The Spending Affordability Committee (SAC) met today and issued recommendations to address Maryland’s worsening budget outlook.
The SAC outlined clear steps to restore balance: eliminate the $2.9 billion fiscal 2026 deficit, preserve critical fund reserves, and align spending with revenues to close a projected $6.3 billion shortfall by fiscal 2030.
The SAC also called for targeted infrastructure investments, prioritizing critical workforce vacancies, and securing long-term funding for transportation and education programs.
Persistent structural deficits, rising education costs, and new budget pressures—like the newly disclosed $350 million Developmental Disabilities Administration (DDA) deficit—underscore the urgency of action.
What’s Driving the Fiscal Crisis?
General fund expenses are escalating, driven by several high-cost obligations:
Education: Blueprint for Maryland’s Future
The Blueprint for Maryland’s Future—designed to transform education—will drive education aid costs up by $8.7 billion between 2025 and 2030. These investments aim to improve student outcomes, but:
- Current revenue levels cannot sustain these costs without significant new funding.
- The Blueprint Fund will expire by fiscal 2027, and a growing share of education costs will shift to the General Fund.
Entitlements and Health Services
Medicaid and other entitlement programs continue to grow at an accelerated pace:
- Higher Enrollment Rates: Expanded access and population changes drive increases in program participation.
- Inflationary Pressures: Rising costs of healthcare services further compound spending growth.
- Entitlement programs will consume an increasingly larger budget share, leaving fewer resources for discretionary spending.
Public Employee Costs
State workforce expenses are rising sharply due to:
- Wage Growth: Competitive salaries to attract and retain workers in a tight labor market.
- Pension Contributions: Growing obligations to fund retirement benefits.
- Healthcare Costs: Rising insurance expenses for State employees further strain the budget.
DDA Deficit Emerges as a New and Alarming Pressure
A previously unaccounted-for $350 million deficit in the Developmental Disabilities Administration (DDA) budget has surfaced, adding a new and significant strain on Maryland’s fiscal outlook. Analysts now warn the shortfall reflects an ongoing cost requiring sustained funding.
“DDA has a deficit in the current year of at least $350 million, and it could end up being worse than that… and we believe this is an ongoing cost,” said David Romans, fiscal and policy analysis coordinator at the Maryland Department of Legislative Services. “This is an issue we attempted to explore last session, but the [Maryland Department of Health’s] answer suggested they did not have a problem in fiscal 24 or fiscal 25… what’s happened since shows they were incorrect.”
SAC Recommendations
Align Spending with Revenues
- Eliminate the Fiscal 2026 Deficit: Close the $2.5 billion gap without relying on one-time fixes.
- Long-Term Stability: Ensure ongoing revenues cover at least 94 percent of spending by fiscal 2028 through adjustments to mandates, entitlements, and spending growth.
Maintain Critical Fund Balances
- Keep a 7.5 percent Rainy Day Fund balance to guard against economic downturns.
- Retain a $100 million General Fund balance to address unexpected needs in fiscal 2026.
Prioritize Infrastructure Investments
- Approve $1.75 billion in General Obligation bonds for fiscal 2025 and maintain this level through fiscal 2030.
- Contingency Bonds: The committee is concerned that the President-elect’s potential reductions in the federal workforce and other actions may lead to a significant revenue write-down in March. As such, If revenues decline sharply, bond authorization may increase to $2 billion. However, any authorization above $1.75 billion is strictly limited to replacing prior PAYGO funding.
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Focus on facility renewal projects to address backlogs and extend infrastructure life.
Address Workforce Needs Strategically
- Fill Critical Vacancies: Prioritize health, public safety, and essential services.
- Strategic Hiring: Limit new positions to mandated programs and high-need areas like behavioral health.
Stabilize Transportation Funding
- Maintain a $400 million closing balance in the Transportation Trust Fund.
- Commit at least $1.14 billion annually to system preservation projects to keep infrastructure in good repair.
Useful Links
Spending Affordability Committee Meeting (12/17/2024)
Spending Affordability Meeting Documents
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