Gov. Bob Ferguson on Tuesday signed a two-year, $78 billion state operating budget into law. The budget addresses a projected $16 billion shortfall through a mix of new taxes, account transfers, and modest spending cuts.

The budget includes about $4 billion in new and higher taxes for the upcoming biennium. Most new revenue will come from permanent across-the-board business tax increases, a temporary surcharge on large corporations, expanded sales taxes on digital and temporary services, and higher taxes on banks and computing giants. A capital gains surtax and a new “Tesla tax” on electric vehicle credit sales are also part of the plan.

Despite early opposition to tax hikes, Ferguson largely approved the tax package, vetoing only one item to preserve a housing-related exemption for community banks. He also used his veto authority to trim $25 million in spending, targeting smaller line items such as nonprofit grants, youth enrichment programs, and policy studies. While he described many of the vetoed programs as valuable, Ferguson said they were not essential given the state’s budget constraints.

The budget preserves funding for public schools, housing, health care, and collective bargaining agreements, while administrative cuts and facility closures will reduce spending in corrections, higher education, and disability services.

Lawmakers return in January 2026 to consider a supplemental budget and may be called back earlier depending on federal funding developments.