Legislative budget analysts are warning of a $1.4 billion budget gap for fiscal 2027, driven by federal economic policies, that is projected to grow to almost $4 billion over the next five years.
Lawmakers will be briefed Wednesday on a $1.4 billion budget gap they could face as they head into the 2026 legislative session, roughly five times larger than the amount predicted in April.
The briefing for House and Senate fiscal committees by the Department of Legislative Services blames the projected cash shortfall on national economic pressures, chiefly inflation and the rising costs of goods and services to state government, as well as the ever-increasing costs of Medicaid. Additionally, the state is seeing other costs driven by tariffs imposed on imported goods by the Trump administration.
The news comes after a 2025 legislative session where Gov. Wes Moore (D) and the General Assembly were able to close a $3.3 billion structural deficit through a combination of one-time fund transfers, tax increases and budget cuts. When they wrapped up the session in April, they expected the conversation over the fiscal 2027 budget would include a manageable $300 million structural deficit.
State fiscal leaders said the new numbers are clearly concerning, but they also caution that this is just the first in a series of economic forecasts before they have to settle on a fiscal 2027 budget.
“What they’re going to present tomorrow is sort of the worst-case scenario, literally at a point in time,” Senate Budget and Taxation Chair Guy Guzzone (D-Howard) said in an interview.
House Appropriations Chair Ben Barnes (D-Prince George’s and Anne Arundel) said fiscal leaders are “sort of surprised, but we’re sort of not.”
“We did what we could do in Maryland to resolve this for fiscal ’27 but we don’t control the national climate, and we don’t control all the fiscal uncertainty that our nation, frankly, is facing,” Barnes said.
The numbers presented tomorrow are subject to change. The Board of Revenue Estimates will update its revenue forecasts in December and again in March.
“The whole thing is concerning — losing up to $1.5 billion in revenue based on the negative actions of a federal government,” Barnes said. “It’s not just concerning that we’ve lost the $1.5 billion. It’s pretty concerning that they’ve [the Trump administration] only been in office 10 months.
“I think it’s something we’re all just going to have to hedge and do our best and try to continue to protect the programs that get to people and help people and sustain us over these next few years,” he said.
Senate Minority Leader Stephen S. Hershey Jr. (R-Upper Shore) on Tuesday said Democrats were once again “blaming the Trump administration for Maryland’s growing fiscal disaster.”
“The truth is, this crisis was created here at home — by reckless spending, failed leadership and political posturing,” Hershey said. “Instead of confronting the state’s looming multibillion-dollar deficit, the governor is consumed with national politics and partisan redistricting schemes.”
The impact of the federal government shutdown, now in its seventh week, is not included in the briefing documents reviewed by Maryland Matters, and may not be fully known until the Board of Revenue Estimates releases a final outlook in March.
The new projections do account for the expected loss of state revenue due to an increase in the state and local tax deduction that was part of a signature tax package proposed by President Donald Trump and passed by a Republican-led Congress this summer.
A 2017 law passed during Trump’s first term set the deduction at $10,000, which benefited Maryland to the tune of about $300 million more each year.
The new deduction — $40,000 — erases that advantage. The Board of Revenue Estimates in September projected the state will lose $118 million in the current year as a result of the change, more than $71 million in fiscal 2027 and another $30 million the following year.
Revenues begin to tick up for three years starting in fiscal 2029, but nowhere near the amount to offset the $300 million annual gain under the 2017 law.
The Board of Revenue Estimates projected a small 1.7% increase in revenue for fiscal 2027. Weeks after that prediction came out, the record-setting federal government shutdown began. The briefing documents also note that Maryland has lost more federal jobs this year because of federal workforce reductions than any other state.
The combination is causing many to be pessimistic about the Board of Revenue Estimates’ December update, the last revenue forecast before Moore delivers the budget to the legislature in January.
An ever-expanding decade-long set of K-12 education reforms, known as the Blueprint for Maryland’s Future, will exhaust a trust fund account that had been set up to fund the reforms. Those costs will drive billions in projected out-year deficits. The program will then have to either be pared back or paid for using billions in general fund revenues or higher taxes.
One solution likely not on the table in an election year is a discussion of tax increases or other “revenue enhancements.”
The state has a rainy day fund of roughly $2.3 billion, about $800 million more than the 5% of general fund revenues required by law. The 73-page briefing report notes that lawmakers could reduce the deficit by using $815 million in rainy day funds, a one-time fix that does not resolve the gaps, which grow over the next five years of the forecast.
But dipping into the fund brings its own set of concerns. First, there is a looming budget crunch forecast for post-election fiscal 2028, when the structural budget deficit is projected to be nearly $3.2 billion. It grows from there to nearly $3.5 billion in fiscal 2029 and roughly $4 billion in fiscal 2030 and 2031.
Additionally, there are constant concerns about how bond rating agencies will view tapping the fund.
By Bryan P. Sears
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