Lawmakers debate Washington's fiscal outlook after Moody's downgrade; tax changes and audit findings loom

A legislative panel at Bellevue College on June 1 brought together Eastside lawmakers to wrestle with the state's fiscal outlook after Moody's lowered Washington's bond outlook from "stable" to "negative" and a series of public-audit findings raised questions about agency accounting.

Representative Wallen told the audience the state has been "overspent compared to revenue consistently" since the COVID era and warned that maintenance-level spending adopted after temporary federal aid has lifted the baseline. He said the state spent $4.8 billion more than revenue in the last biennium and that budgetary reserves are "woefully inadequate," putting pressure on long-term creditworthiness.

Representative Hall said the concerns are "somewhere in the middle" and noted that the Legislature followed objective rules in accessing the budget stabilization account (the "BSA"), with plans to repay it. "It was definitely warranted to use it for right now," Hall said, urging calm and stressing repayment plans in the enacted budget.

Panelists also discussed a recent state auditor report and a material weakness finding for the Office of Financial Management (OFM). Representative Brett Goodman said he was "particularly concerned" about OFM's reliability after the finding and stressed legislators rely on both partisan and nonpartisan staff for data.

The session moved from accounting to taxes and competitiveness. Lawmakers debated the effects of the 2025 revenue package, including the recently enacted millionaire's tax and a prior large tax package. Representative Larry Springer argued for building budgets from expected revenue rather than assumed new spending and said an eventual graduated income tax could allow trimming more regressive taxes such as the B&O tax. "You start with revenue," Springer said, describing a budget discipline he used at the local level.

Other speakers warned that some business leaders and high-income residents have indicated they might redomicile in response to tax changes. Representative Osman Salahuddin said anecdotal reports are mixed but real for some constituents, and urged policymakers to consider repealing particularly regressive levies to keep businesses and jobs in the state.

Senator Victoria Hunt and other panelists framed tax decisions within competitiveness and infrastructure needs, with Hunt noting that energy and permitting constraints also affect where firms choose to invest. "We have to make sure we have that infrastructure," Hunt said when discussing the role of energy and grid capacity in economic development.

What happens next: panelists emphasized that structural reform will be difficult while the state runs persistent deficits. Several advocated for institutional discipline—for example, limiting how much new revenue is spent immediately so future lawmakers can pursue tax restructuring if revenue growth recovers.

Authorities and references discussed at the forum included Moody's rating action (referenced by the moderator), a state auditor report identifying questionable payments and an OFM material weakness, and ongoing debate over the millionaire's tax and B&O tax thresholds. The forum did not record any formal legislative votes.