As Washington State approaches the next legislative session, Washington State’s supplemental 2026 budget is taking center stage. Beginning January 12 and lasting just 60 days, the session will confront a mix of revenue challenges, new tax policies, and ongoing fiscal uncertainty. While the process will unfold quickly, there are already clear signs of the themes and constraints that will dominate the discussion.
Revenue Forecasts Point to Ongoing Challenges
The state’s fiscal outlook has weakened since early summer. A June revenue forecast showed a $720 million decline compared to March, and September’s update reflected even greater shortfalls in tax collections. Looking further ahead, federal Medicaid funding will decline significantly beginning in 2027, adding to the long-term budget pressure.
Additionally, a lawsuit challenging Washington’s new internet advertising tax has placed roughly $500 million in anticipated revenue at risk. With these uncertainties, the November forecast and the Governor’s December budget proposal will provide guidance budget discussions at the start of the 2026 session.
New Taxes and Fees Now in Effect
On October 1, several new taxes and fees went into effect to help support the state’s operating and transportation budgets:
- Retail sales tax has been expanded to cover certain services, including software development, security services, and temporary staffing.
- Business & Occupation (B&O) tax rates increased for firms with higher gross incomes.
- Transportation-related fees rose, including driver’s license renewals and ferry surcharges.
What to Watch This Fall
The months ahead will set the stage for the 2026 session. Stakeholders should monitor several key developments:
- November 18 Revenue Forecast – This update will frame the budget discussion heading into session.
- Governor’s Budget Proposal (December) – Expected to serve as the baseline for legislative negotiations.
- Interim Committee Work – Legislative committees are holding work sessions throughout the fall on issues ranging from tax policy to transportation and health care.
- Election Outcomes in November – Special elections across the state may influence dynamics at the Capitol in January.
Looking Ahead
The Washington state Legislature’s 2026 supplemental budget will be shaped by competing priorities, limited resources, and the need for careful planning. For businesses, associations, and community stakeholders, preparation during the interim months will be essential. As the session unfolds, close attention to forecasts, budget proposals, and committee activity will provide the best signals of how the budget will ultimately take shape.