This issue preview dives into the State capital budget outlook leading into the 2025 legislative session and considers the potential impact on counties.
The 2025 General Assembly session will focus heavily on how to manage the State’s looming $2.9 billion structural deficit. Passing a balanced budget plan will require difficult decisions including where to reduce spending. While the main focus will be the State’s General Fund in the operating budget, these deliberations will also affect capital budgets, with potential effects on county projects and priorities.
For counties, in particular the State’s ability to share the costs of capital projects helps local governments keep services online for residents statewide. Examples of project types where costs are typically shared include school construction, courthouses, libraries, detention centers, community colleges, and transportation infrastructure. Additionally, the State’s contribution to a county’s construction projects is in addition to the state’s own construction projects in the county.
The State’s financial health directly affects how much support they can offer for vital projects happening in local jurisdictions. According to the 2025 Issue Papers released by the Maryland Department of Legislative Services, the current State commitments on capital projects exceed the recommended authorization levels for state debt in fiscal year 2026. From the report:
The Capital Debt Affordability Committee (CDAC) recommended that fiscal 2026 general obligation (GO) bond authorizations not exceed $1.75 billion. Exhibit 1 shows that capital commitments and fiscal pressures require $142 million of bond authorization above programmed and CDAC recommended authorization levels.
For local governments, the State’s potential inability to provide funding for local capital projects could present a major blow to county budgets and local services. For services that are effectively essential, a drop in State funds could mean that the county must shoulder the entire burden for the project itself, without the State support. For jurisdictions facing the most urgent of these facility challenges, “forward funding” projects fully is another option, where the county pays the full project cost now to advance its opening, and the State agrees to pay their portion back in the future when funds are available. However, where that is not an option, common as county governments already face multiple fiscal pressures in operating and service costs, it may mean continuing to use facilities that are outdated and poorly suited to continued use, and to relegate needed construction or improvements until the State can contribute as a traditional partner.
Some of this project backlog has already begun to build up. A recent update from the Executive Director of the Interagency Commission on School Construction (IAC) – the agency responsible for approving state funding for school projects – shared that the need is outpacing state resources more than any time in recent history. While some counties may, in the short term, be able to rearrange funding priorities to accommodate a reduction in State support, many others already will face a direct effect on other services now. But even for counties with the means to manage the shortfall in the near term, reallocating funding where state money has dried up won’t remain viable as funding mandates for the State’s education reform plan, the blueprint for Maryland’s Future, escalates significantly over the coming years. This is while state-mandated local operating funding for public schools in FY25 is already $340M over the forecast from the time of the Blueprint’s passage.
The DLS Issue Preview highlights a few broad strategies that the State could employ to address its short-term operating budget challenge, among them one particular item with a direct consequence for capital funding. Amidst some prior budget shortfalls, the State has provided additional general obligation bond authorizations to backfill for prior or pending general fund appropriations — essentially using borrowing to relieve pressure on immediate spending needs. This tactic, if used in the 2025 session, could provide short term flexibility in the general fund, but could occupy some of the State’s overall borrowing capacity that might otherwise have been used for school construction or other locally identified projects.
Incidentally, the year’s highest profile piece of Maryland infrastructure, sadly, the Key Bridge rebuilding project, should not prove to be a draw on the overall debate over the State’s general debt-supported capital program. Transportation projects are traditionally supported through the Maryland Transportation Authority and the broader Transportation Trust Fund, and State-level contributions toward that goal would likely be accomplished through those channels, rather than competing against school construction and other county-level priorities in the general fund budget or the consolidated capital budget. Uncertainty about the federal support for that project is consequential, but not directly attached to this year’s general fund support for capital projects.
The capital budget will be due to the General Assembly for deliberation by January 15, 2025.
