This article was republished with permission from WTOP’s news partners at Maryland Matters. Sign up for Maryland Matters’ free email subscription today.
The General Assembly’s top budget analyst cautioned lawmakers against draining the state’s cash reserves to offset a nearly $1.5 billion deficit that has emerged in the coming fiscal year.
With lawmakers unlikely to raise taxes in an election year, one potential option for covering more than half the shortfall would be to pull $815 million from the state’s $2.3 billion rainy day account. But Department of Legislative Services budget analyst David Romans warned that could hurt the state’s bond-rating now and leave it unprepared for greater deficits in later years.
“I would put a plea out there that as you work on the thinking about your strategy for balancing fiscal ’27, that you try to make some headway for fiscal ’28,” when Romans said the budget challenge “is rather daunting.”
His comments came during a meeting Wednesday of the joint Spending Affordability Committee in one of the first briefings on the fiscal 2027 budget 0utlook.
Earlier this year, lawmakers passed a fiscal 2026 compromise budget that eliminated a projected $3.3 billion budget deficit through a combination of one-time fund transfers, budget cuts and $1.6 billion in taxes. Lawmakers believed that put them on solid ground for 2027, even though they knew that deficits in the billions could return in fiscal 2028 and beyond.
The latest budget projections hastened the return of those deficit projections by a year. After the projected fiscal 2027 budget gap of just under $1.5 billion, the structural budget deficit is expected to more than double in fiscal 2028 to $3.2 billion, before growing to $3.5 billion in fiscal 2029 and roughly $4 billion in fiscal years 2030 and 2031.
“This isn’t about resources—it’s about restraint,” Senate Minority Whip Justin Ready (R-Frederick and Carroll) said in a statement. “You can’t promise everything to everyone and then feign shock when the math doesn’t work.”
The largest driver of those costs is the K-12 education reform program known as the Blueprint for Maryland’s Future. Lawmakers will likely have to make adjustments to how the plan is implemented in order to bend the curve on ongoing costs.
“I think the bottom line here is Marylanders have nothing left to give,” said Delegate Jefferson L. Ghrist (R-Upper Shore), a House Appropriations Committee member. “The Democratic supermajority continues to take, with historic increases in taxes and fees and an insatiable appetite for spending. Meanwhile, the government continues to grow, so the problem only gets worse.
“As massive as a $1.4 billion deficit is, the long-term projections to pay for the Blueprint in the coming years are staggering,” Ghrist said. “We knew this in 2020 when the Blueprint bill passed. The truth is, no matter who is in the White House, it was always going to be this way.”
In the near term, Senate President Bill Ferguson (D-Baltimore City) said tax increases are off the table.
“This is not a time where we can go for increased revenues. Last session was brutal,” Ferguson said during a Wednesday morning interview on WBAL radio. “I think Marylanders are feeling costs everywhere, and so we are going to have to make some very hard decisions this year about how to bend the curve. We can’t keep this cycle up. This is not how we will grow, and growth is the only thing that will ultimately get us out of this.”
Republicans, however, said they fear more tax hikes are in the offing – if not now, then soon.
“The 2026 session will be an Election Year Budget, and Democrats will do everything possible to paper over the problem until after November,” Ready said in his statement. “But Marylanders deserve honesty. Even if they delay new tax hikes this year, the out-years will be brutal. These programs are growing faster than our economy — and the bill is coming due.”
While dealing with the budget, Ferguson and the General Assembly also face the potential for a special legislative session to redraw the state’s eight congressional districts. Ferguson has opposed the effort, and in a statement to Maryland Matters, he implied that such a session would be a distraction from the budget.
“The highest and best use of the General Assembly’s time is keeping Maryland on strong fiscal footing by lowering costs for Maryland families and addressing the $1.4 billion structural deficit so we can meet our constitutional obligation to pass a balanced budget next session,” Ferguson said.
In Wednesday’s briefing, analysts presented a scenario in which lawmakers would pull nearly $1 billion from two accounts, the largest being the $815 million from the state’s rainy day account.
State law requires a minimum balance of 5% of general fund revenues be in the fund, which is meant as a bulwark against a severe economic downturn. Currently, the fund has $2.3 billion, about 8% of general fund revenues. By drawing down the fund, lawmakers could trim the projected deficit to a more manageable $500 million.
“There are a number of downsides to that, but I want to highlight one: It does not provide any structural relief,” Romans said. “So, it doesn’t do anything for solving fiscal ’28.
“It also means you’ve spent that $800 million, so it’s not there to help you in the ’28 problem and it also isn’t there if we go into an actual recession, which is certainly a risk with the various federal cuts that seem to be continuing,” he said.
Romans described the balance as “pretty healthy” but added the amount is “is lower than typical for most of the other AAA-rated states.”
An October review of reserves held by all 50 states found Maryland could run state government for 29 days, compared to a 50-state median of 47 days, according to the Pew Charitable Trust Report.
Draining the reserve account to the bare minimum might harm the state’s credit rating. For more than five decades, the state enjoyed the highest rating from the three major bond rating agencies. Governors and lawmakers pointed to the so-called “triple triple-A bond rating” as a sign of their fiscal stewardship.
That changed in May, when Moody’s downgraded the state’s credit rating to Aa1.
The two other firms — Fitch and Standard & Poor’s — continued to give the state their highest rating. But both raised concerns about the costs of state government programs, including the Blueprint and pensions. They might take a dim view of the state tapping the rainy day fund rather than addressing ongoing costs and revenues, Romans said.
“The rating agencies that continue to rate us as AAA on our bonds have expressed concern,” Romans said. “One, about our structural budget challenge in the out years, and two, they’ve noted that our rainy day fund balance, while, pretty healthy at 8% for Maryland, is lower than typical for most of the other AAA-rated states. So, I think they would have concerns if we raid the rainy day fund balance, take it all the way down to 5% and aren’t making much progress on the structural challenge.”
