State revenue outlook improves slightly, but ‘significant challenges’ with budget lie ahead

Maryland revenues will be slightly better than expected in the coming year, but not nearly high enough to blunt a multibillion-dollar budget deficit that will force “difficult trade-offs” as the state works through the budget, fiscal officers said Thursday.

And looming over the state’s fiscal picture is the uncertain impact the incoming Trump administration will have on the federal workforce, which plays a significant role in the state’s revenues.

“I am optimistic about Maryland’s economy, and the resilience of our economy,” Comptroller Brooke Lierman said at the Board of Revenue Estimates meeting where the numbers were presented. “But we are navigating in a sea of uncertainty as we approach the start of a new Trump administration.”

The board, which also includes the state treasurer and budget secretary, meets three times a year to review estimates of incoming taxes and other revenues for the state’s operating budget. The December meeting is typically a key to the budget wrangling that legislators will have to do in the General Assembly session that starts in January.

The board meeting came exactly one month after a meeting where state budget analysts told legislative fiscal leaders of an “enormous gap” in the budget, worse the those deficits in the Great Recession. Lawmakers were told then that the state faces a $2.7 billion budget gap in fiscal 2026, which will grow steadily until it reaches $5.9 billion in fiscal 2030.

The revenue report presented Thursday predicts the state will bring in $25.3 billion in fiscal 2025, the current fiscal year, and $25.4 billion in fiscal 2026, which will be the focus of budget negotiations in the legislative session that begins on Jan. 8. Those estimates were marginally better than the last estimates in September — up by 0.8% and 0.3%, respectively, or a little more than $262 million over the two years when total revenues will be more than $50 billion.

“Today’s modest positive upward adjustment to the revenue forecast is helpful, of course,” said Budget Secretary Helene Grady, another board member. “But it does not change the extraordinary challenge before us as we navigate fiscal year 2025 and prepare the fiscal 2026 budget.

“With regard to the state budget outlook for fiscal ’26, I can’t emphasize enough how significant the challenge is,” Grady said, adding that Thursday’s revenue presentation “doesn’t change it in any significant way.”

The revenues gains were largely driven by stronger-than-expected growth in wages and personal income, which is pushing up estimates for personal income taxes. They make up the largest part of operating budget revenues, followed by corporate income taxes and sales and use tax.

Robert Rehrmann, the director of the Bureau of Revenue Estimates, said that the growth in the state economy is slowing, but that “most importantly, we do not see an imminent sign of a recession that would cause us to significantly decrease our revenue expectations.”

He said that while the state’s labor market continues to grow, it is below pre-pandemic levels and growth rates of other states, with private-sector jobs growing the slowest. But while job growth is slowing, wages are increasing at a faster pace, Rehrmann said, driven in part by government salaries.

But officials at the meeting kept returning to the uncertainty President-elect Donald Trump brings to their forecasts. Trump campaigned on promises to cut the federal workforce and move federal agencies away from the Washington region to other parts of the country.

Such moves would present a challenge to Maryland. There are 161,000 federal civilian jobs in Maryland, and 240,000 households in the state reported $23.9 billion in federal government wages in tax year 2021, Rehrmann said. Those numbers to not include federal contractors, which are equal to about 10% of the state’s private-sector jobs.

Lierman acknowledged that Maryland needs to do a better job of growing private-sector employment and weaning itself off of its dependence on the federal government, but for now that’s the situation Maryland has to deal with.

“Sometimes people ask me, ‘Oh, this industry of the federal government, are we too dependent on it?'” Lierman said. “You know, states across the country have different industries that they rely on. Texas has oil and gas, we have the federal government.”

Grady said that state officials have been aware of a coming budget crunch for years, and that the administration has been working diligently to prioritize spending to “key investments.”

“When budgets are tough, our top priorities come more into focus,” Grady said. “There are difficult trade-offs we will have to make in the weeks and months ahead, but we remain focused on those key investments that protect the most core priorities.”