As modest revenue gains fail to bridge a growing structural deficit, Maryland’s fiscal landscape presents daunting challenges.
The Board of Revenue Estimates’ December 2024 projections show slight revenue increases for the current fiscal year and fiscal 2026. However, these gains are insufficient to mitigate a budget gap that could reach nearly $6 billion by fiscal 2030.
Revenue Projections: Small Gains Amid Growing Gaps
The Board, which includes Comptroller Brooke Lierman, Treasurer Dereck Davis, and Department of Budget and Management Secretary Helene Grady, projects Maryland will generate $25.3 billion in fiscal 2025 and $25.4 billion in fiscal 2026, reflecting marginal growth of 2.2 percent and 1.5 percent, respectively.
The updated forecasts add $194.5 million to fiscal 2025 revenue estimates and $38.7 million to fiscal 2026, driven primarily by stronger-than-expected personal income tax collections. Despite these adjustments, the structural deficit persists, with significant budgetary hurdles looming.
Key Drivers and Risks
Economic resilience, particularly wage growth, underpins revenue increases. Personal income tax revenues saw a six percent boost for fiscal 2025, primarily due to wage growth and withholding tax strength.
However, sales tax and lottery revenues have underperformed, and the broader economy remains sluggish compared to pre-pandemic trends.
Maryland’s reliance on federal employment and contracts compounds the risks, as potential shifts in federal workforce policies could disrupt revenue streams. Federal salaries and contracts account for a substantial portion of the state’s private-sector economy.
Federal Policy Uncertainty
As previously reported on Conduit Street, Maryland’s close ties to federal government operations leave its budget vulnerable to shifts in national policy. This interconnectedness introduces heightened uncertainty into revenue forecasts, making fiscal planning more complex.
Significant risks include expiring federal personal income tax provisions and potential disputes over the federal debt ceiling. These looming federal challenges could further destabilize Maryland’s fiscal outlook in the years ahead.
Structural Challenges
As previously reported on Conduit Street, Maryland faces a formidable fiscal crisis, with a projected $2.7 billion deficit for fiscal 2026, setting the stage for immediate and difficult decisions in the upcoming legislative session. This shortfall highlights the escalating gap between revenues and spending, which, if unaddressed, is expected to reach nearly $6 billion by fiscal 2030.
Policymakers must contend with an escalating gap between revenues and spending, driven by rising costs, economic stagnation, and outdated fiscal policies. This growing imbalance presents pressing challenges for lawmakers and counties alike.
Looking Ahead
Maryland lawmakers face the daunting task of addressing a $2.7 billion deficit for fiscal 2026, alongside long-term structural deficits threatening the state’s fiscal stability. Decisions on budget balancing, spending priorities, and potential tax reforms are all top of mind for the 2025 legislative session.
For counties, the implications are significant. Reduced State aid or new unfunded mandates could strain local budgets, jeopardizing critical services like education, public safety, and infrastructure. Counties must remain vigilant and advocate for funding supporting residents while preparing for potential fiscal challenges.
MACo 2025 Legislative Initiative: More Flexibility with Local Revenue Structures
Maryland’s local governments, including the charter counties with the broadest authority, are hamstrung by outdated state-defined tax systems that fail to reflect the modern economy. By expanding revenue authority to capture a more modern economy and newly-opened markets, Maryland should provide counties with the necessary tools to meet the evolving needs of their communities, stimulate economic growth, and enhance the quality of life for residents.
This statewide county priority promotes local decision-making with revenue structures and restricted state funding and empowers counties to be more self-sufficient in addressing their varied challenges and opportunities.
Stay tuned to Conduit Street for more information.
Useful Links
Board of Revenue Estimates Meeting Video
Board of Revenue Estimates Presentation
Board of Revenue Estimates Report
Previous Conduit Street Coverage: Ripple Effects — How Federal Decisions Shape Maryland’s Future
