
At the Winter MACo meeting, Governor Wes Moore warned of the urgent need to fuel higher economic growth. Photo courtesy of Pat Siebert.
Could a historic budget crisis propel Maryland into an era of business-friendly policies and a higher growth economy?
That seems to be the wish of some political and business leaders — including Governor Wes Moore — as his administration and the Maryland General Assembly begin to tackle the projected $3 billion budget deficit in fiscal 2026.
In a speech to the Maryland Association of Counties (MACo) in December, Moore described the budget crisis as one of two “very distinct storms we have to navigate.”
From 2017 to 2022, the U.S. economy grew by 11 percent annually. During the same period, Maryland’s economy grew by 3 percent annually and, despite that modest growth, the state’s budget grew by 70 percent. Federal stimulus money during the pandemic provided a financial “sugar high” that temporarily masked the imbalance but did not prevent the emergence of a major structural deficit.
“Bigger budgets do not always correlate to better results and that is distinctly true when you have slow economic growth,” Moore said.
The second ‘storm,’ according to the governor, is the change in federal administrations.
The federal government ranks as Maryland’s single largest employer with more than 160,000 federal workers living in the state. Federal funds account for 30 percent of the Maryland state budget, and federal contractors and other support industries make up a substantial part of economic activity in the state.
Consequently, Maryland is “remarkably vulnerable” to changes in federal policies and spending, Moore said.
In the face of those storms, “now is the time when we’ve got to make tough choices,” Moore said.
The state cannot simply use spending cuts or tax increases to resolve the budget crisis and create a vibrant economy, he said. “The answer to make it through each of these storms fundamentally comes down to one word: growth. Now is the time when we have to build a durable economy, one that is unapologetically business friendly and one that actually invests in growth.”
Darius Irani, Chief Economist at the Regional Economic Studies Institute (RESI) at Towson University, agrees that state officials should not regard tax increases as the first tool to use to address the budget deficit.
“One of the areas that we are already challenged by is growing businesses, attracting businesses and retaining businesses in the state,” Irani said. “Creating an environment that is welcoming to business means creating an environment in which businesses are not the first solution to a tax revenue problem… We are going to have to say that we have taxed businesses quite enough if we want this to be an attractive location for business.”
The state, he added, should also consider additional initiatives to boost economic growth.
When the federal government conducted the Base Realignment And Closure (BRAC) initiative in the early 2000s, multiple government agencies, local government officials, business leaders and others banded together in a “One Maryland” movement to create a unified effort to preserve and even add operations at Fort George G Meade, Aberdeen Proving Grounds and other installations. That effort produced very positive results for several installations, he noted.
By comparison, when Amazon launched the competition to identify a location for its HQ2, “we had four or five applications come out of Maryland,” Irani said. “Frankly, some were very good but I think we would have been better positioned to win that competition if we had acted together as a state and put everything behind one proposal.”
A One Maryland approach to economic development now could present a more comprehensive package of incentives, streamline permitting and other regulatory processes, and collectively have more impact than individual efforts by state and local economic development agencies, Irani said.
Maryland officials, he added, also need to assess the tax rates, business incentives, permitting and regulatory structures of neighboring states which are our prime competitors in attracting businesses.
In December, Gov. Moore signed an executive order outlining several initiatives designed to increase Maryland’s economic growth. Those include establishing:
• The Governor’s Office of Business Advancement within the Department of Commerce to provide “concierge, white-glove service to businesses seeking to relocate or expand in Maryland;”
• The Maryland Coordinated Permitting Review Council to streamline permitting processes for major projects;
• A Certified Sites Program to engage state, local and private partners to make infrastructure improvements that create operations-ready sites for investment and business locations;
• The Governor’s Economic Competitiveness Subcabinet to provide advice on policies and regulations, track performance metrics within the economy, and produce a biannual, consolidated economic growth strategy for the state; and
• A comprehensive review of business tax credits, financial assistance and incentive programs to assess their return on investment.
Improving economic growth “is key to Maryland’s future,” Moore said.