(The Center Square) – Gov. Bob Ferguson repeatedly said he would look for budget savings and efficiencies before agreeing to raise taxes on Washingtonians, but on Tuesday – the deadline for doing so – he signed Washington state’s nearly $78 billion, two-year operating budget into law that raises taxes by more than $9 billion over the next four years.
The operating budget includes several tax increases, including a new business and occupation gross tax on storage units. The budget also includes increases to the state’s two primary business and occupation tax rates on gross proceeds, an increase in the tax rate for service businesses with annual taxable revenue exceeding $5 million, and a broadened capital gains tax. There’s also a tax on the sale of electric vehicle credits, dubbed the “Tesla tax.”
There were nearly $6 billion in cuts in the budget, including reduced spending in areas such as behavioral health, higher education, and health care – in the form of some program expansions being delayed.
“I think we got to a number on the revenue side that is balanced with billions of dollars in cuts, and so we worked hard to try to find that balanced approach,” Ferguson said at the bill signing when asked if he had kept his word to avoid raising taxes on hardworking Washingtonians.
The governor said he “inherited” a $16 billion dollar shortfall, however that figure is still up for debate.
Asked about the discrepancy during the media availability, Ferguson said he believed the shortfall to be $16 billion.
In an email forwarded to The Center Square, non-partisan budget staff reported the actual shortfall to be $7.5 billion.
Republicans who did not have the numbers in power to hold back the proposals, argued no new taxes are needed to fund critical public services and programs.
Ferguson also signed a $7.5 billion capital improvement plan, (SB 5195) which is used for funding construction and infrastructure projects across Washington state.
“The capital budget will make tangible capital improvements in every county in the state,” said Ferguson who noted the bill includes more than $770 million for housing and homelessness.
Ferguson addressed concerns about the impact higher B&O and retail sales taxes will have on businesses in Washington.
“Businesses can expect that I’ll be reaching out to have conversations,” the governor said at a post-bill signing press briefing.
He didn’t offer any specifics but reiterated he would be having “lots of conversations” with impacted businesses. He added that revenue projections for June and September will influence future budget decisions.
Ferguson has line-item veto power, meaning he can review budgets passed by the Legislature with the option to veto specific items within the budget instead of vetoing the entire budget.
The governor did veto sections of five different revenue bills, including those related to the operating budget, but those line-item vetoes were not significant enough to jeopardize the final numbers. That means lawmakers will not have to return to Olympia for a special session to balance the budget.
The governor also signed into law a more than $15 billion transportation budget and a $7.6 billion capital budget.
Under the transportation budget, Washington’s gas tax will increase by 6 cents per gallon, and a new 3-cent diesel tax will be added in 2026, with a further 3-cent increase in 2028. Both fuel taxes are indexed to inflation, and a portion of the new revenue will be directed to local governments. The new transportation budget also includes increased fees for trucks and passenger vehicles, and a sales tax shift to the transportation budget.
Republicans targeted the operating budget in blasting Ferguson for signing it into law.
“The governor said he wanted to ‘right-size’ government and prioritize affordability. Instead, he just signed a budget that hikes state spending by $6 billion – an 8% increase – and slams Washingtonians with the largest tax increase in state history,” Rep. Travis Couture, R-Allyn, said in a news release. “These new taxes and fees will crush families already battling an affordability crisis and hit employers still trying to recover.”
Sen. Drew MacEwen, R-Shelton, expressed similar feelings.
“This budget is a major setback for working families, small businesses, and our state’s economic future,” he said in a news release. “At a time when Washingtonians are already grappling with soaring living costs, rising housing prices, and inflation, the governor has chosen to increase the burden on taxpayers rather than pursue responsible, balanced solutions. These tax hikes could cost families up to $2,000 per year.”