connect Washington and $182 million to maintain the nation’s most generous financial aid program, Washington College Grant.
  • Clean energy transition: $982 million of funding from the Climate Commitment Act continues programs such as Washington’s EV rebate program, weatherization improvements, electric school buses, hybrid-electric ferries, and free transit for youth.
  • Retention and recruitment: Most Washington state employees will receive cost-of-living adjustments of 3% in 2025 and 2% in 2026.
  • Transportation: Sustained funding for new ferries and improved ferry service, and increased funding for fish barrier removal projects to meet the state’s legal responsibilities resulting from a federal lawsuit by local Indian tribes. Climate Commitment Act funding allows for additional bike and pedestrian projects and more transit services across the state. NOTE: Inslee does not propose any funding increases or cuts to close the funding gap for highway projects, so legislators and the new Governor are on their own to explore options ranging from adjusting delivery timelines to cutting projects to funding increases.