Economic and revenue outlook
Washington operates under a four-year balanced budget requirement, meaning the state cannot spend more than it earns over that period. Meeting this requirement is becoming more difficult.
Much of the state’s ability to fund essential services relies on four key taxes: retail sales, business and occupation (B&O), property, and real estate excise. Together, these taxes account for 96% of the General Fund State (GF-S) revenue. Currently, costs to deliver essential public services are outpacing revenue growth. The strength of this revenue collection is closely tied to broader economic factors covered in this outlook like consumer purchasing power, employment rates, housing supply, and population growth. Inflation is expected to grow in the next two biennia by 2% on average.
Rising costs and declining purchasing power
The gap between what Washingtonians earn on paper (nominal disposable income) and what they can actually buy with that money (real disposable income) is expected to grow over the next few years. Currently, nominal disposable income per person is growing at about twice the rate of real disposable income. This disparity is expected to persist through the 2025–27 and 2027–29 budget cycles. This loss of purchasing power will make it harder for many families to maintain their standard of living or buy taxable goods and services. With sales tax contributing about half of the state’s General Fund revenue (around $27 billion per biennium), any drop in consumer spending creates significant pressure on the state’s budget.
Employment growth across all sectors
Washington's total employment is projected to be 3.85 million in 2024. Employment is expected to increase slowly through 2027. In 2027, the unemployment rate is expected to peak at 5.00% due to slower job creation before slowly declining.
The employment rates of nonfarm jobs are also important considerations for the state’s economy and revenue outlook. These jobs are not subject to seasonal fluctuations, making them stronger indicators of long-term economic health. Overall, Washington’s nonfarm payroll employment is expected to grow steadily from 3.61 million jobs in 2024 to 3.72 million in 2027 (1.90% increase) and 3.78 million in 2029 (1.70% increase). These positions, spanning manufacturing, construction, and services, help drive both consumer spending and business activity. When employment growth slows, consumer spending and housing demand often dip, affecting both sales and real estate excise tax revenues.
Housing shortages and affordability challenges
Housing supply continues to lag behind population growth, contributing to ongoing shortages and affordability challenges. During the 2023–25 biennium, the adult population is expected to increase by 166,595, while the housing stock increases by just 51,212 units. Without further action, this gap will continue through 2027–29. The Washington State Department of Commerce estimates the need for approximately one million more housing units to be built by 2044.
Housing and utilities are nearing 20% of household spending, up from a long-term average of around 18.8%, according to the Bureau of Economic Analysis. Although “housing starts” (the point when construction on new homes, apartments, and other residential units actually begins) are set to improve in the coming years, they will remain below pre-COVID levels, especially for multi-unit buildings. Rising mortgage rates, which jumped from 6.31% in 2023 to 7.03% in 2024, further erode affordability and may reduce real estate excise tax revenue until rates begin to ease.
Governor Jay Inslee’s 2025–27 budget will respond to the challenges outlined in this outlook by making strategic investments in essential services that will ease the burdens on working families and support the long-term strength of Washington’s economy.
