Deep Dive: US Senate Passes Sweeping Reconciliation Bill — State, Local Fallout Ahead

This article is part of MACo’s Policy Deep Dive series, where expert policy analysts explore and explain the top county policy issues of the day. Read all of MACo’s Policy Deep Dives.

Update: The OBBBA was signed into law on Friday, July 4, 2025, marking the first significant tax package of the president’s second term.

The US Senate passed the One Big Beautiful Bill Act (OBBBA) this week, a massive budget reconciliation package with significant implications for Maryland counties, including changes to the tax code, rollbacks of clean energy initiatives, and substantial shifts in Medicaid and SNAP costs.

As previously reported on Conduit Street, the US House of Representatives passed its version of the bill last week.

The Senate version includes deeper cuts to federal programs, such as Medicaid and SNAP, and expands tax breaks, reshaping the federal-state partnership in healthcare, nutrition, and infrastructure.

Several provisions align with the House-passed version, while Senate leaders added or modified others to gain support, including adjustments to energy tax credits and the removal of a House-proposed 10-year moratorium on state and local AI regulation.

House leadership must now decide whether to accept the Senate bill or push for a conference committee to reconcile the differences.

Massive State and County Fiscal Risks

While the reconciliation package includes some provisions of interest to counties — like rural hospital support and federal land energy revenue sharing — the bill presents significant fiscal risks for Maryland and its counties:

  • Medicaid Work Requirements and Redeterminations: The bill would impose work requirements on Medicaid recipients ages 19 to 64 and require states to verify eligibility every six months instead of annually. Maryland could see over 130,000 residents lose coverage, triggering demand for uncompensated care and other services. By early 2027, work requirements will take effect. Some states may institute work requirements sooner if they obtain a specified waiver.

  • Provider Tax Cap Phase-Down: The Senate bill phases down the Medicaid provider tax cap from 6% to 3.5% by 2031 — a move that undermines state financing mechanisms. Maryland’s hospital and MCO assessments would require restructuring, potentially resulting in a yearly loss of hundreds of millions of dollars in federal matching funds.

  • SNAP Cost Shifts and Administrative Burdens: The Senate plan would shift a portion of SNAP benefit costs to states with high error rates, potentially costing Maryland over $200 million annually. The State would also be required to cover 75% of SNAP administrative costs, up from 50%, at a projected added cost of $80 million. In fiscal year 2027, states’ shares of administrative expenses for SNAP will increase from 50 percent to 75 percent. In fiscal year 2028, states will begin paying for SNAP benefits depending on their “error rate,” or how much they over- or underpaid on benefits in previous years. ​For the first round of payments, states can choose to use error-rate data from fiscal years 2025 or 2026 to determine their share. However, from 2029 onward, states will use data from three years prior to calculating their annual cost-sharing amount.

  • SALT Deduction Cap Adjustments: The bill raises the State and Local Tax (SALT) deduction cap to $40,000 for taxpayers making under $500,000, reverting to $10,000 after five years. While the increase could offer short-term relief for Maryland filers, it would narrow the State and county income tax base by encouraging more taxpayers to itemize, reducing federal AGI, and shrinking Maryland taxable income.

  • Inflation Reduction Act Rollbacks: The Senate bill eliminates clean energy tax credits for projects that begin construction after June 2026 or come online after 2027. Electric vehicle credits would phase out in 2025. These rollbacks risk slowing down energy transition projects already underway across the state.

  • Federal Match Cuts for Immigrant Health Coverage: The bill prohibits federal match for Medicaid services for recent green card holders and other immigrants for five years, threatening Maryland’s Healthy Babies Program and triggering potential penalties, including a 10-point reduction in Maryland’s ACA match rate, at a cost of up to $250 million per year.

New Provisions in the Senate Version

  • Tax Deduction for Tips and Overtime: Workers making under $150,000 could deduct up to $25,000 in tips and overtime. This deduction expires in 2028.

  • Auto Loan Interest Deduction: Car buyers could deduct up to $10,000 per year in interest for US-assembled vehicles, subject to income limits. This provision runs from 2025 to 2028.

