The House of Delegates from the gallery. The House and Senate are again expected to be at odds over how to respond to a massive budget shortfall. File photo by Bruce DePuyt.
Gov. Wes Moore (D) and the General Assembly head back to Annapolis for the 2025 session facing one of the toughest fiscal challenges in two decades.
Maryland’s already bleak five-year budget outlook deteriorated since an initial look in September, with officials learning last month that the state’s fiscal woes deepened even as some revenue projections marginally improved.
Lawmakers have to deal with a projected $300 million deficit in the current year’s budget before planning the fiscal 2026 budget, which analysts predict could have a nearly $3 billion deficit, up from $2.7 billion projected in November.
The gap continues to grow over the next five years, with the fiscal 2030 deficit estimated at $6.2 billion. That would leave the state able to pay just 84% of its budget that year, analysts said in November — lowering the estimate to 83% a month later.
“The driving issue this upcoming session, amidst the uncertainty that we know to be the case with the incoming federal administration, will be balancing Maryland’s budget in a way that keeps us competitive, but also ensures that we are investing in the priorities that Marylanders know matter, things like health care, education and transportation and reducing housing costs,” Senate President Bill Ferguson (D-Baltimore) told reporters.
House Minority Leader Del. Jason C. Buckel (R-Allegany) said he thinks lawmakers generally agree that “Maryland’s fiscal ship is much like the Titanic, headed for the iceberg.”
David Romans, a Department of Legislative Services budget analyst, told members of the Joint Spending Affordability Committee in November that the outlook is “the worst in at least 20 years, and worse than the Great Recession in terms of the far-year outlook.”
State revenue outlook improves slightly, but ‘significant challenges’ with budget lie ahead
The deficits in the near term are being driven by higher costs for Medicaid patients and the state’s child care subsidy program. Wrapped into that is a newly found $350 million error within the Developmental Disabilities Administration that analysts said could go on for years.
That mistake highlights growing legislative concerns about spending projections from some departments. Legislative analysts urged House and Senate fiscal leaders to hold a hearing on the issue with DDA officials.
“It’s a pretty staggering miss in terms of the size of their budget and the amount of the deficit,” Romans said. “I think there’s a lot of questions to understand why this surprise has occurred and what they’re going to do to get a better handle on their budget moving forward.”
Last year, the Maryland Department of Health underestimated Medicaid expenses by $236 million, sending lawmakers scrambling for a solution in the final month of the 2024 session.
“We’re not sure, but the folks over there can’t seem to get their budget numbers correct,” Buckel said last month. “So we have an even higher budget deficit … than what we thought we would have a few weeks ago.”
Ferguson acknowledged increased costs from the programs, but suggested cuts might be difficult.
“We are not going to throw 50,000 people off of Medicaid. We are not going to throw 20,000 families out on the street to not have child care subsidy credits,” he said. “We have to find a way to cut from other places, to prioritize. And frankly, at the end of the day, I think it gives us an important opportunity to really have hard conversations about, how do we invest in Maryland, the right way to keep us competitive and invest in things that will build our economic future.”
The Blueprint effect
In later years, costs of the Blueprint for Maryland’s Future will exhaust a trust fund that was created to support it. Costs for the sweeping, multiyear education reform plan are fully funded for fiscal 2026, but by fiscal 2027, the fund earmarked for the program will fall $180 million short, according to legislative analysts.
After that, billions could be needed from the state’s general fund to pay for the program, beginning in fiscal 2028.
One way to ease the pressure of the Blueprint could be to extend the number of years it takes to reach full implementation. Such a move would also ease pressures on local governments.
County school leaders say changes needed to the Blueprint education reform plan
“Even if we make adjustments that yield some cost savings, that would not be realized until FY 28 at the earliest,” Ferguson said. “Any changes to education will not impact the general fund budget deficit that we have.”
Ferguson said the deficits are driven by the same inflationary pressures felt by families and “not because of inappropriate spending in any way.”
Even so, Moore has raised the possibility of making some changes to the Blueprint. And the state’s largest teachers union — the Maryland State Education Association — has started a campaign to drum up public opposition to what it describes as budget cuts.
The teacher’s union is part of a coalition backing a $1.6 billion tax package.
Buckel said House and Senate Republicans are “very concerned about any set of recommendations that leaves the door wide open for significant tax raises. When we talk about we need more revenue, that’s what we’re talking about.”
Republicans have routinely pointed to the Blueprint as an example of the Democratically controlled legislature’s “out of control” spending.
“The Republicans should offer up their own budget instead of sitting in the cheap seats offering up hypotheticals,” said Eric Luedtke, Moore’s senior adviser on policy, including a focus on the budget.
The debate begins in earnest once Moore introduces his fiscal 2026 budget on Jan. 15.
