BALTIMORE — The state is facing a $3 billion budget deficit that will likely overtake most of the talk when the Maryland General Assembly convenes Jan. 8 for the 2025 legislative session.
Lawmakers will have tough conversations for 90 days to decide where to make cuts, raise revenues or find other solutions.
Gov. Wes Moore, a Democrat, is scheduled to present his budget proposal on Jan. 15. Here’s what you need to know about how Maryland got into its dire financial situation.
Expenses exceed income
Maryland’s fiscal year 2025 budget is $63 billion – more than $20 billion more than nearly a decade ago. But the flow of money has not kept pace, and analysts have warned for years that cuts or more revenue will be needed to balance the budget, which is a legal requirement in Maryland.
“They have emphasized and tried to bring this to the attention of policymakers that they need to take action, and they have avoided making some tough decisions and that has made the problem worse,” said Benjamin Orr, CEO of the Maryland Center. about economic policy.
Billions in taxpayer-supported spending are mounting
The budget is filled every year with thousands of programs, both small and large, that keep government services running or create new areas of investment.
Funding for hospitals and schools, parks and roads, sports stadiums and business development.
The biggest new initiative in recent years that puts the most pressure on the state budget is the Blueprint for Maryland’s Future, a decade-long education reform plan that aims to expand early childhood education and elevate teachers, among many other priorities.
Democratic lawmakers who have said they are fully committed to making it a success have invested more than $1 billion in the past two years to keep it funded through the 2027 budget year.
But as of now, the bills due after that cannot be paid. Billions of dollars in planned investments in coming years have not been funded, making this the largest piece of the puzzle in a deficit expected to reach $6.3 billion in the 2030 fiscal year.
Inflation and the rising costs of government programs
Older programs also cost more. Entitlement programs such as Medicaid, subsidized child care and developmental disabilities have faced rising costs, putting further pressure on the budget.
The latest example of an unexpected hit to the budget deficit was an additional $350 million that the Maryland Department of Health’s Developmental Disabilities Administration is now expected to spend, which analysts with the state’s Spending Affordability Committee say exceeds projections for the coming financial year.
Senate President Bill Ferguson, a Democrat from Baltimore, said the increase is not due to improper spending but instead to rising health care costs, which are also reflected in the state’s Medicaid spending.
Maryland spends about $4 billion annually to reach about 1.6 million people through Medicaid. The cost of that coverage has exceeded budget expectations, partly due to changes in eligibility requirements after the pandemic. Moore made about $150 million in cuts to other parts of the budget in July to cover still-moving estimates for Medicaid and other programs.
A hesitancy towards revenue solutions
In the past, policymakers in Annapolis have been reluctant to make changes to broad taxes, such as income or sales taxes. They have taken some action on revenue plans, such as one that raised $126 million last fiscal year by charging big tech companies for digital advertising services. But others — expanding the sales tax and both personal and corporate taxes — were left on the cutting room floor.
That may not be the case in 2025, as lawmakers say the latest budget deficit means all options should be on the table.
A timid economy
On the tax side, slow economic growth in the state has led to smaller amounts of money coming in.
Several signs indicate that Maryland is underperforming compared to surrounding states and the nation as a whole.
The state’s gross domestic product grew 1.6% from 2016 to early 2023, a small amount compared to a rate of 13.9% for the entire U.S. during the same period, Comptroller Brooke Lierman reported earlier this year. A 1.2% increase in per capita personal income tax growth over the same time frame also trails neighboring countries and the national rate.
The workforce has also taken a hit since the pandemic, said Daraius Irani, an economist who is vice president of strategic partnerships and applied research at Towson University.
Irani said there are between 100,000 and 130,000 fewer workers participating in the Maryland labor market compared to before the pandemic. Add to that problems like high housing costs and an outdated public transportation system, and the state has failed to attract new workers.
“These are workers who would have contributed to Maryland’s productivity and economy,” Irani said.
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