June 24 Revenue Forecast Update: Economic Outlook Weakens; Governor Ferguson Responds
The Washington State Economic and Revenue Forecast Council released its quarterly update earlier this week. The new report shows that revenue projections have weakened since March.
Several factors are driving the change. These include slower-than-expected U.S. economic growth, global instability, and the disruptive effects of federal trade policy—especially a new round of tariffs.
Updated economic models now reflect the latest data. While inflation has eased to 1.7% and the U.S. has added over 500,000 jobs since the last forecast, overall revenue conditions remain soft.
Tariff increases, conflict in the Middle East, and cuts to federal spending have created a sense of economic uncertainty. That uncertainty continues to put pressure on Washington’s revenue outlook.
Washington saw modest gains in real estate activity and a rebound in retail taxable sales in late 2024. However, the longer-term outlook remains challenging.
Revenue growth continues to lag. This is partly due to post-COVID consumption patterns, slowing commercial activity, and pressure on B&O and real estate excise tax collections.
The updated forecast projects $388 million less in revenue for the upcoming biennium than was anticipated in March.
Without legislative revenue enhancements, the general fund would have grown slightly in the current biennium. But it would have declined significantly in the two that follow.
Impact of New Revenue Legislation
Despite those challenges, revenue legislation passed earlier this year adds substantial support to the outlook: approximately $4.38 billion in each of the next two biennia. Total increases across the accounts amount to $3.59 billion in 2027–29, including significant gains in the General Fund and Workforce Education Investment Account. However, the Opportunity Pathways Account is projected to decline by $30 million in both upcoming biennia.
Legislator Considerations
During the meeting, legislators raised concerns about when the budget will tip into negative territory. Staff indicated the general fund will likely show a negative balance in the 2025–27 biennium, though other accounts may offset it. Lawmakers also questioned whether the state is adequately accounting for agricultural labor disruptions and whether Washington should explore alternative tax models to help mitigate future volatility.
Governor Ferguson’s Response
Following the release of the forecast, Governor Bob Ferguson issued a statement acknowledging the fiscal challenge ahead. “While this revenue forecast is disappointing, it is not surprising,” he said. “We knew that things were unlikely to improve in the near term, especially in light of continued chaos from the Trump Administration — including tariffs, which have an outsized negative impact on a trade-dependent state like Washington.” Ferguson warned of further risks if proposed federal cuts to Medicaid, education, and food assistance programs move forward, potentially costing the state billions. While he does not currently anticipate calling a special legislative session, Ferguson said his team is monitoring federal developments closely and will revisit that decision as needed. He also noted that the Office of Financial Management has already directed state agencies to begin looking for additional savings as he prepares his first biennial budget.
The Council unanimously adopted the forecast. The next update is scheduled for September and will play a critical role in shaping early budget planning for the 2025 legislative session.