stray rain

The Washington Policy Center published its projection last week: even after the millionaires tax, even after the capital gains tax, even after the rainy day fund drawdown, the state is staring at a $4.3 billion deficit in the next biennium. The math doesn’t lie, and the math says the structural gap between what the state spends and what it collects isn’t closing — it’s widening.

This isn’t abstract for Olympia. This city sits at the intersection of every budget failure the state produces. When the legislature cuts higher education funding, Evergreen lays off staff and closes the pool. When the state draws down reserves instead of raising sustainable revenue, local governments inherit the risk. When the millionaires tax gets challenged in court — and it will — the three-year gap between now and its first revenue collection becomes a canyon.

The Revenue Mirage

The 2026 legislative session passed a $79.4 billion operating budget balanced on three pillars: $880 million from the rainy day fund (roughly half the reserve), the promise of the millionaires tax starting in 2029, and $239.9 million in higher education funding reclassified from the general fund to capital building accounts. As we detailed in our session analysis, the spending still exists — the line item doesn’t.

The Washington Policy Center’s $4.3 billion projection factors in these structural tricks. The millionaires tax (SB 6346), projected to generate $3.5–$3.7 billion annually starting in 2029 (per Senate Democrats’ fiscal estimate), faces a constitutional challenge that could render it void. The capital gains tax, upheld by the state Supreme Court in 2023, generates roughly $800 million per biennium — significant but insufficient to close the gap alone.

The state’s own Office of Financial Management acknowledges the structural imbalance: spending growth, driven by Medicaid, K-12 compensation, and corrections, consistently outpaces revenue growth. The new taxes don’t change the growth rates. They change the starting point. And a court ruling could reset even that.

What This Means for Olympia

Olympia is already running a $6.5 million city budget deficit. The council’s response: a new 0.1% public safety sales tax ($1.5 million), another revenue measure ($1.8 million), and eight eliminated positions across departments. As we’ve documented, police, fire, and homeless response were completely shielded from cuts. HR, IT, and finance absorbed the pain.

Now layer on the state deficit. Governor Ferguson’s original budget proposal called for 3% cuts to four-year universities and 6% cuts to state agencies. The legislature negotiated that down to 1.5% for higher education. But the $4.3 billion projected gap means the next budget cycle will demand deeper cuts or new revenue — and the political appetite for new taxes after passing a millionaires tax and a capital gains tax is near zero.

For Evergreen, which already can’t afford $60,000 in pool repairs despite four consecutive years of enrollment growth, additional state cuts would be devastating. The college is the county’s largest employer. When it contracts, the local economy contracts with it.

For city services, the pass-through effect is direct. State funding for local law enforcement grants, housing programs, and infrastructure comes from the same general fund that’s running a structural deficit. Olympia’s affordable housing pipeline — including projects like the 3900 Boulevard development (112 units, $56.3 million, applications expected in 2026) — depends on state and federal funding streams that are both under pressure. The Regional Housing Council’s competitive funding, drawn from document recording fees, flattens during housing downturns.

The Three-Year Cliff

Here’s the timeline that nobody in Olympia is talking about:

2026: State budget balanced with rainy day fund and accounting reclassifications. City budget balanced with new taxes and position eliminations. Both are one-time fixes.

2027: Next biennial budget cycle. The rainy day fund is half-depleted. The accounting tricks are already baked in. The millionaires tax is still two years from revenue. State agencies and universities face a new round of cuts unless the legislature finds additional revenue — during an election year.

2029: Millionaires tax revenue begins (if it survives court challenge). But the projected deficit by then could exceed the revenue it generates, because spending growth hasn’t stopped. The structural gap persists.

Three years of budget patches before the structural fix arrives. Three years during which every local institution — the college, the city, the county, the housing pipeline — is operating on borrowed time and borrowed money.

What You Can Do

Read the numbers. The Office of Financial Management’s budget documents are public. The City of Olympia’s finance page posts budget documents. Read them side by side. The state and local deficits aren’t parallel problems — they’re the same problem at different scales.

Track the court challenge. The millionaires tax will face a legal challenge. The outcome determines whether the state has a revenue path or three more years of austerity. Follow the case when it’s filed. The Washington Courts website will have filings.

Ask your council members the hard question. At the March 24 City Council meeting (6 PM, hybrid), ask: If the state’s structural deficit leads to additional cuts in the next biennium, what is the city’s contingency plan? Which services get cut next? They should have an answer. If they don’t, that’s an answer too.

Connect the dots. The pool, the housing pipeline, the sanctuary staffing gap, the property tax distribution, the state deficit — these are all the same story. A system that creates commitments faster than it funds them. The only way to change it is to understand it. You’re reading this. That’s a start.

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