Congress holds Maryland’s fiscal future in its hands as budget talks drag into spring. Proposed cuts to healthcare, education, and infrastructure, combined with a looming shutdown in March, add new strain to an already fragile budget.
As previously reported on Conduit Street, Governor Wes Moore’s plan includes $2 billion in spending reductions, revenue enhancements, cost shifts to local governments, fund transfers, and a lower Rainy Day Fund balance.
However, Senate President Bill Ferguson warned that federal workforce reductions and Medicaid cost shifts could force the General Assembly to go even further, potentially requiring hundreds of millions in additional cuts.
Here, Conduit Street breaks down what might be at risk as federal and state budget decisions collide.
Affordable Care Act (ACA) Medicaid Expansion Cuts
Maryland’s ACA expansion covers adults earning up to 138% of the federal poverty level—$21,597 for an individual — with the federal government funding 90% of costs, compared to a 50% match for traditional Medicaid. For Maryland, lowering this rate could result in an annual funding shortfall of $900 million to $1.2 billion, according to estimates from Senate President Ferguson.
Block Grants and Per Capita Caps
Federal Medicaid matches state spending without a cap, adjusting to need. Block grants would lock funding regardless of enrollment, while per capita caps would limit funds per enrollee. Either could slash federal support over time, hitting Maryland’s healthcare during economic downturns.
Education Funding Pressures
Beyond healthcare, federal education programs like Title I, supporting low-income students, and IDEA, aiding special education, face potential reductions. Maryland relies on these funds to bolster local school systems, particularly in rural and urban counties.
Potential cuts could force the State to cover gaps or shift costs to counties, pinching local budgets already stretched by the Blueprint for Maryland’s Future.
Transportation Funding Risks
Federal highway and transit funds drive Maryland’s road and bridge maintenance, which is critical for counties. Scaling back these dollars would slow infrastructure fixes, affecting economic activity and quality of life, with counties potentially facing higher maintenance bills or deferred upgrades.
Housing and Community Development Impacts
The Community Development Block Grant (CDBG) program supports affordable housing and economic growth in Maryland’s distressed areas, particularly urban counties.
Trimming these funds could stall revitalization efforts, making it harder to address housing affordability and economic development. Counties might have to lean on local revenues, exacerbating budget pressures and limiting growth in struggling communities.
Shutdown Threat by March: A Heightened Risk
A temporary funding deal avoided an immediate shutdown, but the March deadline for a new continuing resolution keeps Maryland vulnerable.
With over 160,000 federal jobs and tens of thousands of contractors, Maryland is disproportionately impacted by federal funding lapses. The 2018-2019 partial shutdown demonstrated these risks, with Maryland workers missing $778 million in wages and the State losing millions in tax revenue.
Contractors, often without retroactive pay, could face even steeper losses, echoing past economic strain. Businesses tied to federal operations would also suffer, cutting state and county tax bases and threatening local economies, particularly in areas with high federal employment.
State and County Impacts: A Dual Squeeze
Medicaid, a state-run program, serves over 1.5 million Marylanders. Federal cuts could raise uncompensated care costs for hospitals, while fewer State resources might force local trade-offs in funding for schools, safety, and roads. Education, transportation, and housing cuts would further strain county budgets, potentially raising property taxes or cutting services.
State budget proposals already shift $264.4 million to counties (excluding losses from other programs), compounding federal pressures:
- A Budget Reconciliation and Financing Act (BRFA) provision and subsequent Department of Legislative Services recommendation would shift 100% of the State’s unfunded teacher pension liability onto county governments. Counties already pay the employer share costs, which were shifted onto counties in 2012 after deep, complex negotiations and effectively embedded into each year’s continuing funding requirements for each county.
- Adding insult to injury: The BRFA proposes cutting supplemental retirement grants under Aid to Civil Divisions by 50 percent in fiscal 2026 and eliminating them by fiscal 2027. The State initially pledged these grants in 2012 when it shifted a significant share of teacher pension costs to counties. This cut represents a $28 million loss statewide over two years.
- Counties reimburse the State for 50 percent of SDAT’s operating costs. The BRFA seeks to increase this share to 90 percent, imposing an additional $21 million burden on counties.
- The BRFA shifts $5 million in new costs for community college employee retirement onto counties despite counties never having paid any portion of these costs.
- The BRFA reduces the State’s share of nonpublic special education placement costs from 70 to 60 percent, shifting $25 million to local school systems. Counties absorb the impact.
- The BRFA proposes phasing out State funding for Enterprise Zone tax credits by June 30, 2025. This change impacts counties that rely on these credits to incentivize economic development in distressed areas. This provision will cost Baltimore City alone $100 million over the next 10 years.
More than two-thirds of Maryland residents live in counties that already impose the maximum 3.2% local income tax rate, leaving property taxes as the primary means of funding essential services. This reliance disproportionately impacts working families, exacerbates inequities, and worsens the state’s housing challenges, amplifying the fiscal strain from federal cuts.
What’s Next?
General Assembly leaders are postponing budget negotiations until Congress meets the March deadline for a continuing resolution, acknowledging that federal decisions — including executive orders and policy shifts — could significantly impact Maryland’s fiscal outlook. Given the uncertainty at both levels, a special session may be necessary to address funding shortfalls, cost shifts, and other fiscal challenges.
As the fiscal plan evolves, MACo will continue to oppose cost shifts and unfunded mandates that push additional burdens onto county governments. With counties already managing rising costs, workforce challenges, and constrained local revenues, absorbing new state obligations would only compound fiscal pressures.
As the General Assembly weighs difficult budget decisions, MACo remains committed to advocating for a fair, balanced approach that protects essential county services and ensures local fiscal stability.
Stay tuned to Conduit Street for more updates.
Useful Links
Previous Conduit Street Coverage: Gov’s Proposed Income Tax Overhaul: County-by-County Effects
Previous Conduit Street Coverage: DLS Fiscal Briefing Reveals Cost Shifts and Budget Challenges
Previous Conduit Street Coverage: Governor’s Fiscal 2026 Budget: Navigating County Effects
