Maryland dealing with $3 billion budget gap

The AAA-rated state of Maryland is facing an overall $3 billion budget shortage blamed on slow growth, rising Medicaid payments and the end of pandemic relief funding as the Governor resists raising taxes.  

“I do have a very high bar when it comes to revenues, and we are not going to grow an economy on the backs of working Marylanders,” said Democratic Gov. Wes Moore during a press conference on Wednesday. 

“I inherited a structural deficit when I became the governor, because the state was both spending at a clip that was not sustainable, and we were growing at a clip that was embarrassing.”  

The opening moves of the budget battle are marked by a $27.2 billion general fund balance at the beginning of the state’s first 90-day General Assembly of the new year.  

The governor is expected to unveil his proposed solution to the problem next week, which takes aim at cutting $2 billion from the $3 billion problem.

Maryland Republicans responded to Moore’s pledge to avoid income tax increases by refusing to support any kind of revenue raising. 

“We are not going to be supporting any type of tax or fee increases at all, period,” said Senate Minority Leader Steve Hershey.

The biggest target for the cuts is the state’s Blueprint for Maryland’s Future program which funds educational efforts, a move opposed by the state’s teachers’ unions. 

Scaling back environmental efforts is another area of interest as policy changes are expected in Washington.    

Eliminating the green energy programs spawned by the Inflation Reduction Act has emerged as a way to cut an estimated $700 billion from the federal budget deficit, a move that could trickle down to the states looking for reimbursements from the feds.  

Maryland’s budget challenge is a slow-rolling boulder on the state’s credit landscape as Moody’s rang a warning bell in October. The agency applied a negative outlook on a $413 million Maryland Stadium Authority issuance of school bonds that carried an Aa2 rating.

In September Moody’s upgraded the Maryland Stadium Authority’s, Built to Learn Bonds to Aa2 from A1while also applying a negative outlook. 

Per Moody’s analysis at the time, “Maryland’s negative outlook incorporates difficulties the state will face to achieve balanced financial operations in coming years without sacrificing service delivery goals or increasing the tax burden on individual and corporate taxpayers.”  

In May Moody’s changed the state’s overall credit rating outlook to negative from stable due to a depletion in the state’s general fund surplus. 

Maryland’s problems may be the start of a trend as the new administration assumes control while looking for ways to ease its own budget issues. 

According to analysis released on Tuesday by S&P Global Ratings, “In 2025, states must be prepared to navigate uncertain waters.”  

“A change in administration in Washington, D.C. typically ushers in policy and administrative changes, and the political rhetoric from president-elect Trump leads us to believe that this transition will be more disruptive than average.” 

S&P’s report ranks Maryland in 33^rd place for is available reserves per percentage of revenue rating with a ratio less than 20%.  North Dakota has the highest with over 100% while Kentucky has the lowest at less than 10%.