  • Education Accounts: Parents could contribute $1,000 at birth and $5,000 annually to tax-deferred accounts similar to 529 plans, with funds usable for education, training, and home purchases.

  • Rural Hospital Fund: The bill doubles the Rural Hospital Fund from $25 billion to $50 billion to help offset Medicaid cuts in rural areas.

  • Defense and Border Spending: The package includes $150 billion in defense spending and $170 billion for border security, including money for new ICE agents, detention beds, and a border wall.

Provisions Removed After Senate Review

  • The US Senate struck the controversial 10-year federal ban on state and local regulation of artificial intelligence after bipartisan backlash.

  • Senators removed a provision that would have prevented courts from enforcing injunctions without a bond.

  • Excise taxes on solar and wind, added in the House, were dropped.

  • Senators removed proposals to restrict Medicaid from covering gender-affirming care and to penalize states offering undocumented health coverage.

Governor Moore Reacts

Governor Wes Moore blasted the Senate bill, calling it “one of the worst bills for working families our country has ever seen.” He warned it would jeopardize care for nearly 200,000 Marylanders on Medicaid and food assistance for more than 684,000 residents, shifting costs to the State and counties while delivering windfalls to the wealthy.

Lawmakers in Annapolis continue to assess the full impact of the legislation, including ripple effects on federal grants, Medicaid match formulas, and program compliance rules.

As previously reported on Conduit Street, the Department of Legislative Services previously estimated Maryland could face more than $700 million in new annual costs under earlier versions of the reconciliation package — a figure likely to rise under the final Senate plan.

What’s Next

The reconciliation bill now heads back to the House, where Speaker Mike Johnson must decide whether to accept the Senate-passed version or send the legislation to a conference committee to reconcile differences. With the debt ceiling tied to final passage, the political pressure to close a deal remains intense.

Counties should prepare for significant shifts in federal-state fiscal partnerships — especially for Medicaid and SNAP — and brace for changes that could reshape local budgeting, public health services, and social support systems for years to come.

The National Association of Counties (NACo) has offered dedicated coverage on the county effects of the sweeping bill and will continue its coverage as Congress moves toward final action.

MACo will continue to monitor the federal budget process and provide updates as new information becomes available.

Please note: The information presented in this article reflects the most current analysis available at the time of the Joint Committee on Federal Relations meeting. Many of the proposals discussed — including reconciliation provisions, appropriations actions, and federal agency directives — remain subject to change as Congress continues to negotiate and finalize legislation. Fiscal impacts, program requirements, and funding conditions may shift as new details emerge. MACo will continue monitoring developments and provide updates as they become available.

Previous Conduit Street Coverage

Medicaid, SNAP, SALT: Joint Committee Reviews Billions in Federal Budget Risks to Maryland

Clock Ticking on “Big Beautiful Bill”

Comptroller Report: Federal Spending Tops $150B in Maryland — Local Impacts Loom Large

Deep Dive: US House Passes Reconciliation Bill — What it Means for Counties

US House Passes 10-Year Ban on State and Local AI Laws

Medicaid Reform Calling: What’s on the Line for Maryland?

House Passed “Big Beautiful Bill,” May Slow Renewables Development

Moody’s Downgrades US Credit Rating, Signals Economic Strain

Maryland’s Fiscal Outlook: Balancing State Budget Challenges and Priorities

As Maryland navigates uncertain economic terrain, staying ahead of fiscal and policy shifts is critical for counties on the front lines.

At the 2025 MACo Summer Conference, Maryland Comptroller Brooke Lierman will sit down with MACo Executive Director Michael Sanderson for a candid, forward-looking conversation on the State’s fiscal outlook.

MACo’s Summer Conference is August 13-16, 2025, at the Roland Powell Convention Center in Ocean City, Maryland. This year’s theme is “Funding the Future: The Evolving Role of Local Government.” For more information, please visit the conference website.

Learn more about MACo’s Summer Conference: