With the 2026 Legislative Session on the horizon, MACo is profiling significant issues likely to command attention in Annapolis. At the center sits the State budget, where slowing revenues, rising obligations, and shrinking flexibility will drive many of the toughest decisions facing counties and the General Assembly.
The 2026 legislative session opens with a challenging budget picture. The Department of Legislative Services lays it out plainly in the annual Issue Papers. Revenue growth slows. Spending commitments keep climbing. Gaps widen quickly beyond the near term.
DLS estimates a general fund shortfall of about $1.6 billion in fiscal 2027, with larger deficits in the out-years. Education formulas, Medicaid, and other entitlement programs account for most of the growth. One-time actions and reserve transfers help manage the immediate gap, but they do not change the long-term direction.
The Spending Affordability Committee’s 2025 Interim Report sharpens that warning. Even after assuming continued use of reserves and other temporary tools, the committee projects a cash shortfall of roughly $1.6 billion in fiscal 2027. That gap grows to nearly $4 billion by fiscal 2030. Structural deficits track the same pattern.
For counties, those numbers matter because budget pressure rarely stops at one level of government.
What Fiscal Pressure Looks Like for Counties
When budgets tighten, counties carry the load. Counties stretch limited dollars across more services, wait longer for reimbursements, and absorb new requirements after local budgets are already locked in.
Each shift forces counties to rebalance budgets as inflation, workforce shortages, and rising service costs intensify. Counties manage these trade-offs routinely. They do not exist only on paper.
DLS points to several trends that increase county exposure:
- Education and health costs that grow faster than ongoing revenues
- Increased reliance on deficiency appropriations
- Federal policy changes that shift funding levels or timing
- Capital dollars redirected to support operating needs
None of these pressures reduces county responsibilities. Schools remain open. Emergency services respond. Human services continue without pause.
Cost Shifts Create Real Budget Risk
The Issue Papers show a consistent imbalance. Spending grows faster than recurring revenues across the forecast window. That mismatch creates pressure to shift costs rather than address the gap directly.
Counties see the results firsthand. Programs expand or change. Funding assumptions move. Administrative costs follow. Counties absorb the difference.
Cost shifts may close a budget gap on paper, but they complicate local planning and blur accountability. When decision-making authority and funding responsibility drift apart, transparency suffers.
Federal Uncertainty Adds More Pressure
Federal policy changes add another layer of risk. DLS highlights delayed federal funding, new cost-sharing requirements, and eligibility changes tied to recent federal actions.
Counties administer many of these programs every day. When guidance arrives late or funding changes midyear, counties still deliver services. Counties still pay staff, operate facilities, and keep programs running while reimbursement questions linger.
That uncertainty undermines responsible budgeting and raises the risk to essential services.
Short-Term Fixes, Long-Term Consequences
The Spending Affordability Committee outlines several ways to close near-term budget gaps, but none address the underlying problem.
Using reserves
The committee assumes continued use of the Rainy Day Fund, including transfers to maintain balances at approximately 8% of general fund revenues. Even with that cushion, the State still faces a $1.6 billion cash shortfall in fiscal 2027.
Drawing reserves buys time. It does not realign ongoing spending with ongoing revenues. It could also leave less capacity to respond to a recession or further federal disruption.
Relying on one-time actions
The report shows growing reliance on one-time budget actions, including cash transfers and accounting adjustments. These tools close gaps temporarily but widen structural deficits in later years. By fiscal 2030, ongoing revenues cover only about 90% of continuing spending, even after these measures.
Shifting capital resources
The committee flags continued pressure to redirect capital dollars to support operating needs. That choice weakens long-term infrastructure planning and crowds out future investment. It also increases pressure on counties when capital support slows or shifts.
Borrowing to preserve cash
The capital plan assumes annual general obligation bond authorizations of $1.75 billion. Current debt metrics support that level, but heavier reliance on borrowing to preserve cash limits future flexibility and competes with local capital priorities, including school construction and transportation.
Spending Affordability Recommendations
The committee does not call for expanding spending to meet demand. It calls for restraint.
The report urges lawmakers to cut the projected fiscal 2027 structural gap in half, align ongoing spending with ongoing revenues, and preserve reserves given economic uncertainty, federal job losses, and reduced federal disaster assistance.
The message stays consistent throughout the report. Temporary fixes delay hard decisions. Structural imbalance drives long-term risk.
For counties, that risk shows up in familiar ways. Delayed reimbursements. Revised assumptions after budgets pass. Growing pressure to absorb costs tied to decisions made elsewhere.
Why County Budget Security Matters in 2026
These dynamics place County Budget Security squarely among MACo’s top legislative priorities for the 2026 session, as counties face mounting exposure from budget decisions made beyond the local level.
Rising deficits already limit flexibility. Cost shifts and unpredictable reimbursements complicate long-term planning. Counties cannot manage budgets responsibly when funding rules change after budgets take effect.
The initiative calls for:
- Protection against new cost shifts
- Predictable and transparent reimbursement structures
- Clear alignment between program decisions and funding responsibility
- Respect for the fiscal constraints counties already manage
These principles support stable local budgets and reliable public services.
The County Perspective: Local Budgets at Risk
Counties already face significant pressure from Blueprint for Maryland’s Future mandates and other growing demands. Little capacity exists to absorb additional strain tied to broader budget gaps.
Reductions in aid, new unfunded mandates, or shifted costs force difficult local choices that affect education, public safety, infrastructure, and other core services counties deliver every day.
