As counties across Maryland navigate turbulent fiscal waters, the latest revenue outlook reveals a mixed bag of challenges and opportunities. While property tax revenues anchor local budgets with predictable growth, other significant sources tell a more complex story.
As previously reported on Conduit Street, Maryland faces considerable budget challenges that could drive spending cuts, tax increases, or other remedies to resolve significant structural deficits projected through fiscal 2029.
Maryland faces a $2.9 billion deficit in fiscal 2026, and structural shortfalls will reach $6.3 billion by fiscal 2030. Lawmakers must confront difficult decisions to align revenues with rising costs tied to the Blueprint for Maryland’s Future, workforce needs, healthcare, and infrastructure.
According to a new Department of Legislative Services report, local governments are projecting minimal revenue growth in the current fiscal year.
Total local tax revenue will grow at a modest average annual rate of 2.2 percent from fiscal 2023 through 2025, while county general fund revenue will rise by 2.0 percent annually during the same period.
Local property tax revenues will grow modestly, with an average annual increase of 5.2 percent between fiscal years 2023 and 2025. In contrast, local income tax collections will decline slightly by 0.3 percent over the same period.
Recordation and transfer taxes continue to be negatively affected by the current economic climate. In contrast, hotel rental and admissions/amusement taxes have mostly rebounded from the effects of the COVID-19 pandemic.
Property Taxes: Modest Revenue Growth
Property taxes remain the cornerstone of county revenue, with revenues projected to increase by an average of 5.2 percent annually from fiscal 2023 to 2025. This stability stems from steady growth in assessable bases across the state.
Property tax collections will exceed $10.7 billion in fiscal 2025, accounting for nearly half of local tax revenues.
Local property tax revenues average $1,744 per capita statewide. Worcester, Howard, Garrett, Calvert, and Montgomery counties have the highest per capita amounts, exceeding $2,000. Allegany and Wicomico counties have the lowest per capita amounts, below $800.
Income Tax Revenues Stagnate
Local income taxes, the second-largest revenue source, face headwinds, with total collections reaching $7.7 billion in fiscal 2025, reflecting a $50.4 million decline over two years.
The average annual increase in local income tax revenues over the prior two-year period ranges from 0.1 percent in Washington County to 7.8 percent in St. Mary’s County. Only five counties are experiencing annual growth rates above 2 percent, while three counties are experiencing annual growth rates below 1 percent. On the downside, 11 counties expect decreased local income tax revenues.
Real Estate-Linked Revenues Struggle
Recordation and transfer taxes reflect the cooling real estate market, with projected declines of 5.1 percent and 7.5 percent annually. These revenue streams, heavily influenced by mortgage rates and home sales, highlight the ongoing impacts of inflation and tighter monetary policy.
Recordation tax revenue projections for fiscal 2025 range from $800,000 in Somerset County to $160.8 million in Montgomery County. On a per capita basis, estimated revenue collections range from $25 in Allegany County to $172 in Talbot County. Revenue collections tend to be higher in jurisdictions with higher home prices and sales.
Local transfer tax revenues totaled $488.3 million in fiscal 2025, significantly below the $570.8 million collected by local governments in fiscal 2023. Between fiscal years 2023 and 2025, transfer tax revenue will decrease by $82.5 million.
Bright Spots in Recovery Taxes
Hotel rental and admissions/amusement taxes have rebounded from pandemic-era lows, with moderate growth expected.
In fiscal 2025, county governments expect to collect $136.7 million in revenue from the hotel rental tax. Hotel rental tax collections will increase slightly in fiscal years 2024 and 2025 as business and tourism travel return to normal.
County governments and Baltimore City are projecting to collect $50.8 million in admissions and amusement tax revenue in fiscal 2025. Although collections will increase by $4.0 million in fiscal 2025, they will decrease by $4.4 million between fiscal years 2023 and 2025.
The County Perspective: Local Budgets at Risk
Counties are already grappling with the financial pressures of meeting Blueprint for Maryland’s Future mandates and other growing demands, leaving little capacity to absorb additional strain from State budget gaps.
Reductions in State aid, new unfunded mandates, or cost shifts could force difficult local decisions affecting critical services like education, public safety, and infrastructure.
MACo 2025 Legislative Initiative: More Flexibility with Local Revenue Structures
Maryland’s local governments, including the charter counties with the broadest authority, are hampered 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 through equitable revenue structures and restricted state funding, empowering counties to be more self-sufficient in addressing their varied challenges and opportunities.
Stay tuned to Conduit Street for more information.
Useful Links
Previous Conduit Street Coverage: 2025 Issue Preview: Maryland’s Budget Crossroads
Conduit Street Podcast: Maryland’s Fiscal Crisis and County Implications
Previous Conduit Street Coverage: State Revenue Update: Modest Gains, Daunting Deficits
