State agency leaders received a dire warning from Gov. Bob Ferguson’s office on June 5 that they’re headed toward “what will likely be the most challenging budget any of us has yet faced.”

“There will be significant budget shortfalls next biennium in both operating and transportation budgets,” the governor’s budget director, K.D. Chapman-See wrote in a three-page memo. 

Chapman-See added: “This year’s revenue forecasts will likely not provide sufficient support for the maintenance of current programs, let alone any expansions.”

She emphasized that it’s still unclear how large a gap the governor and lawmakers will have to solve. But she said that, “A ‘business as usual’ approach will not meet the need of this moment.”

Agency directors will have until Sept. 14 to submit their budget requests to the Office of Financial Management. Chapman-See told them they should plan to pause the phase-in of most new programs and not propose new ones.

Ferguson is asking agencies to take a hard look at spending on programs created or expanded after January 2019, a time period covering a pandemic-driven spike in government spending.

The governor also wants agencies to scrutinize areas where “Washington provides particularly high levels of service relative to other states, or is one of only a handful of states that provides a specific service or program,” according to the memo.

Next year’s session will mark the third in a row where Washington lawmakers will confront significant deficits. The first year, the solution involved cuts and a sizable tax package. This year’s fix relied on rainy day savings, one-time maneuvers, and reductions in child care funding.

The state’s two-year operating budget is now checking in around $80 billion.

Republicans and, more recently, former Democratic Gov. Christine Gregoire, have criticized the growth in recent years under the Democrat-led state government. The two-year operating budget signed into law in 2017 was around $43.7 billion.

Chapman-See, in her memo, highlights steep price inflation and 14.2% population growth in the state between 2015 and 2025 as underlying factors driving up costs.

An upswing in the economy is a wild card that could reduce some of the budget pressure. But there are no signs of one at the moment.

As for the state’s new income tax on millionaire earners, Chapman-See notes that the revenue from it will not be available until the second half of the upcoming budget cycle.

She also pointed out that about 42% of the money it is expected to generate will go to tax relief provisions embedded in the tax law. So-called “maintenance level” spending to maintain current programs is poised to chew up much of the remaining revenue.

Meanwhile, the tax faces court challenges and a likely ballot initiative this year that could result in it being overturned.

This story is republished from the Washington State Standard, a nonprofit, nonpartisan news outlet that provides original reporting, analysis and commentary on Washington state government and politics.