Treasurer Dereck Davis (right) said most people did not vote for the kind of economic chaos a new revenue estimates report forecasts for Maryland. (Photo by Bryan P. Sears/Maryland Matters)
A key fiscal panel cut another $280 million from the state’s revenue projections Thursday, warning of an impending “unnecessary negative shock” to the state’s economy driven by expected federal budget and employment cuts.
The updated projections from the Board of Revenue Estimates — lower than in December — come amid increased concern about federal budget and employment cuts and a looming potential shutdown.
Treasurer Dereck Davis, one of three members of the board, stopped short of a profane summation.
“Madam Comptroller told me I couldn’t swear, so I won’t say what kind of show we have going on, but if you think about it, you can figure it out,” Davis said.
The treasurer said he believed chaos was not what people voted for in November.
“They just wanted grocery prices to come down. They just want to be able to afford their electric bill. They just want to be able to handle the basic necessities,” Davis said. “And what we seem to have is just utter chaos right about now. From one day to the next, we don’t know what’s going to happen.
“We get a lot of criticisms here in Maryland about our business climate, but the one thing … that we’ve always heard is that businesses, above all else, value certainty. They want to know what’s going to happen from one day to the next,” he said. “And we can’t provide that at the state level, because they can’t provide that from the federal level.”
The board’s $280 million cut in revenue projections over two years includes a loss of nearly $400 million in personal and corporate income taxes over two years,that are offset by small gains in other areas.
In a normal year, a reduction equal to about 1% of the general fund budget — would not generate much angst.
It’s not a normal year.
The report is the final revenue forecast before the 90-day session ends. It also serves as an early warning of the fiscal impact of federal budget actions.
Republicans pointed to the report as more proof of the state’s outsized reliance on federal jobs and policies that make it difficult for private businesses.
“Maryland’s financial picture has gone from bad, to worse to abysmal,” said Senate Minority Leader Sen. Stephen S. Hershey Jr. (R-Upper Shore). “No matter who has been in the White House, economists have warned for at least 20 years that our economy is too dependent on federal jobs. Despite repeated calls for economic diversification, Maryland remains highly dependent on federal employment, contracts and grants, making budget planning challenging when federal spending fluctuates.”
State fiscal leaders are struggling to develop a way to balance state finances while projecting federal changes that will affect the budget, but Comptroller Brooke Lierman (D) said, “No accurate economic model exists to predict President Trump’s behavior.”
“Our revenue forecast reflects a write down for FY ’25 and FY ’26 compared to the (December) forecast. But these write downs, or at least the FY 26 write down, is almost entirely a preemptively defensive move. To date, we have not seen reductions in our withholding revenues, but we know they are coming, and therefore this write-down is the fiscally prudent approach. We do expect a negative shock to our economy within the year,” said Lierman, who chairs the board that includes state Budget Secretary Helene Grady.
Lierman called the new forecast “sobering.”
Robert Rehrmann, director of the Bureau of Revenue Estimates, said the updated forecast is based on data from other shutdowns, sequestration more than a decade ago and what is publicly known about expected reductions in federal employment. He characterized the effort as a conservative approach.
There are roughly 161,000 federal employees in the state. In tax year 2023, 252,000 households reported some form of federal wages, accounting for about 9% of total gross income.
All told, Rehrmann said the projections Thursday included the expectation that almost 30,000 federal workers in Maryland will lose their jobs and the $3 billion in wages in tax year 2025 that come with it.
“This is really a floor, because it doesn’t include contractors or grant-supported jobs as well,” Rehrmann said. “This is just direct federal employment. But it’s clear, you know, the importance of the federal government to our labor force and our economy.”
Lawmakers in the House and Senate continue work on Gov. Wes Moore’s fiscal 2026 budget, which included plans to cover a $3 billion projected deficit.
The latest combined revenue estimates for fiscal years 2025 and 2026 are $280 million lower than projections issued in December, which Rehrmann said had already baked in some assumptions about federal cuts.
“Now, however, I think it’s safe to say, compared to what our expectations were in December, a worst-case scenario has developed,” he said. “These cuts are materializing quicker than anticipated, and they’re as bad or worse than what we feared in December.”
The panel lowered current-year personal income tax collection estimates by $143 million. Corporate income tax collections expectations fell almost $22 million from the December estimate.
Those changes are not affected by the current federal cuts, Rehrmann said.
The panel also lowered its expectations for the coming fiscal year.
The new forecast shows personal income tax collections decreasing by almost $201 million. Early projections set personal income tax growth at 4.1 %. That estimate would assume no federal actions. In December, the board forecast a 3.1% growth in withholding.
The March update lowers that growth projection to 2.1%.
“These are based largely upon 30,000 jobs lost or anticipated to be lost, and the contracting associated with that,” said Senate Budget and Taxation Chair Guy Guzzone (D-Howard) “Let me just say that it doesn’t include things like the tariff actions that are going on right now, and it doesn’t include the grant monies and federal dollars that we are accustomed to receiving for various things like Medicaid. So, before us right now is … the seriousness of what is going on in Washington and what it means to Maryland.”
House Appropriations Chair Ben Barnes (D-Prince George’s and Anne Arundel) predicted more budget “cuts that we look at as we move forward” as well as increased revenues.
The budget proposed by Moore increases taxes on high earners while providing modest reductions — $173 on average — to six in 10 taxpayers. The plan also includes the elimination of itemized deductions.
The House and Senate appear intent on altering Moore’s plan.
On Thursday, a late-filed proposal to impose a 2.5% sales tax on some business-to-business services cleared a key procedural hurdle. The identical House and Senate bills now move to full public hearings.
The House Ways and Means and Senate Budget and Taxation committees could hold those hearings on that proposal as early as next week. House and Senate leaders expressed interest in the tax.
Barnes told reporters “it’s important to recognize that we are not the goods economy that we once were, that we are becoming more of a services economy. And so, I think it works in tandem with. governor’s plan of [tax] reform.”
House and Senate Republicans voiced opposition to the proposed business-to-business sales tax.
“While my Democratic colleagues will make the case that these revenue numbers are further evidence of a need for new or higher taxes, I would submit that this is the last thing our state needs,” House Minority Leader Del. Jason C. Buckel (R-Allegany) said in a statement. “Maryland has got to get control of its spending. We have to take a hard look at how we are spending money and realize we cannot afford a Mercedes government with a Honda economy.”