Maryland’s budget continues to grow, but lawmakers have less flexibility than they once did. A growing share of State spending now goes toward a relatively small number of long-term commitments, leaving fewer dollars available for transportation, housing, public safety, environmental programs, and other priorities.

If it feels like every legislative session begins with another difficult budget debate, that’s because more of Maryland’s budget now goes toward costs lawmakers have little ability to change.

At the same time, temporary federal pandemic funding has largely disappeared, leaving the State to absorb more of those costs with general funds.

For counties, those fiscal pressures matter. They help explain why transportation funding remains under pressure, why the State continues to propose shifting costs to local governments, and why finding funding for new priorities has become increasingly difficult.

The latest Major Issues Review from the Department of Legislative Services provides a useful snapshot of how Maryland’s budget has changed and why lawmakers continue to face difficult fiscal choices.

The Short Version

• Maryland’s budget continues to grow, but budget flexibility continues to shrink.
• Three spending areas account for much of that growth: Blueprint education funding, Medicaid, and developmental disability services.
• The expiration of federal pandemic funding added additional pressure to the State budget.
• Together, those factors leave lawmakers with fewer options when balancing the budget.
• Counties often see the effects through transportation, local aid, and proposals to shift additional costs to local governments.

The Budget Picture Changed Quickly

Only a few years ago, Maryland entered the legislative term with historically strong reserves and projected structural surpluses.

That picture changed quickly.

Blueprint funding continued to phase in. Medicaid spending accelerated. Developmental disability services expanded. At the same time, billions of dollars in temporary federal pandemic aid expired, leaving Maryland responsible for costs that Washington had previously covered.

By the close of the 2026 legislative session, the projected structural deficit for fiscal 2028 exceeded $2.5 billion despite multiple years of spending reductions, revenue increases, transfers, and other budget actions designed to close the gap.

Three Spending Areas Drive Much of the Growth

No single program created Maryland’s fiscal challenges. Together, however, three significant spending areas account for much of the State’s recent spending growth.

Blueprint for Maryland’s Future

The Blueprint also creates growing pressure on the General Fund in the years ahead.

The State currently relies on the Blueprint for Maryland’s Future Fund to support many K-12 education enhancements. Beginning in fiscal 2028, however, DLS projects Blueprint spending will exceed the revenues dedicated to that fund, requiring an increasing share of those costs to shift to the general fund. That growing obligation is one of the primary drivers of Maryland’s projected structural deficits in the out-years.

Those investments reflect long-term State policy. They also leave lawmakers with less flexibility elsewhere in the budget.

Medicaid and Behavioral Health

One of the more surprising trends involves Medicaid.

Enrollment has declined since the end of the COVID-19 public health emergency, but spending continues to rise. General fund spending for Medicaid, the Maryland Children’s Health Program, and Medicaid-funded behavioral health services increased from roughly $3.9 billion in fiscal 2022 to nearly $5.5 billion in fiscal 2025.

Higher hospital costs, expanded behavioral health services, increases in provider reimbursement, and more expensive prescription drugs all contribute to the increase.

Medicaid, the Maryland Children’s Health Program, and Medicaid-funded behavioral health services now account for roughly one-fifth of Maryland’s general fund spending.

Developmental Disabilities Administration

Spending for community-based developmental disability services has nearly doubled in just a few years.

Total community services spending increased from approximately $1.7 billion in fiscal 2022 to more than $3.3 billion by fiscal 2025. The transition to a fee-for-service reimbursement model, provider rate increases, expanded services, and additional enrollment all contributed to the growth.

The Developmental Disabilities Administration provides services that help individuals with intellectual and developmental disabilities live, work, and participate in their communities. As demand for those services has grown, so has the cost of providing them.

Those costs became one of the most significant drivers of budget discussions during both the 2025 and 2026 legislative sessions.

Federal Pandemic Funding Went Away

The spending pressures did not stop with those three programs.

For several years, billions of dollars in federal pandemic aid helped pay for child care, public health, education, and other programs. As that funding expired, Maryland increasingly relied on general funds to continue many of those services.

The Child Care Scholarship Program illustrates the challenge. Expanded eligibility and higher provider reimbursement rates dramatically increased participation, even as federal support declined. Maryland eventually froze new enrollment and created a waiting list while lawmakers searched for additional funding.

Those federal dollars masked underlying spending growth for several years. Once they disappeared, the State budget absorbed the difference.

Why Counties Should Care

Counties build their budgets knowing many State decisions eventually affect local government.

When larger portions of the State budget become committed to education, Medicaid, developmental disabilities, and other mandatory spending, lawmakers have fewer options elsewhere. That pressure often shows up in proposals affecting county governments, whether through local aid, transportation funding, or shifting a larger share of State costs to local taxpayers.

Recent legislative sessions provide several examples. Counties have seen proposals to shift education and pension costs, reduce or restructure State aid, delay transportation investments, and look to local governments as part of broader budget solutions.

Understanding those budget pressures helps explain why so many county priorities eventually become budget debates.

Why This Conversation Isn’t Going Away

Maryland balanced its fiscal 2027 budget through a combination of spending reductions, revenue increases, transfers, and other budget actions.

Those actions improved the State’s near-term outlook. They did not eliminate the underlying structural imbalance.

As long as recurring spending grows faster than recurring revenue, lawmakers will continue making difficult budget choices. Transportation, local aid, county cost-sharing, and other county priorities will remain part of those discussions because they are among the few areas where policymakers still have meaningful discretion.

Bottom Line

The debate over Maryland’s budget extends well beyond annual revenue estimates or individual tax proposals.

The larger question is how the State manages long-term spending growth while continuing to fund transportation, public safety, infrastructure, higher education, local governments, and other priorities.

Understanding where the money goes helps explain why nearly every major policy debate in Annapolis eventually becomes a budget debate.

Stay tuned to Conduit Street for more information.

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.