Legislative Session Update: Week 7 (February 23-27, 2026)

By Jim Hedrick, GSI WA State Lobbyist and Spokane Regional Advocate

As the 2026 legislative session enters its final weeks, budget negotiations have shifted decisively from policy aspirations to balance-sheet reality. Last Sunday’s release of House and Senate supplemental operating budgets marks the point at which fiscal assumptions, revenue risk, and long-term cost exposure move from theory into binding decisions. The budgets now under negotiation rely heavily on one-time resources, delayed revenue from a proposed high-earner income tax, and internal fund shifts, choices that may stabilize the near term but leave unresolved questions about future tax policy, spending discipline, and economic competitiveness. The next two weeks will clarify not only the state’s immediate spending posture, but the direction of its fiscal framework heading into the next biennium.

Operating Budgets

The Senate Democrats’ budget is less a vision document than a stabilization plan for a government whose core costs are outgrowing its revenue model. Nearly all the headline spending growth is driven by unavoidable maintenance-level increases; Medicaid caseloads, child welfare, public schools, inflation, and legal liabilities while the actual policy choices shrink programs, tap reserves, and lean on revenue that won’t materialize for years.

The budget’s biggest investment isn’t new services, but a $1 billion down payment on the state’s self-insurance liability account, an implicit acknowledgment that past underfunding and litigation risk are now crowding out everything else. That move may be fiscally responsible, but it also exposes how little room lawmakers have to maneuver. To make the math work, Democrats rely on three risky pillars:

• Delayed revenue — The 9.9% tax on income above $1 million is baked into the budget narrative even though it doesn’t generate general fund revenue until 2029. It functions more as a political placeholder than a near-term solution.
• One-time money — A $750 million withdrawal from the rainy-day fund, plus capital gains and public works transfers, plugs short-term gaps while leaving future budgets thinner and more volatile.
• Quiet program trims — Savings from Working Connections Child Care, K-12 transition funding, and Local Effort Assistance are framed as “harm reduction,” but they still shift costs and reduce access during a period of slowing economic growth.

Democratic leaders like Senate Ways & Means Committee Chair Sen. June Robinson (D-Everett) are candid that this budget is being built under pressure from inflation, caseload growth, and federal uncertainty. But the result is a plan that pushes the hardest structural decisions into the next biennium. Meanwhile, Republicans’ warning that the income tax could eventually broaden, is valid because the current budget doesn’t actually solve the underlying imbalance.

In contrast, Governor Ferguson’s spending plan called for deeper near-term cuts and broader tax relief. Legislative Democrats are betting that time, growth, and a new high-end tax will converge before reserves run out. If that bet misses, the next Legislature won’t be debating enhancements it’ll be debating retrenchment.

New Revenue and Fund Transfers

Both the Senate and House budget proposals assume enactment of a new 9.9% tax on income over $1 million, approved by the Senate last week and working its way through the House this week. While revenue would not begin until 2029, the tax is projected to generate $2.3 billion for the general fund that year and about $3.5 billion annually thereafter. Democrats propose using the revenue to expand the Working Families Tax Credit, reduce B&O taxes for small businesses, and exempt personal hygiene products from sales tax. These gains are partially offset by policy changes, including an estate tax adjustment reducing revenue by $435 million and expanded school sales tax exemptions. Overall, revenue legislation in the Senate budget would raise $2.9 billion over four years, with the new income tax accounting for roughly 80% of that total.

By contrast, Governor Ferguson proposed a more restrained supplemental budget in December that relies more heavily on spending reductions, redirects $570 million in Climate Commitment Act funds, and includes a smaller draw on reserves. While supportive of a high-earner income tax, Ferguson has also called for additional small-business tax relief, repeal of hygiene product taxes (i.e. diapers), and twice-yearly sales tax holidays statewide.

Transportation Budgets

Monday, the House and Senate supplemental transportation budgets were released and reflect a shared recognition that Washington’s transportation system faces mounting cost pressure. However, they diverge sharply in how to manage fiscal risk and long-term obligations. The contrast is not simply about spending levels, but about the balance between near-term delivery certainty and long-term debt exposure.

