Balancing the Maryland Budget in Extraordinary Times by Hugh Panero

Balancing the state budget in extraordinary times is hard. It is an ugly game of Whack-a-Mole. A large percentage of the expenses are baked into the budget based on prior legislative initiatives. Then, you take a whack at projecting revenue during a weak economy, manage the General Fund, which consists of revenue not dedicated to a specific purpose, and the Special Fund, which is dedicated to particular purposes. After a few more whacks at capital costs, you wrestle with budget cuts, and adding more revenue through tax modifications and increasing fees.

Then you factor in what the crazy guy in the White House is doing to the economy and the federal government, and how that will impact Maryland. Good luck with that. 

This is why being Governor is not easy. You struggle with challenging issues that require balancing various human and financial priorities while protecting the most vulnerable. Meanwhile, at the federal level, the GOP wants to cut such programs to fund a tax cut extension for the wealthy, adding trillions to the national debt. It is always rich when billionaires getting a tax cut ask everyone else to do more with less.

Another grim reality has also set in. Marylanders, including myself, have taken for granted the economic benefits afforded to Maryland due to its proximity to the federal government. Unfortunately, we are now experiencing the painful flip side of that coin as we watch the White House drop several nuclear financial bombs with a blast radius and shock wave that hits Maryland first and hardest.

The thoughtless gutting of the federal government has significantly added to Maryland’s financial problems. There are 160,000 federal workers in the state, many of whom own or rent homes in Maryland, pay taxes, and spend money, which helps fuel the state economy. Think of all the businesses and people you know, lawyers, lobbyists, contractors, scientists, and real estate professionals who provide services directly or indirectly to the federal government. Now, imagine a 30,000 reduction in federal workers who live in Maryland and its impact on our state. 

Critics of the state budget are angry at Moore and the General Assembly for tax increases that were part of a difficult effort to balance the $67 billion 2025 budget. The budget included $1.6 billion in tax and fee increases and $2 billion in spending reductions to address the $3.3 billion budget deficit. Some even called for a DOGEing of Maryland’s government institutions and “scared cows”. We have seen how badly that has worked out at the federal level.   

I supported Governor Moore and voted for Hogan twice. Nobody likes tax increases, including the Governor, but balancing any budget with a $3.3 billion deficit is challenging. Criticizing how he did it is fair game, but it’s easy when you’re not in the room doing the math. For example, I would have liked to have seen a reduction in the corporate tax, but realize when you are turning  over rocks looking for revenue, its hard to give up a chunk.

Some Republicans fantasize about Hogan running again for Governor in 2026 against Moore. Hogan fanboys and GOP strategists would love to brand Moore as a tax-and-spend Democrat, which is unfair. Serious problems are impacting Maryland, and issues like slow business growth have existed for a decade, during Hogan’s two terms and Moore’s short tenure in office. Members of both parties have acknowledged this, so let’s focus on the six key budget challenges ahead.

1- Maryland’s economy is stagnant and must improve. Last year, Comptroller Brooke Lierman issued a State of the Economy Report. Maryland’s economy began slowing in 2017 and rebounded sluggishly from COVID-19. At the time, she reported low unemployment of 1.8%, which today is 3% and will be further impacted by federal workforce reductions. Our state relies too heavily on the federal government (the top employer) to drive our economy, and we need more private sector jobs and business income. Maryland’s average household income was a healthy $108,200, ranking high nationally. Unfortunately, Maryland’s overall economy underperforms. GDP growth (personal income, real wages, and population growth) from 2016-2023 was only 1.6%, which lags behind our neighbors (PA & VA) and the US. The state’s population in 2024 was about 6.3 million, a 0.74% increase compared to 2023. And while many people move here from states with a higher cost of living, we lose people, including higher earners, who leave Maryland for less expensive states. 

2- Trump’s budget, tariffs, and other actions severely harm the State. Maryland Senate President Bill Ferguson recently said that Trump’s budget could result in an additional $430 million in federal cuts to the state. Trump’s tariff war will also result in thousands of small businesses in Maryland going bankrupt unless he finds an off-ramp. Since Trump took office, the stock market has lost trillions of dollars, damaging 401(k)s. It is also unclear if the federal government will support future funding for the Key Bridge rebuild and other Maryland capital projects available under the Biden administration. Do you remember when the worst thing Trump did to Maryland was kill the plan to build a new FBI building in Greenbelt, MD?

3- The debate about the so-called $5 billion “Surplus” handed over to Moore by Hogan is a waste of time. Lots of Federal COVID-19 money flowed into the state, which camouflaged weaknesses in the state’s economy. I assume Hogan did not know this was a fading Covid hangover surplus. I also realize Hogan had nothing to gain by reframing the reality of the surplus while running for the Senate. Also, our business-oriented Governor Moore, the General Assembly, and an accountant should have recognized the bogus nature of the surplus sooner. 

4- Blueprint for Maryland’s Future. The expensive 10-year education reform plan is a financial problem. Democrats own this plan. It was recently funded for two years ($70 million next year and $100 million the year after). Beyond that, it will be funded through the state’s General Fund, which, according to a recent Maryland Matters article, has a projected deficit of up to $3 billion by fiscal year 2030. How Moore handles this issue will be another big test. You can’t do everything. In its current form, the plan is tough on rural communities with limited resources that have been further strained as the state has pushed down other costs to the counties.

5- Medicaid Costs. As reported in the Baltimore Sun, Maryland’s share of Medicaid and Children’s Health Insurance Programs (CHIPS) covers roughly 1.6 million people, including long-term care coverage for low-income children, pregnant women, adults, seniors, and people with disabilities, costing about $4 billion annually. The big unknown is how federal cuts to entitlement programs will impact Maryland and other states, especially if the GOP forces states to bear more of the expense.   

6- Bond Rating Fiscal Status. A fellow Spy columnist, David Reel, recently focused attention on Maryland’s fragile bond rating, highlighting Moody’s downgrade of Maryland’s fiscal outlook from stable to negative. The Moody downgrade said, “Maryland ranks near the top for risk from changing federal priorities and policies.” Maryland Matters said, “The report highlights three factors: Federal unemployment, existing budget deficits, and concentrated federal grant funding.” It might be a while before Maryland’s AA bond rating bumps to AAA. Standard and Poors issued a negative outlook for outstanding revenue bonds issued by the Maryland Transportation Authority (MDAT), which finances new transportation projects like bridges, tunnels, and the rebuilding ($1.8 billion estimate) of the Francis Scott Key Bridge. What will happen if Trump pulls federal funding for the Key Bridge?   

Things will likely worsen before they improve, especially if Trump drives us into a recession. The current budget cycle sidestepped more painful future cuts to the Blueprint Reform plan. Democrats must take a scalpel to the plan during the next budget cycle. With so many unknowns, Governor Moore will have to be tighter on controlling costs and veto bills from the General Assembly, controlled by his party, that the state cannot afford.

One of the best things Marylanders can do to help themselves is help Democrats win the House in the midterm elections and stop Trump’s reckless actions that will hurt Maryland. 

 Hugh Panero, a tech and media entrepreneur, was the founder and former CEO of XM Satellite Radio. He has worked with leading tech venture capital firms and was an adjunct media professor at George Washington University. He writes about Tech and Media and other stuff for the Spy.