WA Gov. Ferguson calls for $800M in reductions to fill $2.3 billion budget gap
As promised by Gov. Bob Ferguson earlier this month, the Democratic leader’s supplemental budget proposal focused heavily on spending reductions — not new taxes — to tackle the state’s $2.3 billion budget deficit.
Despite including $800 million in reductions, Ferguson’s 2025-2027 supplemental budget proposal that was released Tuesday totaled about $79 billion. That’s up by $1.2 billion, or 1.5% from prior budgets.
Ferguson said in his proposal that $855 million of the increase reflects “unavoidable cost pressures such as inflation and caseload growth.”
He said the state is also facing challenges from the federal government, which has driven up costs in Washington and cut off access to important services.
“For example, the President and Congress chose to make steep cuts to SNAP, strip Apple Health coverage from tens of thousands of Washingtonians, decrease housing assistance, and impose new rules that force states to waste money on costly new systems,” he said.
According to the document, the One, Big, Beautiful Bill Act that was passed this summer significantly changed the way federal food assistance, medical coverage and other programs are funded. To combat this, Ferguson’s proposal includes more than $165 million in state funds being invested in safety net programs to fill the gap left by the federal government.
Ferguson said his team focused on maintaining critical services when building the budget proposal. He said it includes the “largest-ever investment in housing in a supplemental budget.”
According to the document, Ferguson is proposing a 37% increase in funding for affordable housing efforts. His plan is to invest more than $246 million in housing, with $225 million going to the Housing Trust Fund, which provides financial assistance to local governments and nonprofits for affordable housing for low-income households.
“This investment creates a total of 2,640 new affordable homes over five years, supports first-time homebuyers, protects existing affordable housing, and shortens development timelines for new affordable rental homes,” the budget proposal says.
The proposal is broken down even further to $81 million being allocated for affordable multi-family rental housing projects. The money would help create nearly 2,000 rental homes and help support several projects around the state. Another $73 million would help support first-time home buyers.
Ferguson’s proposal also includes $1 billion to replace three of the state’s aging ferries.
“We have made significant strides over the past year to improve our ferry service, but our fleet is aging. We must take action now to replace these vessels,” he said.
His proposal also includes $2 billion in investments for preserving and maintaining roads and bridges. He said the state hasn’t been doing enough to do so for decades. The proposal says there are 10 bridges that are currently in need of critical repairs to stay safe and open.
Making Washington more affordable
During a press conference on Tuesday afternoon, Ferguson said that even when faced with a challenging budget, his “north star” is a stronger, more affordable Washington for every resident.
Ferguson said his proposed budget is balanced and doesn’t raise taxes. He did, however, propose eliminating a number of tax exemptions for corporations, and he voiced his support for an income tax on millionaires.
He said his discussion of the tax proposal has nothing to do with this budget cycle, but that it’s important for his long-term vision of making the state more affordable. And even if it were adopted in this budget, he said revenue wouldn’t be realized until 2029.
Ending tax exemptions
Ferguson said he’s proposing ending two tax exemptions for large corporations that would save about $89 million a year. The first is focused on data centers.
“Currently, when a data center replaces server equipment, that replacement is exempt from sales tax,” he said. “I’m proposing to repeal that exemption, which saves about $63 million for fiscal year 2027.”
He said he would leave in place the sales tax exemption for data center construction and the initial purchase of server equipment.
The other tax break Ferguson wants to eliminate is a preferential B&O tax rate for prescription drug wholesalers. They currently pay less than one-third of the rate paid by other wholesalers. That would save about $26 million a year.
Millionaires’ tax
Ferguson announced his support for a tax on the state’s wealthiest residents during the press conference. He said he hopes the legislature will adopt it in this upcoming session, but his budget proposal isn’t reliant on it, nor will it solve the state’s short-term budget problems.
“As you all know, Washington has one of the most regressive tax systems in the country,” he said. “I know everybody here in this room understands this, but I want to be really clear to the people of the state of Washington, this means that those who make the least amount of money pay much larger shares of their income than those with the most resources.”
He said specifically in Washington, families whose income is in the bottom 20% pay 13.8% of their total income in taxes, while those whose income is in the top 1% pay only 4.1% of their income.
He said the specifics may vary, but if passed, less than one-half of 1% of Washington residents would pay the income tax. And it would raise at least $3 billion a year, he said.
