Riding the Knife: Washington’s Budget Has No Room for Error

Joe Fain, President & CEO  |  April 16, 2026

Washington’s latest collections report is alarming as the state again failed to meet its revenue projections with a budget so tight it left no room for ordinary forecasting error. March General Fund-State collections came in $71.2 million below forecast, the two-month shortfall is now $113.8 million, and lawmakers left only a $231 million ending balance, about three-tenths of one percent of spending.

“That is what it means to ride the knife: leaving such a thin balance, such small reserves, and such optimistic assumptions that even a modest miss can threaten balance before the biennium is over.” — Joe Fain, President & CEO

This was not caused by austerity

This did not happen because the state is “trimming back.” In fact, these missed revenue projections are occurring after two back-to-back years of major tax increases and after lawmakers this year passed a new state tax on high-income households, set to take effect in 2028.

Even with those new taxes, the budget is still headed into the red because spending commitments have risen faster than the state’s limited reserves. The problem is not that revenues disappeared. The problem is that lawmakers built a budget that assumes very little can go wrong at a time when things are going wrong left and right.

Why this matters

Revenue Act collections, which include many of the primary general fund tax sources, were up 6.5 percent from a year earlier and the 12-month average showed growth just shy of 6 percent. But revenue growth does not assure balanced budgets in an era of explosive government spending. If spending is built on assumptions that are too aggressive, even healthy revenue growth can still come in short of what the budget needs.

The economic backdrop is not helping. Washington’s statewide unemployment rate has climbed above 5 percent, and unemployment in the Seattle metro area has grown 30-50% in just the last 12 months. That matters because Seattle’s tech sector has long been a major source of high-wage employment, consumer spending, and business activity.

Instead, the region is dealing with continued tech layoffs and much weaker hiring. Recent WARN filings and local reporting have documented fresh cuts in the Seattle area, while employers have become far more cautious about adding white-collar and software roles.

Non-Revenue Act funds are soft too

The report does not just show weakness in the major Revenue Act taxes. It also shows softness in Non-Revenue Act streams. This mix of property, liquor, cigarette, real estate excise, unclaimed property transfers, and other miscellaneous revenues that also feed the budget outlook.

Revenue sources: above vs. below forecast

If collections do not improve, the June forecast will erase the small ending balance and push the budget out of balance. At that point, the state is left with only unattractive choices: across-the-board cuts by the Governor, or a special session of the legislature to rewrite the budget or raise additional taxes.

Employers and consumers and shifting their behaviors to guard themselves against the rising unaffordability of Washington and the specter of tough economic times and continued job losses. The legislature must react similarly to ensure its spending decisions aren’t causing the very troubles they should be trying to avoid.

Data source: Washington State Economic and Revenue Forecast Council, Economic & Revenue Update, April 16, 2026.