The budget picture is worsening faster than previously expected, according to new estimates presented to lawmakers in a briefing ahead of the annual 90-day session that begins in January.
David Romans, an independent state fiscal analyst, described it as “an enormous gap” due to growing expenses and recent years of quick fixes to cover for slow revenue growth.
The result of that combination: A five-year budget outlook that’s poorer than the one the state faced during the Great Recession in 2008-’09. Without any changes, the state will be able to cover only 84 percent of planned spending through the 2030 fiscal year.
“That is the worst situation we’ve seen in the last 20 years,” Romans said.
The forecast doesn’t factor in any potential erosion of federal support under the incoming Donald Trump administration — though the possibility of losing federal funding or jobs in Maryland, among several other potential impacts, is alarming, analysts and lawmakers said.
“We don’t have a lot of cushion to absorb any major cutbacks in either the federal workforce or federal contract spending,” Theresa Tuszynski, another budgeting official, said in the meeting while giving an update about Maryland’s lagging employment numbers.
Though the state has a low unemployment rate of 2.7 percent, it has the second-worst job growth rate in the country, with payroll data showing a gain of around only 5,800 jobs in the 2024 calendar year, Tuszynski said. Private sector employment has slightly decreased in Maryland according to some figures, she said.
“Though the declines aren’t very big, seeing any decline, let alone month after month of decline, is just unheard of in the history outside of a recession — and the U.S. economy and Maryland economy are clearly not in recession,” Tuszynski said.
The combination of economic factors and the massive immediate gap in the next budget puts at risk a long list of priorities for Gov. Wes Moore and other Democrats.
In his first two years in office, Moore has doubled-down on his support for major initiatives while routinely stressing fiscal responsibility. He’s repeatedly said he has a “very, very high bar” for new taxes and has opted instead to balance his budgets with cuts, pulling from reserves and borrowing more.
But the latest briefing in the Spending Affordability Committee shows not only will lawmakers likely need to fill a $2.7 billion cash deficit in the next budget — which begins July 1, 2025 — but also a $300 million deficit in the current year. That’s far more than the $1.1 billion cash shortfall lawmakers faced heading into the 2024 session.
Fiscal analysts’ recommendations include drawing down roughly half of the $2.5 billion rainy day fund and another measure that would significantly slim down the state’s reserves in case of a recession. Another step could be to shift about $250 million worth of capital projects to bonds, making them more costly in the long run but saving money in the immediate future.
Those steps would still leave about $1.2 billion for lawmakers to figure out how to cover during the upcoming session. Moore will kick off the budget process in January, where he will need to propose a balanced budget plan and the General Assembly will spend the following two months debating and amending it. Moore’s office did not return a request for comment Tuesday.
At least one idea on the table will be a plan that was introduced in the last session as the Fair Share for Maryland Act. Created by a coalition of advocacy groups, it would expand taxes on the highest-earning household and on corporations while aiming to give lower earners a tax break of a few hundred dollars.
Advocates said the version it introduced in 2024 would have raised $1.6 billion annually. It was never seriously considered by Democratic leaders in the state Senate, and neither was a separate $1.3 billion plan that House Democrats proposed that relied on the corporate income tax idea as well as legalized internet gaming and transportation fees.
Some transportation-related fees — on vehicle registrations, ride-sharing and electric vehicles — were ultimately part of the $63 billion final budget agreement in order to stave off some cuts to the transportation budget and to secure additional funding for the Blueprint for Maryland’s Future.
The education reform plan is by far the biggest driver of the state’s long-term budget problems. Starting in the 2028 fiscal year, about $2 billion for Blueprint needs are unfunded, a figure that grows to $3.2 billion in the 2030 fiscal year, according to the update Tuesday.
Trying to avoid a situation where the state pulls back on those plans is one of the top goals for the groups of educators, federal employees and other advocates behind the Fair Share plan.
“Maryland already faces long-term revenue challenges that are now further complicated by uncertainties about future federal funding,” the coalition said in a statement Tuesday. “Now is the time to fix our tax system and ensure we have the revenue we need to fund the education, health, and public safety programs that make our communities stronger.”
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