The House proposal totals $16.5 billion, a $1.1 billion increase over the enacted budget, and avoids authorizing new general obligation bonds. This approach emphasizes fiscal discipline and predictability, favoring cash-funded investments and reappropriations to address system needs without expanding future debt service. For the private sector, the House budget signals a steady but constrained project pipeline, with lower exposure to future fiscal corrections or mid-3 biennium rebalancing driven by debt costs.

The Senate proposal totals $17 billion, a $1.5 billion increase, and relies heavily on financing to manage escalating construction costs and schedule risk. The Senate authorizes $1.1 billion in new general obligation bonds, including $400 million for a cost-increase reserve account intended to absorb inflation and unforeseen project overruns. Preservation funding reaches approximately $525 million, combining $405 million in new funding and $40 million in reappropriations, alongside a $45 million increase in maintenance.

Notably, both chambers exclude the Governor’s proposed $1 billion ferry vessel construction plan. The absence of a clear commitment to ferry fleet replacement perpetuates uncertainty for maritime contractors, suppliers, and port-adjacent businesses, while increasing the likelihood that deferred capital costs will escalate in later biennia.

Final negotiations are likely to center on bonding levels and preservation funding, rather than overall spending. The House position establishes a lower bound on new debt, while the Senate frames bonding as necessary risk management rather than expansion. A probable conference outcome includes reduced bonding authority relative to the Senate proposal, preservation funding closer to the Senate level, and partial retention of the cost-increase reserve concept at a smaller scale. Ferries remain a wildcard: absent external pressure or a late-stage agreement on delivery strategy, they are likely to remain unresolved in this supplemental.

Capital Budgets

The 2026 House and Senate supplemental capital budget proposals advance targeted investments in housing, climate resilience, education infrastructure, and flood preparedness while relying on remaining debt capacity and Climate Commitment Act revenues. Together, the proposals emphasize near-term infrastructure needs while also using capital resources to support broader state budget stability.

The Senate proposal authorizes $723 million in net total funds, including $382.6 million in new debt-limit bonds and $219 million from Climate Commitment Act accounts. Major investments focus on housing and homelessness, water conservation and clean energy, small school district modernization, and flood response. In addition to project funding, the proposal redirects approximately $1 billion in capital cash resources—such as capital gains, public works, and higher education building accounts—to support the operating budget. While total capital appropriation levels for public works and higher education buildings are maintained through 4 account substitutions, the shift reduces available cash traditionally reserved for capital purposes.

The House proposal appropriates $910.6 million in total funds, including $399.4 million in debt-limit bonds and $511.2 million from other state and federal accounts. The bond appropriation nearly exhausts the remaining $404.4 million in available bond capacity for the biennium. The proposal also relies heavily on Climate Commitment Act funding, dedicating $400 million to clean energy, building decarbonization, salmon recovery, and habitat conservation.

An additional $239.9 million in Climate Commitment Act funds is used to refinance previously bond-funded natural resources projects, freeing up bond capacity that is then applied to higher education building projects. The resulting higher education building account revenues are redirected to the operating budget. These account changes are net-neutral within the capital budget but play a significant role in supporting the House supplemental operating budget.

Overall, the proposals preserve headline capital investment levels while increasing reliance on refinancing strategies and carbon-market revenues, effectively using the capital budget as a stabilizing mechanism for the state’s broader fiscal framework.

The Week Ahead

The week will start with the Opposite-House Fiscal Committee cutoff on Monday, March 2 and the week will end with the Opposite-House Floor Cutoff, Friday March 6. Behind the scenes are budget negotiations where a smaller yet more elite group of legislators, including fiscal committee chairs, are reconciling differences between the House and Senate budget proposals. Customarily, a representative from the governor’s office also sits in to make certain that not only the Governor’s interests are represented and communicated but also to make certain specific components will get signed into law by the governor; the governor has a sub-section level veto power on bills that contain an appropriation.

There’s just two weeks left to adjournment on March 12.