Washington’s budget basics
According to the National Association of State Budget Officers (NASBO), Washington’s total expenditures in fiscal year (FY) 2019 were $49.5 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2019 were $2.1 trillion, ranging from $4.5 billion in South Dakota to $311.3 billion in California.
Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.
Per the US Census Bureau, Washington’s combined state and local direct general expenditures were $74.5 billion in FY 2017 (the most recent year census data were available), or $10,038 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $9,449.
Washington’s largest spending areas per capita were elementary and secondary education ($2,121) and public welfare ($1,682). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices.
Washington’s combined state and local general revenues were $76.9 billion in FY 2017, or $10,358 per capita. National per capita general revenues were $9,573. Washington does not levy an individual income tax or corporate income tax but does have a gross receipts tax. (Census counts this revenue as either general sales tax revenue or selective sales tax revenue.) Washington’s largest sources of per capita revenue were general sales taxes ($2,476) and charges ($2,217), such as state university tuition and highway tolls.
Governor Jay Inslee, a Democrat, was elected in 2016 with 54 percent of the vote. The next gubernatorial election is in 2020.
Democrats control both the House of Representatives (57 Democrats to 41 Republicans) and Senate (29 Democrats to 20 Republicans). Control of the governor’s mansion and each house of the legislature gives Democrats a trifecta in Washington. All Washington House seats are on the ballot in 2020 because representatives serve two-year terms. Senators serve four-year terms; roughly half the senatorial seats are on the ballot in 2020, and the other half will be up for election in 2022.
Washington’s budget institutions, rules, and constraints
Washington uses a biennial budget. The legislature must pass a balanced budget, but it can carry a deficit over into the following year. Washington further limits spending growth with a budget rule based on inflation and population growth. The rule is binding and requires a legislative supermajority to override it. Washington also limits total authorized debt incurred by the state but does not limit debt service.
(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)
Washington’s recent fiscal debates
- In 2019, Governor Inslee signed legislation creating the nation’s most generous long-term care program. When the program launces in 2025, eligible residents will receive a $100-a-day allowance that can go toward nursing home fees, in-home assistance providers, and family members who provide care. Medicare does not pay for long-term care. States pay for some long-term care through Medicaid; the Washington bill extends the state’s coverage and provides a new revenue source for this spending. The legislation created a new 0.58 percent payroll tax that will pay for the program’s costs, which the state estimates will total roughly $1 billion annually. Employees that demonstrate they have long-term-care insurance are exempt from the payroll tax.
- Washington is one of seven states that do not tax any type of individual income. Governor Inslee and some Democratic legislators have repeatedly proposed the state tax capital gains. In 2019, Governor Inslee proposed a 9 percent tax on capital gains earnings greater than $25,000 for individuals and $50,000 for joint filers. Slightly different capital gains tax legislation was also proposed in the Washington House and Senate that year. The governor’s office estimated his tax proposal would raise roughly $1 billion annually in new revenue. All legislation to date has failed, and opponents argue the bills are unconstitutional. The state’s constitution does not explicitly ban an income tax, but it requires all property be taxed uniformly, and the state’s courts have ruled that the state’s definition of property includes income. This is why the legislation calls the tax an “excise tax on sales and extraordinary profits of high valued assets.”
- Washington was one of the first states to legalize and tax marijuana. Originally, a ballot initiative created a 25 percent tax on producer sales to processors, another 25 percent tax on processor sales to retailers, and a further 25 percent tax on retailer sales to customers. In 2015, however, the legislature replaced this tax system with one 37 percent excise tax on marijuana sales. (Washington also levies its general sales tax and gross receipts tax on marijuana sales.) Washington now collects roughly $400 million in marijuana tax revenue annually.
Washington’s current budget
Governor Inslee announced his proposed FY 2020–21 budget in December 2018. His plan emphasized new education spending and specifically increased funds for special education, early-learning programs, and need-based higher education scholarships. Governor Inslee also highlighted the environment in his budget proposal and 2019 state of the state address. This included his proposed $1.1 billion to support orca recovery (the state’s orca population fell to only 74 in 2018). In addition to his capital gains tax proposal, Governor Inslee also recommended increasing the state’s business and occupation tax (the state’s gross receipts tax) and real estate excise tax.
The legislature passed its budget in April 2019. The enacted budget generally followed the governor’s recommendations. This included the governor’s proposed funds for education and environmental programs. The legislature approved increases to the business and occupation tax and real estate transfer tax but did not pass a capital gains tax.
For more on Washington’s budget, see
Washington’s economic trends
Washington’s per capita income (per the Bureau of Economic Analysis) was $60,781 in 2018, ranking eighth among the states. It was above both the national average of $53,712 and the Far West regional average of $60,393. The state’s median household income (five-year estimate) was $70,116 in 2018, ranking 10th among the states and above the national average of $60,293. Washington’s poverty rate was 11.5 percent in 2018 (five-year estimate), below the national rate of 14.1 percent.
Although Washington’s averages tell a story about the entire state, Washington is composed of diverse localities. For example, the city of Pullman’s median household income was $30,205, and its poverty rate was 36.2 percent; the city of Sammamish’s median household income was $165,318, and its poverty rate was 2.2 percent.
Washington’s unemployment rate historically tracks the national average, and in recent years it has been among the highest in the country.