Maryland's Death Spiral: Reckless Democratic Lawmakers Spark Budget Crisis Fears As "Deep Recession" Looms

Fiscally irresponsible policies pushed by far-left Democratic lawmakers have put Maryland, a deep-blue progressive state

by Tyler Durden

Fiscally irresponsible policies pushed by far-left Democratic lawmakers have put Maryland, a deep-blue progressive state, into a projected death spiral, with some warning that the state could soon face its worst fiscal crisis in two decades.

"The overarching takeaway from today's meeting is that there's an enormous gap between the ongoing spending commitments the state has made and ongoing revenues," David Romans, a Department of Legislative Services budget analyst, said in a presentation for lawmakers, including members of the Joint Spending Affordability Committee, earlier this month.

Romans warned the state will face "a significant challenge" in paying for those commitments.

"By fiscal 2030 — the final year of our forecast — we are showing the state will only have enough revenue to cover 84% of the expenses we're projecting the state to incur," Romans said, adding, "That is the largest gap that we have seen in the last 20 years. It is more significant than the Great Recession."

In 2008-09, Maryland, the state that borders Washington, DC, to the north and is known for the HBO hit series The Wire, was battered by a deep recession. At the time, budget projections had the state covering between 89% and 87% of its ongoing spending. Now, that figure is projected to be around 84% by the end of the decade.

The local media outlet Maryland Matters was the first to report on the looming budget crisis, warning that it could plunge the state into an economic disaster if the sinking ship is not righted immediately.

Stagnant revenues and ambitious spending could leave the state able to pay just 84% of its bills in five years, when the deficit could be in the billions, analysts say.https://t.co/tEKl8TuxZY

— Maryland Matters (@marylandmatters) November 13, 2024

Here's more from Maryland Matters:

Maryland faces more than $1 billion in combined structural and cash deficits in the current year. That gap more than doubles to $2.7 billion in fiscal 2026 and 2027.

By fiscal 2028, the state will exhaust the money set aside to cover the costs of education reforms, and will require money from the general fund. The structural deficit grows to nearly $4.7 billion in 2028, then $5.2 billion a year later, and again to $5.9 billion in fiscal 2030.

Senate Minority Leader Stephen S. Hershey (R-Upper Shore) called the outlook "pretty dismal."

"A $2.7 billion deficit is not something that, unfortunately, … you can just make up with cuts," Hershey said. "I hope that you can, but that's a pretty big gap. It makes it very concerning that the governor and General Assembly are going to have to raise taxes. I'm hoping that's not going to be the case, but I'm not sure how they can close that gap."

Tuesday's briefing was a stark reminder of budget pressures facing Gov. Wes Moore and a legislature controlled by Democrats.

An impasse between the House and Senate earlier this year led to a budget compromise that failed to fully address concerns. House leaders wanted a $1.3 billion tax and gaming proposal, while Senate leaders opposed broad-based taxes in favor of targeted increases. The result was a projected $1 billion structural deficit — the difference between expected spending and revenues — for fiscal 2026.

By July, those budget concerns were growing.

Moore proposed $150 million in budget adjustments this summer that were billed as cuts, but in reality reduced spending in several state agencies that was then shifted to cover costs of growing Medicaid enrollment and the state's child care subsidy program.

Multiple legislative sources said in July that Medicare spending alone could add $800 million to the projected deficits.

Moore and Senate President Bill Ferguson (D-Baltimore) said this summer that they had a "high bar" for any tax increase. Moore also warned county officials in August of the likelihood of tough budget decisions.

It comes as recent polling shows Marylanders are still feeling pinched economically. The issue was top of mind for many voters in Maryland and nationally during last week's election.

A spokesman for Ferguson said the Senate leader would have a comment on the fiscal briefing soon.

A stagnant economy

Over the next five years, ongoing expenses in the state budget are projected to grow at 6% annually, while revenues are projected to grow at around half that amount, legislative analysts said Tuesday.

Maryland's economy remains stagnant: The Board of Revenue Estimates said in September, in a first look at expected revenues for fiscal 2026, that taxes and other funds flowing to the state would grow by 0.9% over the current fiscal year.

"We have not seen a lot of employment growth," Romans told lawmakers. "We do have very low unemployment, but we're just not seeing much employment growth, and that's suppressing our revenues a little bit."

Coming state budgets will have to absorb billions in additional costs for education reforms in the Blueprint for Maryland's Future. The state also faces higher-than-expected costs for Medicaid, driven by inflation and increased enrollment, and greater demand for the state's child care subsidy program.

"So, all those additional spending pressures are leading to spending growing much faster than the revenues," Romans said.

"Significant long-term solutions" needed

Moore and lawmakers could draw down on the state's Rainy Day Fund. At $2.5 billion, the cash in the account is twice the statutory requirement of 5% of annual revenues. Taking half the fund would cover the gap projected for the current year and a portion of fiscal 2026.

