By Jim Hedrick, GSI WA State Lobbyist and Spokane Regional Advocate
The 2025 Washington State legislative session has been one of the most tumultuous and emotionally charged sessions in recent memory, marked by significant political tension, major fiscal challenges, and the deaths of two beloved legislators. From the opening days, the atmosphere was fraught with division. Deep ideological splits over how to address the state’s financial crisis created a highly charged environment where lawmakers frequently clashed not only along party lines but also within their own caucuses.
The session was further shaken by the death of former House Speaker Frank Chopp (D-Seattle). A towering figure in state politics for decades, Chopp’s passing was mourned across party lines, with tributes highlighting his enduring legacy on affordable housing and social justice issues. Adding to the heavy mood, Senator Bill Ramos (D-Issaquah) passed away while in office a mere two weeks from the end of session. Other major family tragedies were Rep. Tom Dent’s (R[1]Moses Lakes) son was shot in a police action and the Saturday before adjournment, the wife of Sen. Chris Gildon (R-Puyallup) very unexpectedly passed away.
Operating Budget
The most pressing issue was the staggering $16 billion budget deficit. The reality of the shortfall quickly consumed legislative discussions, setting the tone for the months ahead. Proposed cuts sparked widespread protests and added to the strain inside the building. In response, a range of revenue ideas were volleyed around the Capitol, from new taxes on capital gains to expanded sales tax bases and proposals for bond measures.
The final 2025-27 operating budget, Senate Bill 5167, appropriates $77.87 billion, an 8.2% increase or nearly $6 billion more, thanks to the 2023-25 budget. This 1,366-page document moved through the legislature from conference committee report to final passage in less than 30 hours. This budget passed the House on a 52 to 45 vote, having six House Democrats cross over with all 39 House Republicans to oppose the bill. The state Senate passed the budget on a more comfortable 28 to 19 vote, with moderate Democrat in a special election swing district race this fall, Sen. Deborah Krishnadasan (D-Gig Harbor), the lone Democrat to oppose the bill.
While the budget assumes significant savings, it does not reduce net spending. In fact, it increases spending by $1.039 billion above the maintenance level; the cost to continue current services after adjusting for caseload and inflation. The budget largely shifts funding from prior commitments to new priorities, including state and nonstate employee collective bargaining agreements. The budget does not assume furloughs of state employees and previous versions did. The proposed conference report leaves a projected ending balance for the 2025-27 biennium of $225 million and $2.3 billion in total reserves, including $2.1 billion in the Budget Stabilization Account or Rainy Day Fund. Adequate budget reserves was an issue Governor Ferguson highlighted that he needed to see in a final budget.
The final $77.8 billion operating budget includes nearly $6 billion in cuts and close to $9 billion in new revenue over the four-year outlook — significantly less revenue than legislative Democrats had initially sought. Governor Ferguson previously rejected each version of the revenue plan, citing concerns that the proposals were “too risky.” The final budget also steers clear of furloughs for state employees, an option both Governor Ferguson and Senate Democrats had floated earlier in the session. It remains unclear whether Governor Ferguson will support the budget in full or issue partial vetoes. His decision will be closely watched, as it could either cement cooperation with the legislative majority or trigger a new round of political negotiations in a special session.
Revenue
The revenue package passed by the legislature is expected to generate $9.379 billion. The legislature passed a suite of bills with increasing existing taxes, eliminating some tax loopholes and authorizing new taxes. Components of the revenue package include increases on the business and occupation (B&O) tax; the state’s “top-line” gross receipts tax.
- HB 2081 (Fitzgibbon, D-Seattle) will increase B&O tax rates on manufacturing from 0.484 percent to 0.5 percent and retailing from 0.471 percent to 0.5 percent and the large “catch-all” category of business services jumps from 1.5 percent to 2.1 percent. B&O surcharge rates are increased from 1.2 percent to 1.5 percent for an additional tax on financial institutions. 2081 is expected to raise $5.6 billion over the next 4 years.
- SB 5814 (Frame, D-Seattle) places retail sales tax to many services and especially in the tech sector, makes nicotine products subject to the tobacco products tax, imposes an additional tax on cigarettes and create a mandatory one-time prepayment of retail sales tax collections for businesses with $3 million or more in taxable retail sales in calendar year 2026. 5814 is estimated to bring in $2.6 billion over the next 4 years.
- SB 5813 (Wilson, C., D-Federal Way) generating $680 million for the state in the next 4 years would apply an additional 2.9 percent excise tax on individual’s Washington capital gains exceeding $1 million and increase the qualifying family-owned business interests deduction amount for the estate tax to $3 million with annual inflation adjustments.
