Maryland closed fiscal 2025 with a $521 million surplus — a short-term win that masks deep volatility and looming deficits with significant consequences for both State and county budgets.

Maryland closed fiscal 2025 with general fund revenues $521 million above estimates, according to the Department of Legislative Services (DLS) presentation this week to the House Appropriations Committee. However, the details reveal both the volatility of Maryland’s revenue base and the risks that lie ahead for State and county budgets.

What Drove the Surplus?

Personal income tax collections exceeded expectations by $264 million, primarily from non-wage income sources, such as capital gains.

Wage withholding also exceeded projections, growing 6.5% compared to the 5.5% estimate, thanks in part to the delay of significant federal job cuts until late 2025. Miscellaneous revenues, including $112 million from unclaimed property, also contributed to the higher totals.

Altogether, general fund revenues grew 4.1% over fiscal 2024.

Where the Money Went

State leaders directed the $521 million surplus toward reserves rather than ongoing services:

• $139 million to the General Fund balance

• $191 million to the Rainy Day Fund

• $191 million to the Fiscal Stabilization Fund for future school and higher education capital projects

Maryland’s Rainy Day Fund now totals approximately $2.4 billion, with a general fund balance of $271 million.

OBBB Looms Large

The One Big Beautiful Bill (OBBB), the federal reconciliation act passed earlier this year, dramatically alters Maryland’s fiscal outlook. While the closeout added cash, OBBB changes will reduce both revenues and increase spending starting in FY26.

Revenues

DLS had assumed that OBBB would boost revenues by $40 million in FY26 and $300 million annually in later years.

However, as previously reported on Conduit Street, the Comptroller’s 60-Day Report shows the opposite — projecting losses of $78 million in FY26 and $71 million in FY27, with only minor gains in subsequent years. The shift primarily stems from the expanded $40,000 SALT deduction cap for tax year 2025 and corporate provisions that reduce collections.

Spending

On the spending side, OBBB increases the State match for SNAP administrative costs from 50% to 75%, adding at least $58 million in FY27 and rising to $169 million annually by FY28. At the same time, Medicaid costs also increase due to new redetermination requirements.

Structural Trouble Ahead

DLS projects general fund deficits starting in FY27:

• $277 million shortfall in FY27
• Growing to nearly $3.6 billion by FY30

Even with $323 million in cash reserves and $2.3 billion in the Rainy Day Fund for FY26, these gaps indicate that Maryland cannot rely solely on surpluses to cover rising costs.

County Takeaway

Personal income tax remains one of the most reliable revenue sources for counties, and the closeout numbers confirm just how volatile it can be.

The FY25 surplus came mostly from non-wage income like capital gains — a boost that counties can’t count on from year to year. At the same time, looming federal job cuts and changes under OBBB add more uncertainty.

As previously reported on Conduit Street, the Comptroller warned that OBBB reshuffles income tax flows in ways that bring immediate losses and persistent volatility for both the State and counties. Pair that with Maryland’s projected structural deficits, and counties face renewed risk that Annapolis will look to shift costs onto local governments.

Heading into the 2026 legislative session, MACo will emphasize the risks to county budgets, advocate to protect local revenues, and press Annapolis for a stable fiscal partnership that avoids unfunded mandates and supports counties’ ability to deliver essential services.

Stay tuned to Conduit Street for more information.

Related Conduit Street Coverage

MD Comptroller: OBBB Triggers Volatility in State, Local Revenues

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