Ferguson said he understands that residents who make less than $1 million a year may have concerns the tax will one day reach them. That’s why he supports codifying the $1 million a year threshold, with adjustments for inflation.
He said the revenue from the tax would be returned directly to working families, small business owners and education.
Ferguson said he’d also like to reduce sales taxes in Washington, which he said are among the most regressive types of taxes, because they’re levied at a flat rate, regardless of how much money you make.
“In other words, millionaires and non-millionaires pay the same amount of tax on essentials like food, clothing, personal care and baby products,” he said. “Those with fewer resources have to spend a larger share of their income on these essentials, meaning that more of their resources are taxed.”
Ferguson said he’s interested in exploring eliminating the sales tax on essential personal hygiene products such as shampoo, deodorant and toothpaste, as well as baby products like diapers, wipes and infant formula.
Reductions
Ferguson said the $797 million in reductions to state agencies does not specifically include personnel or furloughs, but agencies are now working with smaller budgets and will have to adjust accordingly. That may include layoffs. His proposal also includes reducing recent expansions and increases to programs, and delayed implementation of other programs.
Reductions were proposed for all levels of government, from the governor’s office and Department of Commerce, to the Department of Children, Youth, and Families, natural resources and education.
Reductions to education include:
- 6% reduction to funding for statewide programs administered by the Office of the Superintendent of Public Instruction.
- Removal of 1,816 slots for the Transition to Kindergarten program starting in the 2026-2027 school year, reducing the total slots from 7,266 to 5,450 slots.
- Across the board cuts for higher education institutions: 3% for the University of Washington and Washington State University; 1.5% for regional four-year institutions and community and technical colleges.
State Superintendent Chris Reykdal said in a statement that he rejects the notion “that in Washington, a state that is so deeply committed to opportunity, our only choice is to cut public services because fair taxation isn’t possible.”
Reykdal said Ferguson’s budget proposal takes an austerity approach to making Washington an affordable place to live.
“While that’s a common response to financial challenges, what’s troubling is that we know so much about income inequality and tax inequality in our state, and we can’t keep putting budget proposals forward that don’t take that inequality into account,” he said.
Reykdal said the state government is using public services to handle its budget deficit, much like it has in the past. He said the idea that you have to cut from one service to fund another is wrong.
“In a state that is rooted in justice and committed to equity, we should be talking about moving forward,” he said. “Cuts to public services hurt us. They directly shrink incomes and jobs, and ultimately, cause immense harm.”
Reykdal said Washington is ranked 40th in the nation for the percentage of its economy, or Gross Domestic Product, reinvested into K-12 public schools. He said if the level of investment were increased to meet just the national average, Washington schools would receive $4 billion more each year, or about $4,000 per student.
“That’s a massive difference in personalized learning options for students, smaller class sizes, a living wage for our paraeducators, and so much more,” he said. “Instead, though, this budget and prior budgets have cut our state’s funding per student by $500 per student over the last six years when adjusted for inflation.”
Republican state Rep. Travis Couture said in a statement that the governor’s budget is reckless and bad for Washingtonians. He said when the budget proposal was released, he thought it was a prank.
Couture said the proposal plans to grow the budget by $1.1 billion “at a time when families are stretched thin,” and does nothing to fix what caused the deficit in the first place.
He said what’s worse is that the budget isn’t balanced, which is against requirements.
“That rule exists to stop politicians from lying to themselves,” he said. “Suspending it doesn’t fix anything — it just hides the problem on paper and dumps the cost on taxpayers later.”
Couture criticized the governor’s proposal to use $1 billion from the rainy day reserve fund to contribute to the budget deficit. He said Washington already has the smallest reserves in the country.
“That fund is supposed to be for real emergencies, like flooding and wildfires, not for covering up years of overspending,” he said. “Burning it down now leaves the state exposed when the next downturn hits.”
Couture said Ferguson’s budget doesn’t fix the problem but instead “relies on accounting tricks, raids dedicated accounts, shifts school construction money to paper over holes, and keeps using one-time cash to pay for permanent programs.”
He said last week he released the House Republicans’ Affordability First budget framework. He said it includes no new taxes and protects core services.
“It cuts waste, restores accountability, protects K-12 classrooms, restores Medicaid funding, and lowers health care premiums, focusing help on people who actually need it — not bureaucracy.”
This story was originally published December 23, 2025 at 12:39 PM with the headline "WA Gov. Ferguson calls for $800M in reductions to fill $2.3 billion budget gap."
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