The Washington State Economic and Revenue Forecast Council released its June revenue forecast on Friday, the state’s second forecast of 2026. The forecast presents a mixed fiscal outlook. Non-economic factors, including stronger than expected capital gains tax collections and legislation passed during the 2026 session, boosted projected state revenue, while the underlying economy weakened since the February forecast and other General Fund-State (GF-S) tax collections declined.
The state collected approximately $1.5 billion from the capital gains tax, almost double the amount projected in February, providing a significant boost to the state’s fiscal outlook. Additionally, much of the increase in projected GF-S revenue for the 2027–29 biennium is driven by recent policy changes, including the new tax on high-income earners, reductions in sales tax exemptions, and higher Business & Occupation (B&O) tax rates on prescription drugs.
However, beneath those gains, economic activity has declined. The June forecast shows lower personal income, weaker employment growth, and lower-than-expected real estate excise tax collections and housing construction. Absent non-economic increases, projected GF-S revenue would have fallen by $423.2 million in the current biennium and $508.6 million in the 2027-29 biennium.
Given this, along with rising costs for state programs and services, state lawmakers continue to caution that Washington is likely to face a budget shortfall in the next biennium. For the first time, the forecast also includes revenue from the new statewide tax on high-income earners, also known as the “Millionaires Tax”, contributing to the higher than projected revenue. However, collections are not expected to begin until Jan. 1, 2028, and the tax remains subject to legal and potential ballot challenges, adding further uncertainty to the state’s long-term revenue outlook.
The Governor’s office highlighted the state continues to face a tough budget cycle next biennium. In Washington state, the Governor kicks off the budget process by releasing his proposed operating, capital, and transportation budgets in December. Earlier this month, the Governor’s office issued their 2027-29 budget instructions to all state agency directors asking state agencies to brace for a budget shortfall and prepare for reductions.
Overall, the June revenue forecast indicates that while projected revenue has increased, much of the growth depends on new and uncertain policy rather than sustained economic growth, resulting in a cautions long-term fiscal outlook for the state.
The next revenue forecast is scheduled for September will further inform the state’s financial situation. In the meantime, the UW must submit its legislative priorities for the 2027 legislative session.
Questions?
For questions about state advocacy, please contact Morgan Hickel at mhickel@uw.edu and Kevin Chang at kchang28@uw.edu.