Maryland’s Senate president warned of a “Maryland recession” Tuesday, after a top bond rating agency released a report highlighting the state’s unique vulnerability to federal budget and employment cuts coming from the Trump administration.
“We have to brace for a Maryland recession. That is the news that we are receiving,” Senate President Bill Ferguson (D-Baltimore) told reporters.
“This will be acutely felt by the state of Maryland, and we have to be honest about how hard this is going to be,” he said.
State officials have been bracing for a hit to the state’s finances since President Donald Trump took office and — under the guidance of billionaire Elon Musk and his U.S. DOGE Service — began slashing federal jobs and freezing government spending.
“There’s a great uncertainty in our economy right now created by the chaos created by this president, and Maryland is not going to be immune from that,” said House Appropriations Chair Del. Ben Barnes (D-Prince George’s and Anne Arundel).
“I’m not an economic forecaster so I’m not going to say that we’re going to hit a recession. What I am going to do is follow the data and right now the data is concerning to say the least,” he said.
The Moody’s Ratings report that Ferguson was referencing said Maryland ranks “at or near the top for risk from changing federal priorities and policies.”
“We are a highly vulnerable state,” Ferguson said. “It is clear there is an intentional effort to disrupt the federal government with massive cuts, and Maryland will have an outsized role in that, validated by Moody’s.”
The report, which was released Monday, highlights three factors — federal employment, existing budget deficits and concentrated federal grant funding — that place Maryland at more risk than any other state in the nation.
It’s the second report from the rating agency to raise concerns about the state. In May, the agency reaffirmed the state’s cherished AAA bond rating but moved the state’s creditworthiness outlook from stable to negative. It was the first time since 2011 that Moody’s had issued a negative outlook for Maryland.
Over-reliance on federal employment
Senate Minority Leader Stephen S. Hershey Jr. (R-Upper Shore) said Ferguson’s comments obscure a more longstanding policy problem, saying “economists have been warning us for more than two decades that Maryland’s economy was too reliant on the federal government.”
“Instead of implementing a much-needed culture shift and adopting policies that would help Maryland’s economy grow independently, Maryland Democrats have doubled down on large spending programs and continue to rely on the federal government to balance our budget,” Hershey said. “Even now, when our financial situation is dire, Democrats are creating even more tax burdens for our private-sector business community.”
Maryland houses headquarters for the National Institutes of Health, the Food and Drug Administration, the Centers for Medicare and Medicaid Services, the National Oceanic and Atmospheric Administration and the National Security Agency, and oter agencies have facilities here. are all within the state.
The number of federal jobs in the state grew from 143,000 in 2014 to 160,000 today, an increase of 13% that was faster than state and local government growth and the 10% rise in federal jobs in Virginia during the same period.
And the Moody’s report said that is in addition to the estimated 250,000 Maryland residents who work at federal jobs in Washington, D.C.
Federal job growth also grew the state’s per capita personal income. At 7.4%, Maryland’s share of personal income from federal employment is more than four times higher than the 50-state median
“Counties in the state generate the overwhelming majority of their operating revenue from property and income taxes,” the Moody’s report states. “Federal contraction will squeeze both revenue streams, potentially pressuring county budgets.”
Montgomery County Executive Marc Elrich in November said his county would begin to assess how cuts could affect county finances.
In some counties, federal wages count for as much as 20% of gross income.
There are also concerns about the federal government shrinking the amount of office space it needs. Such a reduction could have “a disproportionate impact on Maryland’s commercial real estate market,” according to the report.
Already bad budget outlook gets worse
The report also notes that Maryland was already “confronting a large and growing budget gap even before job cuts and other downsizing objectives emerged,” but decreased tax revenue caused by federal job cuts will worsen those fiscal challenges.
Gov. Wes Moore (D) and lawmakers started the 90-day session staring down a projected $3 billion deficit for fiscal 2026. The House Appropriations Committee is expected to finalize its version of that budget late this week, with a vote possible by the full House early next week.
Included in that package may be a controversial 2.5% sales tax on some business-to-business services. More than 400 businesses have signed up to oppose that proposal at a hearing Wednesday, but Ferguson said the tax is being considered “very seriously” as a way of protecting social safety-net programs that would be affected by Trump’s cuts.
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“And look, as I’ve said over and over again, the last thing in the world we want to do right now is raise revenues,” Ferguson said. “But the alternative is consequential, and it means kicking kids off of Medicaid. It means shutting down long-term care facilities. It means reducing access to foster care.”
The Moody’s report Monday notes that the state’s fiscal situation was further complicated by the Board of Revenue Estimates write-down of projected revenues for the current and coming fiscal year.
“Decreased tax revenue will add to the state’s projected deficit, which may be exacerbated by other factors, including potential reductions in federal funds for Medicaid,” according to the report.
“When we look at all of our core priorities, the actions of the Trump administration are causing us to have to rethink everything from public safety to health care to education,” Ferguson told reporters. “And it is no surprise that it’s validated by this Moody’s report today that everything continues to have to be on the table, because it’s not just about filling the gap that exists.”
Federal grant cuts could also play a role
Finally, Moody’s notes that “less generous federal grant policies” could encourage nonprofit research organizations to “scale back,” specifically noting Johns Hopkins University.
Moody’s said scientific research, including that done at the university, is “an economic cornerstone of the state.” Research grants from the National Institutes for Health and National Science Foundation per 1,000 residents is second only to Massachusetts, according to the report. But new federal policies calling for capping some expenses “could force retrenchment by the scientific community in the state.”
Maryland could also take a hit in federal contracting, which accounts for 8.9% of personal income in the state, a larger share than all but Virginia at 16.5% and New Mexico at 10.6%. The 50-state median 1.8%, according to Moody’s.
By Bryan P. Sears
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