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*                                                                                           December 23, 2025*






DSHS Official Stationary

*RE: Governor Ferguson Proposed Supplemental Budget*

On Tuesday, December 23, Governor Ferguson released his proposal for the 2026 supplemental operating budget. Our state continues to face significant budget challenges as a result of increased demand for services, declines in forecasted revenues, and increasing costs of serving individuals with more complex needs. This proposed budget reflects these realities and the limits in the ability to make additional investments in our existing systems or seek funding for new programs and services.

Here are some notable items that HCLA requested, and the Governor included in his proposed budget:


* *Reimagine DSHS: *In May 2025, DSHS began a strategic initiative, called “Reimagine DSHS,” to align organizational structure with the evolving and increasing human services needs within Washington. The Aging and Long-Term Support Administration, Developmental Disabilities Administration and the Behavioral Health Administration were reorganized into two new administrations, the Home and Community Living Administration and the Behavioral Health and Habilitation Administration. This is a net zero change that reallocates existing resources from the previous three administrations into the two new administrations.


* *Legal Support for Residents of Long-Term Care Facilities:* The Office of Civil Legal Aide (OCLA) is working with the Department to set up legal supports for Medicaid residents of long-term care facilities who are involuntarily discharged. This program will begin in January 2026 and is similar to the supportive programs provided to low-income renters in Washington state under the landlord tenant act. Under the proposed supplemental budget, HCLA will provide an additional $2.0 M of federal Medicaid matching funds to expand OCLA’s efforts.


* *Dan Thompson Developmental Disabilities Community Grants: *An additional $2.0 M appropriation from the Dan Thompson Account in FY27 will provide grants to community organizations providing supports and services to benefit eligible individuals with developmental disabilities. More information on this grant program and awardees is available here [ [link removed] ]. Also, there is a one-time $2.0M transfer from the Dan Thompson account to the state general fund.


* *SOLA Forecast *(in the Behavioral Health and Habilitation Administration)*:* The funding to maintain the current number of forecasted State Operated Living Alternatives (SOLA) clients and homes ($28.1M total funds), which was not funded in the 25-27 biennial budget, is provided in the supplemental budget.


* *Health Homes *(in the Health Care Authority budget)*:* The Health Home initiative funding is proposed to continue in FY 27 as requested by HCA and supported by DSHS.

There were also several difficult reductions proposed:


* *Administrative Reduction: *Under the Governor’s proposed budget, HCLA’s budget is reduced by $700,000 GF-State in FY27. The direction is to reduce goods, services and travel rather than staffing.


* *SOLA Administrative Reduction *(in the Behavioral Health and Habilitation Administration): The State Operated Living Alternative (SOLA) program in the Behavioral Health and Habilitation Administration will have a separate $500,000 GF-State administrative reduction.


* *Reduced Transitions from Rainier to the Community *(in the Behavioral Health and Habilitation Administration): Funding for three of the additional SOLA homes funded in the biennial budget for individuals to transition from Rainier School that have not yet been opened would be removed. This potentially slows the number of people leaving Rainier, but there is no timeline to close Rainier.


* *No COLA for WMS/EMS staff:* While collective bargaining agreements with represented staff are not affected, non-represented WMS and EMS employees would not receive the 2% cost of living increase scheduled for July 1, 2026.


* *AAA Case Management Reduction: *This $2.5M GF-State reduction brings the total reduction to five percent.


* *Transitional Care Center of Seattle*: The maximum census at the specialized nursing home is decreased from 80 to 60 clients to align with the provider’s staffing model. There are currently approximately 60 clients in the facility.


* *Nursing and Assisted Living Rate Rebases delayed: *To reduce costs, the rebase of Nursing Homes and Assisted Living Facility Medicaid rates scheduled for FY27 will be delayed until FY28. This is estimated to save $147.7M total funds in this


* *Federal HR1 Impact*: Approximately 3,000 non-citizens currently eligible for Medicaid LTSS services through HCLA will lose that status under this federal legislation. The state has not received federal guidance yet on the timeline for implementation, but we know that the change begins October 2026. However, the Governor’s proposed budget assists with funding to cover 500 of those individuals who would lose their housing or individuals who have the most acute needs using general-fund state dollars.


* *Future Medicaid Eligibility Change*: The proposal changes the policy for functional eligibility for HCLA Medicaid clients proposed to take effect in
FY 28 (the next biennium).

As previously mentioned, demand for services continues to grow as a result of increased prevalence of disability and a growing aging population. These increases in caseload and per capita expenditures are funded in the Governor’s proposed budget.


* *Medicaid Forecast Caseload Adjustment*:
* ALTSA: $544.0M total funds
* DDA: $69.6M total funds


* *Medicaid Forecast Per Capita Adjustment*:
* ALTSA: -$62.3M total funds
* DDA: -$2.0M total funds


* *DDA Utilization of Residential Services:* $19.9M total funds

The Governor’s proposed budget is an early step in the budget process. During the upcoming legislative session, which begins on January 12 and ends mid-March, each house of the Legislature will propose a budget, then there will be negotiations and afterwards passage of the final supplemental budget. The passed budget will then go to the Governor for his signature.

We will continue to keep you informed about the progress of budget proposals and negotiations during the session. And our legislative liaison, Laura Han, will provide all-staff legislative briefings on Thursdays at noon for up-to-the-minute news. Those Zoom meetings begin on January 15.

Thank you,

Bea Rector
Assistant Secretary
Home & Community Living Administration
Department of Social and Health Services

 








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