The state could also suspend a requirement to set aside hundreds of millions to hedge against revenue volatility, and it could shift $250 million in cash to the deficit and opt to borrow money to pay for the already approved capital projects.

"If you did those three things, you can get through fiscal '25 without any really difficult decisions, and you solve roughly half the fiscal '26 problem," Romans said.

Those moves are not without risk, however.

First, Romans said Moore and lawmakers still face "an enormous problem in '26 and it grows dramatically by (fiscal) '28." That problem likely will require "significant long-term solutions."

Those include cuts to spending in,creased taxes, or both.

"You're not going to be able to just use the cash resources the state has to manage our way out of the problem," Romans said.

"This budget problem is not being driven by a recession," he said. "It's being driven by a somewhat stagnant economy and by our spending ambitions.

Advocates renew push for $1.6 billion tax plan

The cash options are a one-time fix.

"So, if you use the Rainy Day Fund and you get rid of the revenue volatility, you're eliminating two of the things that you sort of can rely on during recession to help mitigate the impacts of a recession," Romans warned.

"I would be cautious in using these strategies without having a longer-term plan to solve the budget problem, because if we were to fall into a recession in the next few years, you would have very few options left to deal with it, other than making substantial cuts." he said.

Advocates for a broad-based tax package proposed earlier this year seized on the briefing to renew calls for their plan.

"Now is the time to fix our tax system and ensure we have the revenue we need to fund the education, health, and public safety programs that make our communities stronger," Fair Share Maryland, a coalition of 40 organizations, said in a statement Tuesday. "The Fair Share Maryland plan reforms the state's upside-down tax system that currently gives unfair tax breaks to large corporations and the ultra-rich."

Advocates said the plan, as introduced in January, cobbled together a number of proposals from earlier, failed legislation. The largest revenue source — $576 million a year — would come from closing what advocates called "corporate tax loopholes." That includes counting corporations and their subsidiaries as one entity for tax purposes, preventing corporations from moving profits from one state to another state or country with a lower tax rate.

"Maryland leaves hundreds of millions of dollars on the table each year it fails to close corporate tax loopholes," the group said. "Our state policies also allow the wealthiest 1% of households in Maryland to pay a smaller share of their income in taxes than anyone else. This puts the burden for public services on working families and our small businesses."

The bill also included an increase in taxes for residents earning $1 million or more annually, as well as a 1% surcharge on capital gains.

"We can build a durable and resilient economy by righting our state's tax code," the group said. "Maryland can also raise $1.6 billion in revenue each year to support good schools, health care, transportation, and the state workforce needed to deliver high-quality services. Doing so will also cut taxes for more than 1 million Marylanders with a family income of $65,000 or less."

But the deficits projected 10 months ago were smaller. It is unclear how much the Fair Share plan would cut into the current projections.

Possible Trump effect looms

None of the projections outlined Tuesday included potential changes as the result of the 2024 presidential election.

President-elect Donald Trump has vowed to purge federal employees and move federal agencies outside the Washington, D.C., region. Montgomery County Executive Marc Elrich said last week that he ordered a review of potential impacts to the county budget, but predicted there would also be consequences for the state.

There are also concerns about funding for the replacement of the Francis Scott Key Bridge and the relocation of the FBI headquarters to Prince George's County.

One proposed project important to Moore – the Red Line rail system — was not mentioned. But Hershey said he does not believe the Trump administration will ever fund the east-west transit line.

"I think honestly, with the Trump administration coming in, essentially, for all intent purposes, the Red Line is dead," Hershey said. "We're not going to see federal funding for that."

Maryland receives about $19 billion annually in federal aid. That's in addition to the 256,000 residents – about 8% of all state taxpayers — who received some form of federal wages or pension payments in 2021, according to the Comptroller's Office.

The economy could also take a hit if Trump follows through with other proposals, including mass deportations and tariffs that analysts worry could trigger inflation and recession.

"We don't have any real way to model what they might propose to do, and a lot of those sort of things will require congressional action, so we'll certainly be monitoring that," Romans said. "There's certainly a significant risk to our economy."

Sending Maryland into a fiscal crisis is not a great look for Democrats and Governor Wes Moore. Moore has been pitched as a possible candidate for the presidential run in 2028. It's going to be a tough campaign for Moore - considering he can't even balance the state's budget as far-left politicians in the state spend taxpayer funds on illegal aliens and wokeism.

BREAKING: Frederick, Maryland Mayor Michael O’Connor announced he’s creating a fund using tax dollars to help illegals pay for legal fees to fight deportations once Trump takes office pic.twitter.com/XN5hFZ0NMZ

— Libs of TikTok (@libsoftiktok) November 26, 2024

Marylanders should recognize that the state's potential fiscal collapse could mirror that of Illinois. The common denominator in both states is that the leadership is mostly of radical left-wing policymakers, not based in reality.

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