New policy brief assesses state’s strong fiscal position. No need to raise taxes, cut spending or tap reserves to meet obligations.

The Washington Research Council has published a new policy brief reviewing the state budget. After the good news of the recent revenue forecast and the infusion of federal assistance, the balance sheet is healthy.

The WRC summarizes the conditions:

State revenues are now expected to match the pre-pandemic Feb. 2020 revenue forecast. Revenues in 2019–21 are now forecast to be $52.334 billion (an increase of 13.6% over 2017–19). In 2021–23, revenues are expected to grow by 8.2%, to $56.615 billion. In 2023–25, revenues are expected to grow by 5.8%, to $59.906 billion.

Given the new revenue forecast, the current state operating budget not only balances over four years, it leaves a sub- stantial estimated unrestricted ending fund balance of $2.999 billion. On top of that, the budget stabilization account (BSA, or the rainy day fund) balance is estimated to be $2.394 billion at the end of 2021–23.

The healthy balance sheet means that legislators have an exceptionally firm foundation for the 2021–23 operating budget. Billions of dollars have also been appropriated by the federal government over the past year for COVID relief in Washington.

The state revenue system and budget has come through this emergency remarkably well, and the state does not need to increase taxes to meet its obligations. At the same time, many individuals and businesses in Washington continue to feel the negative effects of the recession. Washington can use federal aid funding to help them get through this time. Raising their taxes to fund relief would be counterproductive. As long as the state refrains from using federal relief money to begin new, ongoing programs, the eventual cessation of federal relief should not trigger a need for new revenue sources.

The four-page brief provides additional detail. The WRC acknowledges that the pandemic has affected spending requirements. 

Indeed, the pandemic and recession have created new needs for spending that were not fully anticipated when the current budget was adopted last year. (For example, public health costs increased.) And although state revenues  have recovered, the economy is still a concern. Through fiscal year (FY) 2025, employment is currently forecast to be 827,000 below what was forecast in Feb. 2020. …

On the other hand, the federal government has appropriated billions of dollars over the past year for COVID relief in Washington. We estimate that more than $24 billion in federal COVID relief has flowed (or will flow) through Washington’s state and local governments (Makings 2021). (This is an incomplete, early estimate, and it’s not clear how much federal funding will be available for appropriation by the state in each fiscal year.)


Given the robust federal relief, it’s not clear how much state spending is required to address the health and economic costs of the pandemic and recession.

The Council also addresses the implications for the budget when the federal aid runs out. It’s a manageable problem.

In the Great Recession, state revenues declined by 5.5% from 2007–09 to 2009–11. Federal stimulus dollars backfilled state funds in 2009–11, but the revenue decline was so significant that spending was still reduced in 2011–13 (WRC 2020)…

Washington’s cur- rent tax structure is ex- pected to generate the revenues to sustain cur- rent and new spending into the future. More- over, real revenues (adjusted for inflation) per capita have increased substantially since the Great Recession.

This time around, it doesn’t appear that there will be a budgetary need for any major spending cuts at all (unless the Legislature chooses to cut spending as a policy matter).

If lawmakers don’t make unsustainable new spending commitments, preserve reserves, and avoid tax and regulatory policies that would impede recovery, the state’s fiscal condition should remain strong for years.