2025 Legislative Session Update | Proposed House & Senate Operating Budget
March 26, 2025
For your general information, below is a recap of the Proposed House and Senate Operating Budgets for the 2025-2027 biennium and significant bills tied to the budgets. The budgets are going through the hearing process and leadership will be negotiating a final budget before the last day of session, Sunday, April 27, 2025.
Proposed House Operating Budget – HB 1198 – Rep. Ormsby
$77.8 billion operating budget for the 2025-27 biennium with a net increase of $4.4 billion – HB 1198
Significant Policy Investments | HB 1198
- K-12 Education: Significant adjustments for salary inflation, special education, and local effort assistance.
- Long-term Care & Developmental Disabilities: Funding increases for consumer-directed employer parity and adult family home agreements.
- Behavioral Health: Investments in non-native substance use disorder facilities and state hospital staffing.
- Corrections & Criminal Justice: Funding for law enforcement grants and custody staff support.
- Children, Youth, & Families: Adjustments for family childcare agreements and juvenile rehabilitation capacity.
New Revenue | HB 1198
$5.2 billion in new revenue mainly from business and occupation tax, intangible assets tax, and K-12 education funding. The following bills are highlighted as major components of the House proposed Operating Budget:
HB 2045 Business and occupations tax: Increasing revenue through a restructure of the business and occupation (B&O) tax for high-grossing businesses and large financial institutions in Washington.
- Imposes a surcharge of 1% on Washington taxable income exceeding $250 million annually, starting January 1, 2026.
- An additional tax on specified financial institutions is increased from 1.2% to 1.9% of gross income, effective July 1, 2025.
- The tax applies to financial institutions with annual net income of at least $1 billion.
HB 2046 Intangible assets tax: New tax on financial intangible assets valued over $50 million. Funds collected would be directed to the Education Legacy Trust Account to support K-12 schools, higher education, early learning, and childcare programs.
- $8 tax per $1,000 of the true and fair value of taxable financial intangible assets.
- The first $50 million of taxable assets, ownership interests in privately held companies, pensions, and certain retirement accounts are exempt.
- Targets financial intangible assets such as publicly traded stocks and bonds, but not nonfinancial intangible assets like trademarks and patents.
HB 2049 Property Tax/K-12 education funding: Increases K-12 education funding and community safety by modifying property tax regulations and adjusting the school funding formula.
- Increases the levy authority for state and local property tax limits from 1% to 3%.
- Amends existing statutes to reflect changes in property tax and school levy calculations.
- Modify excess cost allocations for special education based on updated multipliers and headcount enrollment.
Proposed Senate Operating Budget – SB 5167 – Sen. Robinson
$78.5 billion operating budget for the 2025-27 biennium. The budget proposes an additional $6.5 billion for 2025-27 and plans a further $9.2 billion increase for 2027-29 – SB 5167
Significant Policy Investments | SB 5167
Significant Policy Investments:
- K-12 Education: An additional $3.1 billion, focusing on expanding special education.
- State Employee Compensation: Nearly $2 billion allocated for wage and healthcare benefit increases.
- Higher Education: Includes employee compensation and other savings measures.
- Health Care & Public Health: Focuses on community behavioral health services and public health adjustments.
- Social Services: Investment in family child care agreements and addressing juvenile rehabilitation needs.
- Corrections & Criminal Justice: Funding for crime victims support and custody staff support.
- Natural Resources and IT: Allocations for wildfire response, environmental quality, and information technology upgrades.
New Revenue | SB 5167
$16 billion in new taxes over the next four years. The following bills are highlighted as major components of the Senate proposed Operating Budget:
SB 5797 Financial Intangible Assets Tax – New tax on certain financial intangible assets to support public schools in Washington State.
- A tax of $10 per $1,000 of the true and fair value is imposed on financial intangible assets owned by Washington residents, starting January 1, 2026, for taxes due in 2027.
- The tax applies to assets valued over $50 million, impacting approximately 4,300 residents.
- Exemptions include retirement savings, college savings, and ownership interests in private companies and partnerships.
- Financial intangible assets under $50 million and nonfinancial intangible assets are exempt.
SB 5796 Payroll Expense Tax Act – New excise tax on large employers in Washington State.
- A payroll expense tax is levied on employers for payroll expenses above the Social Security wage threshold, starting July 1, 2026.
- The tax rate is set at 5% on wages exceeding the threshold.
- Employers with total annual payroll expenses of $7 million or less are exempt from this tax.
- Employers can receive a credit for city payroll expense taxes paid, up to the amount owed under this state tax.
SB 5794 Administration of tax preferences – Streamlines the tax code by removing outdated tax preferences and enhancing transparency and accountability in how tax preferences are administered
- Recommendations from the Joint Legislative Audit and Review Committee and the Citizen Commission for Performance Measurement of Tax Preferences are to be enacted.
- Mandates regular evaluations of tax preferences to determine their effectiveness and relevance.
- Repeals numerous outdated tax exemptions and credits, which are no longer applicable or used.
- Certain tax credits and rates are adjusted for inflation, and expiration dates for specific tax preferences are extended or clarified.
- The Department of Revenue is tasked with implementing the changes, including apportioning taxes for interstate activities and adjusting methods of tax collection.