Governor Wes Moore unveiled a $63.1 billion budget proposal that the administration says follows a fiscally responsible framework to respond to the state’s budget challenges while making record investments in priorities that will make Maryland safer, more affordable, more competitive, and the state that serves.
The proposed budget, which does not include a tax increase, reduces the structural deficit for fiscal 2025 by 34 percent to $502 million from $761 million projected by Legislative Services in December, maintains a Rainy Day Fund balance of 9.4 percent to account for economic uncertainties, and leverages increased General Obligation bond debt of $1.75 billion to help fulfill the State’s capital investment requirements and priorities.
The spending plan includes increasing funding for State employee wages and benefits by $560 million in the General Fund alone. In addition, the proposed budget includes a 65 percent increase of $115 million (to $290 million) for housing and community development capital projects and fully funds Blueprint for Maryland’s Future programs.
Toplines
- Total All Funds Operating Budget: $63.1B
- General Fund Operating Budget: $25.8B
- Total Capital $6.6B
- $3.2B Capital Improvement Program
- 3.6B Consolidated Transportation Program
What Does It Mean for Counties?
The fiscal 2025 budget provides $10.9 billion in aid to local governments, $507.7 million over fiscal 2024. The primary increases include $461.4 million for K-12 education aid, $74.7 million for transportation, and $7.4 million for local health.
Community Colleges
State funding of Maryland’s community colleges is based on the Senator John R. Cade funding formula which was established as law in 1996. The Cade funding aims to provide community colleges with predictable operations support and help maintain affordable tuition rates.
The Cade formula intends that community college costs be divided equally between the state, local government, and student tuition/fees. The original intent of the Cade funding formula was for the State to provide 29 percent of community college funding by 2012. However, the State has adjusted the formula several times over the years and has only recently met its funding obligation.
The current expense formula bases funding on a percentage of the appropriation per FTE student at four-year public higher education institutions. The FY 2025 allowance includes a Budget Reconciliation and Financing Act provision to reduce this percentage and alter other formula components.
Preliminary analysis indicates this BRFA provision reduces fiscal 2025 funding for community colleges by $23 million. In addition, rebasing the funding formula will result in significant cuts in perpetuity.
K-12 Education
The governor’s budget proposal includes $9.2 billion for Maryland’s public schools—fully funding Blueprint for Maryland’s Future programs. The $9.2 billion reflects an increase of $461 million or 5.3 percent compared to FY 2024.
The proposed budget also includes a proposal to allocate $500 million in surplus General Fund cash to contribute to the Blueprint for Maryland’s Future Fund to extend the fund’s solvency an additional year through fiscal 2026.
Transportation
While the governor announced plans for a one-year infusion of cash to ease the initial effects of billions in proposed cuts to local transportation funding over the next six years, the Budget Reconciliation and Financing Act proposes to nix long-overdue progress on restoring funding for local roads.
The State faces a long-term funding imbalance in transportation, with forecasted revenues insufficient to cover costs attached to current projects and distributions. In December, the Maryland Department of Transportation shared a proposed set of service and funding cutbacks, including a reduction in support for local governments, as a plan to manage this imbalance.
Local governments – specifically, counties – maintain the lion’s share of the state’s roads and bridges. Unlike most other states, in Maryland, local governments own and maintain 83 percent of the roads.
Current Law — Highway User Revenues
The motor vehicle fuel tax, registration fees, a share of the motor vehicle titling tax, and a share of the corporate income tax are designated as Highway User Revenues (HUR). The State allocates a portion of these revenues to the counties and municipalities to help fund the construction and maintenance of local roads.
HB 1187 / SB 726 of 2022 increased local jurisdictions’ highway user revenues by an estimated $51.9 million in fiscal 2024, $190.3 million in fiscal 2025, $241.5 million in fiscal 2026, and $245.6 million in fiscal 2027.
However, the Budget Reconciliation and Financing Act proposes to slash funding for local roads by eliminating planned increases in fiscal 2026 and fiscal 2027.
Police, Fire, and Public Safety
The proposed budget includes $50.9 million in enhancement funding above the mandated formula, including $18.9 million for Baltimore City.
The State provides grants to local governments to help provide for police protection services, which are distributed through a formula based on population and population density. Grants are shared between counties and municipalities based on expenditures, and municipalities receive an additional grant based on the number of police officers. The governor’s fiscal 2025 budget provides $50.9 million in enhancement funding above the mandated formula, including $18.9 million for Baltimore City.
Local Health Departments
The governor’s proposed budget includes $123.2 million for local health departments, a $7.4 million increase from fiscal 2023.
Disparity Grants
The fiscal 2025 proposed budget includes $188.5 million for the Disparity Grant program, a formula-driven decrease of $31.6 million from fiscal 2024.
Section 16-501 of the Local Government Article authorizes disparity grants to address the differences in Baltimore City’s capacities and certain counties’ capacities to raise revenue from the local income tax. In general, the grants are the lesser of an amount to raise the jurisdiction’s per capita income tax revenues to 75 percent of the state average or the fiscal year 2010 cap. The formula was modified during the 2013 legislative session to add a minimum grant amount based on the local tax effort of eligible counties and raises from 2.4 percent to 2.6 percent the local income tax rate required to be eligible to receive a grant.
School Construction
The fiscal 2025 capital budget for school construction totals $905.9 million and meets legislative intent to provide at least $450 million for public school construction programs. The fiscal 2025 capital budget also includes $425.4 million in revenue bonds for renovating and constructing public schools, which will be repaid using casino revenues.
What’s Next?
By custom, the House and Senate move the budget bill in alternate years – the House moves the budget in odd-numbered years, and the Senate moves the budget in even-numbered years. So, for example, the budget bill will start in the Senate this year.
Stay tuned to Conduit Street for more information.
Useful Links
Conduit Street Podcast: We Break Down the New Budget
Proposed Budget Documents (fiscal 2025):
Proposed Operating Budget Detail by Agency
Previous Conduit Street Coverage: State Offering Plan to Stave Off FY25 Transportation Cuts
