The Budget Is Here - Weekly Update

In last week's email, I noted that the Governor's budget would arrive later that day. I have spent the past week parsing through the budget and want to offer some initial thoughts here.
But first, a brief primer. The annual budget--the only bill we are constitutionally required to pass each year (and it must be balanced)--is actually three documents:
1. The Operating Budget: This is the cost of personnel and programs including aid to local school districts and other local aid programs. You can dig into the proposed operating budget here.
2. The Capital Budget: This is the state's construction budget which funds school construction, state buildings, and assistance with local construction projects. You can review the capital budget here.
3. The Budget Reconciliation and Financing Act (BFRA): This is legislation that accompanies the budget and makes changes to law necessary to balance the budget--a constitutional requirement--such as adjusting a funding formula. You can read the 2025 BRFA here.

The projected budget deficit for fiscal year 2026--the subject of the Governor's submission--was $3 billion. Before discussing more about what is in the budget, it is worth discussing how we got here. It is a fair question and I wish some of those opining on it would actually ask about it and examine the issue.
Structural deficits--future year shortfalls based on current spending--are not new in Maryland and have existed as long as I have been in the General Assembly with the exception of a few years when the state was flush with COVID-19 aid from the federal government. That money was used for several different purposes: a number of aid and rebate programs; saving in the Rainy Day Fund which starts this year at 10% of the General Fund, whereas pre-COVID that was typically 5%; savings in the Blueprint Fund to pre-pay public education costs; significant one-time construction/capital expenses; and some ongoing programs such as the state's new tax credit for those over 65, expanding the state Earned Income Tax Credit, and providing some dental benefits via Medicaid.
So what is driving the fiscal year 2026 deficit? It is actually not public education, which is often casually blamed. The Blueprint for Maryland's future is an ambitious, and frankly expensive, revamp of our pre-k through 12 education programs but because of savings made during the COVID-era budget surpluses driven by federal assistance, it does not contribute to the structural deficit until after fiscal year 2027. But three programs have driven shorter-term costs up: higher than expected Medicaid enrollment and expenses; high participation in the state's childcare subsidy program; and significant expenses at the Developmental Disabilities Administration.
By the way, everything I have written about above relates to the so-called General Fund. Regular readers know that I spend a lot of time on issues related to the separate Transportation Trust Fund (TTF). The TTF is largely funded by its own sources such as motor fuel taxes but there are some cross-subsidies. For example, work to expand the Howard Street Tunnel to support the Port of Baltimore is being paid in part by General Fund resources although it is a transportation project.
With that significant--but still abbreviated--background provided, what is in the Governor's budget?
It tackles the $3 billion projected General Fund deficit with approximately $1.3 billion in revenue raisers (taxes and fees), $630 million in fund transfers, and over $1 billion in budget cuts. On the transportation side, it also raises approximately $420 million in revenue (taxes and fees) to hold the transportation budget essentially harmless and able to meet its prior commitments.
What always makes the news are tax changes. The Governor proposes to:
-Consolidate the bottom four tax brackets with a 4.7% rate;
-Increases taxes on two new top income tax brackets ($600,001-$1,200,000 and more than $1.2 million);
-Add a temporary 1% capital gains surcharge for those with income over $350,000;
-Increase the standard deduction to $5,600/$11,200 (single filer/joint return) but eliminate itemization of deductions;
-Lower the estate tax exemption to $2 million but eliminate the inheritance tax;
-Lower the corporate income tax rate from 8.25% to 7.99% but adopt the combined reporting approach to corporate income taxes;
-Increase sports wagering tax rate from 15% to 30%, table game tax rate from 20% to 25%, and increase the cannabis tax rate from 9% to 15%; and
-Increase the assessment on hospitals to cover Medicaid costs.
On the transportation side, the Governor proposes to:
-Add a $0.75 retail delivery fee;
-Limit the trade-in exemption on vehicles when the vehicle being purchased is over $15,000;
-Raise the vehicle emissions inspection program fee from $10 to $30;
-Quicken the pace of forthcoming registration increases.
On the cuts side, the Governor proposes to:
-Permanently reduce support for behavioral health services in our schools, slow the phase-in of teacher collaborative time, and pause extra support for so-called "Community Schools" with a high concentration of poverty (remember, none of these pre-k through 12 reductions help the immediate budget deficit);
-Reduce support for the Developmental Disability Administration by changing the self-directed care program and eliminating another program for those with developmental disabilities;
-Cap the enrollment in our childcare subsidy program; 
-Decrease funding to the University System and assumes a 2% tuition increase; and
-Reduces future expenditures to many other smaller programs.
The Governor's proposal also shifts various costs to county government (meaning county taxpayers) including certain pension costs, operational costs of the State Department of Assessment and Taxation which handles local property tax assessments, and special needs teacher pay.
There are also various fund transfers, including using $180 million from the state's Strategic Energy Investment Fund to support climate programs.
A lot more information is available in the fiscal briefing prepared by the Department of Legislative Services which was presented this past Monday. The briefing can be viewed here and the meeting materials accessed here.
In addition, each specific agency will be the subject of its own Department of Legislative Services budget analysis and hearing in both the House and the Senate. The hearing dates can be viewed here, where the analyses will also be posted as they become available.
There are some capital projects in District 16 funded in the Governor's budget that I would like to highlight, including funding for HVAC systems at Whitman High School and Westland Middle School; funding for the renovation and expansion of the Children's Inn at the National Institutes of Health; and funding for the Spanish Ballroom at Glen Echo Park.