“I think most folks on this committee are really looking forward to seeing the governor’s solutions and trusting in those solutions when he does introduce his budget in just about a month,” House Appropriations Chair Ben Barnes (D-Prince George’s and Anne Arundel County) said in December.
Details about the administration’s 2026 budget remain a closely held secret.
“We’re a couple weeks away from the start of the session, and no one seems to know what the solution is from Gov. Moore’s office, what the Democratic proposals really are, and that’s not a very good way to run a railroad,” Buckel said.
But it’s not unusual for an administration to be tight-lipped before delivering a spending plan to lawmakers.
Moore, in a December speech to the Maryland Association of Counties conference in Cambridge, warned of “two storms:” looming budget deficits and fiscal uncertainties tied to the President-elect Donald Trump’s incoming administration.
“There will be choices in our new budget that some of you will not like. Quite frankly, there will be choices in our new budget that I don’t particularly like,” he said. “But we need to make hard choices now if we want to unleash our full potential as a state and lay the foundation for a brighter future.”
Taxes and economic growth
Moore called for a focus on growing the state’s overall economy and diversifying employment in a way that is less vulnerable to changes in federal employment and spending. Both will be key to weathering the twin storms, he said.
But revenues — tax hikes — may yet be part of the mix.
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“What we find, in particular, to be difficult to understand from anybody who has a college level reading of economics, and anybody who can look at how the economy is doing in Virginia and how it’s doing in Pennsylvania, as opposed to us, is that the Democratic response to these budget problems seem to be raise our taxes higher,” said Buckel.
But as a debate over new taxes has raged for the past year, Moore and others have said jump-starting the state’s lagging economy is “the key to securing Maryland’s future.”
“Anyone who thinks we can just cut our way to greater prosperity isn’t being honest. Anyone who thinks we can just tax our way to greater prosperity is not being honest,” he said at the MACo conference. “Now is the time for us to make the hard choices that will help us build a durable economy – one that is business-friendly and invests in growth.”
During the 2024 session, Democratic leaders in the House proposed a $1.2 billion revenue package. The proposal included tax increases and gaming revenue. But that plan failed to gain traction in the Senate, which handled Moore’s proposed budget first.
This year, the House will get the first crack at the budget. Whether it sends the Senate a version that includes taxes remains to be seen.
‘Grown-up pants’ redux
A year ago, House Majority Leader David Moon (D-Montgomery) told county leaders it was time to “pull up some grown-up pants” and address short- and long-term budget problems, saying “the problem was not going to fix itself.”
“All indicators could be that it would get worse if we came back a year later, having done nothing,” Moon told county leaders this year. So, as we come to this point and we see where we are, my message is pretty much exactly the same, that we need to roll up our sleeves, do the hard work, make the tough decisions and not kick a can down the road.”
Some advocates are again calling for passage of the so-called “Fair Share Act.” The bill proposed last session included changes in corporate income tax calculations, increased taxes for residents earning $1 million or more and a 1% surcharge on capital gains.
State’s flagging economy and transportation infrastructure linked
“The serious fiscal challenges … highlight the need for our leaders to take responsible action to fix our tax system and raise the revenue needed to fund the education, health, and public safety programs that make our communities stronger,” said a statement from Fair Share Maryland, a coalition of more than 60 organizations. “That’s why it’s time to enact the Fair Share Maryland plan to reform the state’s upside-down tax system that currently gives unfair tax breaks to large corporations and the ultra-rich.”
Backers say it would raise $1.6 billion annually once fully phased in, money that could be used to offset the projected deficits and help pay for tax credits for low-income earners. Without “significant new revenue,” the group said, state leaders would have to cut $2.5 billion, making “massive cuts to state programs at a time there is also significant uncertainty about federal funding for programs Maryland families rely on.”
High bars for taxes, education funding changes
Moore and Ferguson have repeatedly rejected calls for tax increases over the past year, saying they have a “high bar” for such proposals. Neither one has said what that high bar is, but there are indications that that may be changing: Both Moore and Ferguson have suggested recently that “everything is on the table” in the coming budget debate.
“We said, everything’s on the table. Number one, we have to make sure that we are living within our means and that we can invest in things in a way that is predictable and that it keeps us competitive,” Ferguson told reporters. “We are going to have to look at revenues in certain areas, because when we look at the budget overall, the gap cannot be accomplished with cuts alone.”
But House leaders have said they have their own “very high bar for any rollback of education reforms.”
“I think that that’s because these [Blueprint] reforms are only three years in,” said Barnes, the House Appropriations Committee chair. “It’s important to emphasize that, and are starting to bear fruit.
“You know, we’re seeing more children in pre-K, more money for teachers and retention of teachers, and more money for community schools and behavioral services and wraparound services, which will lead to better results and outcomes,” he said. “It would be a shame to roll these back just three years in.”