State Revenue Forecast Improves for Now, Softens Ahead

Maryland’s latest revenue forecast boosts revenues for the current fiscal year by $355.7 million but lowers projections for fiscal 2027 by $108.0 million as budget pressures continue to build.

The Maryland Board of Revenue Estimates (BRE) released its March update today, revising the State’s revenue projections as lawmakers continue to navigate a challenging fiscal environment. The latest forecast increases expected revenues for the current fiscal year by $355.7 million, while projections for fiscal 2027 decline by $108.0 million.

The three-member panel – Comptroller Brooke Lierman, Treasurer Dereck Davis, and Budget Secretary Yaakov “Jake” Weissmann – provides the official revenue estimates used to balance the State budget each year. The March update offers the General Assembly its final look at expected revenues before lawmakers finalize the fiscal 2027 budget.

While the near-term outlook improved for the current fiscal year, the downward revision for fiscal 2027 highlights the structural pressures lawmakers continue to confront as they finalize the upcoming budget.

Changes Across Major Revenue Sources

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The revised forecast reflects adjustments across several significant tax sources:

Personal income tax: Increased by $322.6 million, including $204.0 million in fiscal 2026 and $118.6 million in fiscal 2027. As Maryland’s largest revenue source, the personal income tax continues to drive overall collections. Stronger-than-expected estimated payments account for much of the increase, reflecting higher capital gains activity in tax year 2025. The BRE also noted that a growing share of personal income tax revenue now comes from more volatile nonwage income, which may contribute to larger forecast swings in the future.

Sales and use tax: Decreased by $372.0 million, including –$132.5 million in fiscal 2026 and –$239.5 million in fiscal 2027. Core sales tax revenues grew 4.8% year-to-date, stronger than the 2.4% growth recorded last year. Still, collections from the newer IT and data services tax remain below expectations, contributing to the downward adjustment.

Corporate income tax: Reduced by $70.6 million across the forecast period, reflecting weaker business profit expectations despite some recent stabilization.

Other revenues: Increased by $367.7 million, including $335.6 million in fiscal 2026 and $32.1 million in fiscal 2027, driven in part by higher-than-expected estate tax and interest income collections.

Economic Outlook and Uncertainty

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The broader economic outlook remains largely consistent with previous forecasts, with revenue officials expecting slow economic growth in calendar year 2026.

Labor market trends show a gradual slowdown both nationally and in Maryland. Average monthly US job growth has declined significantly over the past several years, falling from 377,200 jobs per month in 2022 to just 9,700 so far in 2025.

Regional employment trends mirror this slowdown. Maryland and the broader DC region have seen declining employment growth over the past two years, with federal employment reductions contributing to overall job losses.

Revenue analysts also highlighted ongoing uncertainty surrounding the US economy, federal policy decisions, and recent federal and State tax legislation, all of which could affect future revenue performance.

What It Means for Counties

For Maryland counties, revenue estimates matter beyond the State’s budget.

Local governments levy the local income tax as a “piggyback” on the State personal income tax, meaning changes in taxable wages and income directly affect county revenues. When income tax collections rise or fall at the State level, county revenues typically move in the same direction.

Unlike some past forecasts, the latest update does not reflect a significant writedown that would immediately force major changes to the State budget plan. However, the softer outlook for fiscal 2027 reinforces the broader fiscal pressures lawmakers must consider as budget negotiations continue.

At the same time, counties continue to face rising costs driven by inflation, workforce pressures, uncertainty around federal funding and policy decisions, and growing fiscal obligations under the Blueprint for Maryland’s Future.

Counties also operate within limited revenue authority and rely primarily on property taxes and the local income tax to fund core services such as education, public safety, infrastructure, and public health.

As lawmakers finalize the State budget, changes in the revenue outlook, combined with proposals that shift costs to local governments, could further shape the fiscal environment counties must navigate in the coming year.

Budget Decisions Ahead

The updated revenue estimates arrive as lawmakers continue negotiations over the State’s fiscal 2027 budget and the accompanying Budget Reconciliation and Financing Act (BRFA).

As previously reported on Conduit Street, several proposals under consideration would shift additional costs to local governments or alter funding formulas that support county services. With the budget process entering its final stages, policymakers must reconcile spending priorities with the updated revenue outlook.

MACo will continue to monitor developments and advocate for balanced solutions that avoid cost shifts and protect essential county services.

Stay tuned to Conduit Street for the latest updates.