The Maryland General Assembly reconvened on January 8th for its annual, 90-day, legislative session faced with historic budget deficits, lagging state-wide economic performance, and ambitious policy goals.
The state’s deficit problem began with a cash shortfall of $300 million in fiscal year 2025 which is a sharp decline from the $1 billion surplus the state posted at the close of the 2024 fiscal year. Budget analysts expect the gap to increase to $3 billion in 2026 due to a decline in one-time revenues and spending increases. The budget outlook worsens with shortfalls ballooning to $6.2 billion by 2030 – driven by increases in healthcare, transportation, and education spending.
State revenues have been hurt by Maryland’s sluggish economic performance coming out of the COVID-19 pandemic. Maryland is one of only five states that have yet to attain the level of jobs that existed at the beginning of the pandemic.
Among the major revenue sources, estimates for personal income, sales, capital gains and transfer taxes are falling short of budget estimates.
There is considerable concern that potential reductions in the federal workforce and other federal spending cuts will further deteriorate the state’s economic conditions. About 256,000 Maryland residents work for the federal government. Federal contract spending in Maryland totaled $42 billion in 2023 which is equal to about 10% of Maryland’s private sector economy.
The state Board of Revenue estimates will meet on March 6th. A major writing down in revenues would trigger the General Assembly’s authority to increase borrowing and could be a catalyst for tax increases and or spending cuts one month before the General Assembly adjourns.