- SB 5794 (Salmon, D-Shoreline) repeals several tax preferences beginning January 1, 2026, including interest on real estate loans B&O tax deduction; insurance producers, title insurance agents, and surplus line brokers preferential B&O tax rate, precious metals and bullion B&O and sales and use tax exemptions, home energy assistance public utility tax (PUT) credit, dentistry prepayments insurance premiums tax exemption, international investment management services preferential B&O tax rate, international services B&O tax credit, and international banking facilities B&O tax exemption.
- SB 5786 (Stanford, D-Seattle) increases the fees by as much as 50 percent on various liquor licenses, permits, and endorsements. 5786, after being amended in the House, is expected to make roughly $5 million a year.
- The Legislature was contemplating HB 2049 to increase the property tax levy from 1 percent to 1 percent plus the rate of inflation and population growth up to 3 percent for both state and local property tax levies. Those provisions were removed from the bill.
Transportation
The legislature found some common ground on the issue of funding transportation. SB 5161, (Liias, D-Mukilteo), the transportation budget bill was dedicated to Sen. Bill Ramos (D-Issaquah) who served as vice-chair of the Senate Transportation Committee and very unexpectedly passed away last week.
The new revenue transportation budget is $15.5 billion backed by a new 6-cent per gallon gas tax increase which will go into effect July 1. The additional tax rate is expected to raise $1.4 billion over the next six years. The diesel tax would net upward of $160 million over that time. In total, lawmakers are banking on the package to bring in $3.2 billion over the next six years. The revenue package received no Republican support in the House and five Republican votes in the Senate.
SB 5801, also by Liias, is on its way to Governor Ferguson for action and contains numerous other fee boosts for transportation. It is estimated SB 5801 will generate nearly $3.2 billion in revenue for transportation projects over the next 6 years. Among its numerous components is an increase in the passenger vehicle weight fee, an increase in the sales tax for vehicles from 0.3% to 0.5%. There are $3 increases in the fees for titles and registrations. There’s a new 8% tax on the portion of the selling price of vehicles above $100,000. There’s a 10% tax on non-commercial aircraft sales above $500,000 and an additional tax of 0.5 percent on the selling price, plus trade-in property of like kind, for purchased recreational watercraft. There’s also a temporary increase in the rental car tax from 5.9% to 11.9% before moving down to 9.9% in 2027. There’s an increase in the tire replacement fee from $1 to $5. There’s a $1 increase every three years in fees for new IDs and driver’s licenses. And there’s an added charge for ferry riders paying with credit cards, as well as a 50-cent increase to the capital vessel surcharge on each fare.
The proposed money will keep some of the state’s major highway projects on current schedules like the North Spokane Corridor, Puget Sound Gateway spanning King and Pierce counties and improvements on State Route 520 between Seattle and Redmond. $580 million is included for the new Interstate 5 Columbia River Bridge spanning Washington and Oregon. Lawmakers 4 also approved $2.5 billion to pay for the replacement. The bridge replacement will cost an estimated $5 billion to $7.5 billion. Permits are anticipated by 2026, and construction is projected to last until 2032.
Capital Budget … the Bipartisan Budget
Senate Bill 5195 (Trudeau, D-Tacoma) is truly a bi-partisan budget being approved unanimously in both the House and Senate. The proposed compromise 2025-27 biennial capital budget makes major investments including $975 million for K-12 education, $827 million for natural resources, and $772 million for housing and homelessness. The budget also includes $375 million from the climate commitment account to support projects aligned with environmental and energy goals. Check out the list of Capital Budget Projects here.
Governor’s Actions
During the 105-day (15 weeks) session, the Legislature passed over 400 bills; many along with the operating budget and revenue package now await action from Governor Ferguson, who has until May 20th to take action. The governor has 20 days (minus Sundays) from the end of the regular session to take action on bills passed by the 2025 Legislature.
Pursuant to the Washington State Constitution, the governor can take 1 of 4 actions on bills. The governor can sign a bill into law in its entirety, veto the entire bill, partially veto bills by eliminating entire sections of a policy bill or eliminate sub-sections of bills that contain an appropriation, or take no action by May 20th and the bill becomes law (no pocket veto like the U.S President). Only 3 bills in state history have become law by the governor taking no action.
About the Author
Jim Hedrick is GSI’s State Lobbyist and Owner of H2 Government Relations. Jim has advocated on behalf of our community for more than 20 years and has 25 years of experience in the Washington State legislative and public policy venue as a fiscal analyst, legislative advocate, and political advisor to the Governor, state agency directors, and legislative officials.
About this Blog
As part of GSI’s year-round work with our community to advance policies that support the success of local businesses, we’re active in Washington State’s current legislative session – tracking bills, advocating on behalf of our community, planning our annual trip to Olympia, communicating our State Agenda, and working with our lobbyist, our Regional Advocacy Committee, and our elected officials, to advance priorities that support local businesses and enhance our community. Learn more about what we do to create a greater voice for the future of our region and view this year’s State Agenda.