COMMITTEE UPDATEAs I mentioned last week, our committees usually begin each session with oversight briefings as bills are still being introduced. Thus far, my committee has held briefings on the State of Housing in Maryland, our Vision Zero traffic safety goals, housing affordability including insurance, and our state's transit systems. We have several more upcoming briefings which can be viewed here. 

LEGISLATION UPDATEI continue to introduce the legislation that I announced in my first email of the legislative session. This past week, several more bills were introduced including:
Local Board of Elections Transparency Act (HB 412): For several years, Senator Cheryl Kagan and I have advanced transparency legislation including at the State Board of Elections to require public posting of agendas and live web streaming of meetings. This year, we are proposing to expand those requirements to local Boards of Elections including for when they canvass ballots, as was done during COVID. This bill has been assigned to the Ways and Means Committee.
Affordable Housing Payments in Lieu of Taxes Expansion Act (HB 390): Working with our county partners, this legislation would expand an existing state program that allows housing projects meeting certain affordability requirements to pay no or discounted property taxes. In Montgomery County, more of these projects involve maintaining affordability for existing naturally occurring affordable housing that would otherwise be redeveloped to higher market rates. The legislation would allow these types of projects to benefit from the program and keep more housing affordable. Senator Shelly Hettleman is bringing the bill forward in the Senate. It has been assigned to the Ways and Means Committee.
Metro Funding Modification Act of 2025 (HB 467): Regular readers of my updates will not be surprised to see a Metro funding bill included here. In 2018, our region came together to support dedicated capital funding to rebuild our Metro system. And it worked. The system is in far better shape today than it was five years ago. But the regional commitment of $500 million has not kept up with inflation and this legislation would re-base Maryland’s commitment to account for inflation and peg it for future 3% growth increments, all contingent on our regional partners doing the same. Senator Malcolm Augustine is sponsoring the Senate version of the bill. The bill has been assigned to the Appropriations Committee.
State Mineral Act (HB 411): Picking up the mantle from former Delegate Bill Frick, Senator Craig Zucker and I are championing my constituent’s initiative to have Chromite declared the state mineral, adding us to the majority of states with a state mineral. Chromite was first discovered in the United States in Maryland and is an industrial metal. The bill has been assigned to the Health and Government Operations Committee.
Also, the WSSC Transparency and Reform Act was the subject of a committee work session last week which you can watch here.
TRANSPORTATION UPDATEMetro is once again allowing you to check your annual stats. Visit https://metrorewind.com/ and enter your SmarTrip number to see how you did. Drop me a line and let me know how your stats compare to mine.

-----
The United States Senate Commerce Committee held a confirmation hearing on Sean Duffy, nominee for Transportation Secretary, last week. Two issues in Maryland--including one in District 16--were brought up by non-Maryland Senators and I wanted to highlight them.
Senator Tammy Baldwin shared the story of Sarah Langenkamp, the District 16 resident killed while cycling on River Road, and asked the nominee for support of flexible funding to protect cyclists and pedestrians. Watch the exchange here.
Senator Shelly Moore Capito referenced the horrific crash on I-695 that killed six road workers when seeking attention for road worker safety and protection. Watch that exchange here.
It is great to see these important safety issues that have obviously impacted Maryland but are repeated elsewhere given attention at this hearing on a bipartisan basis.

COMMUNITY NEWS
Congratulations to District 16's Jeffrey Slavin, who is stepping down from his role as Board President of Montgomery County Media after 10 years.

OFFICE CORNERIn honor of my introduction of the Metro Funding Modification Act and sharing my 2024 Metro stats, here area few of the Metro-related items in my Annapolis office. I framed the map and bought the Bethesda sign at my personal expense.