In another sign of Maryland’s mounting budgeting challenges and the potential need for new taxes, officials said Thursday they’re expecting hundreds of millions of dollars less than previously anticipated by the end of the next fiscal year.
The state is on track to collect $255 million less than the most recent estimates for the 2024 and 2025 budgeting years, the Maryland Board of Revenue Estimates said.
Total revenue — a combination of income, sales and corporate taxes as well as lottery and other funding sources that make up nearly half of state coffers — is still expected to rise slightly, from $24.5 billion to $24.8 billion between the two years.
But that growth rate is far slimmer than normal. And the dimming revenue picture, at a time when the state was already facing a $3 billion structural deficit within four years, quickly highlighted a divide in Annapolis over how urgently to consider a menu of options to raise funds.
“It’s totally sobering,” said House Appropriations Committee Chair Ben Barnes, a Prince George’s County Democrat whose chamber has pushed for quick action on new funding mechanisms.
Senate leaders, who are releasing their amended version of Democratic Gov. Wes Moore’s budget offering Friday, say they’re focused on a more narrow plan to raise tolls on out-of-state drivers and electric vehicle fees for a ballooning transportation budget deficit. They have not ruled out larger-scale tax reform in the next two years but said it’s not necessary in the current session that will end April 8.
“We’re constantly thinking about what is to come next,” said Sen. Guy Guzzone, a Howard County Democrat who is his chamber’s top budget negotiator. “We’re always thinking about ‘What will the revenue estimates say next? How are we going to plan for the future? What are the values that we are committed to that we so strongly intend to support?’ All of those things, they all factor in,” Guzzone said. “For today, we’re in a good place.”
The revenue board’s latest announcement was the fifth consecutive time it has downgraded prior expectations as Maryland struggles to emerge from the pandemic — which led to an influx of federal funding — and to keep up with much-needed personal and corporate income tax revenues.
Between the board’s December meeting and Thursday, estimates for the current 2024 fiscal year were dropped by about $120 million and those for the 2025 fiscal year beginning July 1 dropped by $135 million, mostly because of sluggish personal income tax collections, the board said.
The 1.1% total revenue jump between 2024 and 2025 would be significantly less than the 3.6% between 2023 and 2024 or the roughly 4% average increase before the pandemic, the board said.
Comptroller Brooke Lierman and others said the full reason for the lag is unclear, especially with the state’s low unemployment rate and job growth. A combination of factors are likely responsible, including instability in Congress’ budgeting habits and federal monetary policy, she said.
“The economic data doesn’t point to any specific culprit driving down withholding tax revenues,” said Lierman, a Democrat who has stressed the need to reverse population trends and grow the state’s workforce.
Guzzone, who chairs the Senate Budget and Taxation Committee, said he and his colleagues have been anticipating the revenue downgrade and have planned for it in the budget plan they’re releasing Friday.
The original $63.1 billion proposal from Moore filled an immediate $1.1 billion cash shortfall and raised money for some existing programs while cutting from others, borrowing more and pulling from the state’s reserves. The governor has not proposed new funding solutions and said he has a high bar for raising taxes.
He’s also faced pointed questioning from lawmakers like Barnes about the need to find new funds, including for his own priorities like a new grant program to address child poverty or the Baltimore transit project known as the Red Line.
Budget Secretary Helene Grady, a member of the revenue board, reiterated the governor’s desire to focus on growing the economy rather than generating new revenue streams.
“These revenue trends continue to underscore the necessity of taking bold steps to improve our economy, create jobs and bring new businesses and population to Maryland,” Grady said.
Guzzone said the budget will be balanced using a variety of factors, such as giving the governor more flexibility to pull from the rainy day fund and tapping a “revenue volatility fund” that collects and reserves capital gains taxes to be used for downturns such as the one happening now.
The full 47-member Senate is expected to pass the plan next week. It will then move to the House, where the chamber’s 141 members will make further adjustments and negotiate on the disagreements.
That process could get contentious.
Del. Vanessa Atterbeary, a Howard County Democrat who chairs the tax-focused House Ways and Means Committee, indicated in a committee meeting Thursday that some officials are afraid to consider new revenue sources.
“For too long around here, the phrase ‘fiscal responsibility’ has been used to justify taking cuts. More recently, it has been used not to address a looming issue, seemingly out of fear,” Atterbeary said.
Lawmakers can keep their promises to fund major initiatives like education reform or, Atterbeary said, they can “give up.”
“I think it’s time that we get to work,” she said.
