WAWG
By Diana Carlen
WAWG Lobbyist
On Dec. 23, 2025, Gov. Bob Ferguson released his proposed supplemental operating budget. The supplemental budget plan — Ferguson’s first as governor — is an adjustment to the roughly $78 billion 2025-2027 budget passed by the Legislature last April, which included $9 billion in tax increases over four years.
Since Ferguson signed that budget into law, inflation and lower-than-expected tax collections have eaten into the state’s finances, opening up what the governor’s budget office estimated was a $2.3 billion shortfall. His proposed, two-year balanced supplemental budget is approximately $79 billion, which is a $1.2 billion (1.2% increase) over the prior enacted budget. Ferguson’s supplemental budget plan mostly avoids new tax increases, but does target a couple of business tax incentives (resulting in a savings of $89 million): repeals the sales tax exemption for data centers for replacement server equipment and repeals a preferential B&O rate for prescription drug wholesalers.
To address closing the budget shortfall, the proposal includes:
- Using $123 million in unspent money from funds across state government.
- $797 million in reductions to state agencies — including administrative reductions — reducing recent expansions and increases to programs and delayed implementation of programs.
- Temporarily changing how the state allocates capital hains tax funds, Department of Revenue request legislation on insurance premiums taxes, and shifting other nontax resources for a savings of $300 million.
- Utilizing $1 billion from the rainy day fund (leaving a balance of $1 billion).
- Redirecting $569 million in Climate Commitment Act (CCA) revenues to maintain the Working Families Tax Credit that provides credits ranging from $325 to $1,290 to low-to moderate income families.
In addition, state agencies submitted $2 billion in budget requests they described as critically needed. Gov. Ferguson’s budget funds $700 million of those requests. For example:
- $18.4 million to fund health care for Washingtonians who became ineligible for Medicaid overnight when President Trump signed H.R. 1. These are individuals who are very ill or disabled, many of whom are at risk of losing their housing if they do not have health care coverage.
- $6.6 million to protect agriculture from pests that destroy crops and impacts the economy.
The governor’s proposal serves as a starting point for legislative negotiations. The state House and Senate, both with solid Democratic majorities, will propose their own budget plans in the upcoming legislative session, which starts Jan. 12.
Highlights of the proposed budget can be found here.
Some of the other notable items in Ferguson’s proposed budget include:
- $30 million of CCA funds to Commerce to administer grants for public and private utilities to provide bill credits for low-income residential electricity customers. These credits will assist Washington families with clean energy transition and shall not exceed $200 per residential household.
- $446,000 of CCA funds to Commerce to establish a Washington electric transmission authority.
- $400,000 to Commerce to address the impact of tariffs on Washington jobs and exports, which may include diversification of trade partnerships, enhancing sector innovation and supply chain resilience, and supporting the recruitment and retention of trade driven enterprises.
- $490,000 of CCA funds for Commerce to administer grants to assist local governments to support siting and permitting of clean energy projects in the state.
- $402,000 for the Department of Fish and Wildlife to provide technical assistance on solar facility proposals in order to limit impacts to threatened and endangered species and critical and sensitive habitat areas, including shrubsteppe.
- $454,000 from CCA funds to reduce carbon emissions on state park properties by replacing diesel- and oil-sourced boiler systems, as well as inefficient and high-energy-consuming heating systems relying on old technology, fossil fuels, and wood sources.
- $350,000 to Department of Fish and Wildlife is provided solely to complete the study to identify the offsets to the loss of recreation opportunities associated with the potential draw down of reservoirs on the lower Snake river.
- $122,000 for the state to maintain its ability to investigate food safety violations and respond to emergencies in human food and animal feed.
- $2.1 million from the Laboratory Accreditation Account for Ecology to reduce the audit backlog and catch up on required drinking-water lab audits. These audits make sure water tests are accurate, especially for newer contaminants like per- and polyfluoroalkyl substances (PFAS).
- $10 million of the climate investment account for Ecology for offset assistance grants to federally recognized tribes pursuant to RCW 70A.65.180 for projects related to the design, development, feasibility assessment, or implementation of carbon offset projects located on federally recognized tribal lands within the state of Washington.
Here are some notable agency reductions in the proposed budget:
- Washington State Conservation Commission – 5% General Fund-State reduction in programmatic support to conservation districts ($676,000 in reductions).
- Department of Agriculture – Reductions in infrastructure support and direct marketing assistance for small farms to include a 10% reduction of technical assistance and a 69% reduction to a grant program providing food system infrastructure ($2.7 million in reductions).
- Across the board cuts for higher education institutions: 3% for the University of Washington and Washington State University (WSU).
- Department of Natural Resources – A partial reduction of 15% in General Fund-State funding for forest health technical assistance, monitoring, and statewide planning activities ($980,000 in reductions).
Governor Announces Support for Millionaires’ Tax
While Gov. Ferguson’s supplemental budget proposal does not rely on any new taxes, he did announce his support for a “millionaires’ tax” — or an income tax. The millionaires’ tax is a 9.9% tax on adjusted gross income above $1 million, but no further details are available as the legislation has not yet been prefiled. The Millionaire Tax is estimated to raise $3 billion per year from roughly 20,000 households.
The Millionaires’ tax is not included in the Governor’s supplemental budget because it would not generate revenue for the state until 2029.
Transportation Budget
On Dec. 19, 2025, Gov. Ferguson released his proposed supplemental transportation budget. The Transportation Budget modifies SB 5161, which was passed during the 2025 Legislative Session. The budget focuses on the maintenance and preservation of roads, bridges and ferries. Gov. Ferguson stated that highways and bridges are deteriorating and many parts of the transportation system are in early stages of critical failure. His proposal indicates a $3 billion increase, but the budget will be funded using bonding authority and the increased taxes and fees that were approved in 2025, such as the gas tax.
Some highlights include:
- $15 billion for dredging the Columbia River.
- $1 billion for bridge preservation.
- $164 million for paving projects with another $756 million for paving over the next decade.
- $1 billion to buy three new ferries.
The proposed supplemental budget can be found here. The project list can be found here.
Capital Budget
Gov. Ferguson also released his proposed supplemental capital budget prior to the holidays. The Capital Budget modifies SB 5195, which was passed during the 2025 legislative session.
The most notable item in Ferguson’s supplemental capital budget is $237 million for housing investments. In addition, $2.2 million is provided in funding to WSU for the design for a new laboratory building for the Plant Services Program.
Details on his proposed supplemental capital budget can be found in the documents below: