Ex-budget secretary expects Maryland’s structural deficit to grow

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After starting the year with a large surplus, Maryland is projected to have a nine-figure structural deficit entering the next fiscal year. A former budget secretary said the state government’s projected budget shortfall “will very likely” be higher than what initial estimates show.

Lawmakers entered the last legislative session with a multibillion-dollar surplus, but Maryland is now projected to have a $418 million deficit for the fiscal year that begins July 1, 2024, according to the Department of Legislative Services.

The state is projected to reach a $1.8 billion deficit for the fiscal year that begins July 1, 2027, in large part because of the expectation that the costs of implementing comprehensive education reform through the Blueprint for Maryland’s Future will outpace the money lawmakers have set aside for it.

David Brinkley, the state’s secretary of budget and management under Gov. Larry Hogan, said that a recent report from the Department of Legislative Services provides a snapshot of the future of the state’s finances but, as is the case each year, it cannot project the financial impact of all bills that lawmakers passed.

“The big unknown(s) are those non-quantified promises that were made in legislation that was passed,” Brinkley said in a phone interview. “They always add up.”

For instance, he said, legislation to authorize grants for a student member on the Board of Regents of the University System of Maryland is expected to increase state spending each of the next few years, but the Department of Legislative Services could not provide an estimate of the dollar amount in its report.

“Elected people can make promises to certain constituencies and every promise has a dollar figure attached to it,” Brinkley said. “The analysts that are put in charge of determining what that is sometimes don’t have all the accurate information that they need. And yet, decisions are made.”

Brinkley said the report is a preliminary one and projections may change when updated revenue estimates arrive in September, but he added that the last projection showed revenues were trending downward.

It’s not a trend that Brinkley said he expects will change significantly any time soon, and he questioned whether the state will be able to carry out Gov. Wes Moore’s promises without bumping taxes up or cutting state spending elsewhere.

Moore’s first budget proposal provided a 4.3% general fund increase and included modest tax relief legislation, investments in transportation and education, a service year option for recent high school graduates and a push to begin filling 10,000 state government vacancies.

Moore, through spokesman Carter Elliott IV, declined to comment on the projected deficits.

Senate President Bill Ferguson, a Baltimore City Democrat, was not available for an interview, but in a statement he said, “the state budget is healthier today than it’s ever been because we put a historic amount of funding into reserves to prepare for all financial possibilities.”

In passing a $63 billion budget, lawmakers preserved $2.5 billion — or 10% of general fund revenues — in the state’s Rainy Day Fund. The state has a target savings rate of 5%.

Budget leaders in the state Senate and House of Delegates could not be reached for comment on the Department of Legislative Services’ projections, but lawmakers sounded off on social media after Hogan shared that he was “saddened” by news of “crushing deficits.”

“In eight years, we turned a record deficit into a record surplus. Maryland can do it again, but we need to return to the playbook of common sense fiscal responsibility – not more spending and taxes,” Hogan wrote in a tweet.

Responding to Hogan, former House majority leader Del. Marc Korman wrote in a tweet that the surplus the state saw under Hogan was attributable to an “unprecedented bump” in COVID relief funding that all states received.

The state government closed fiscal year 2022, which ended June 30, with “extraordinary revenue generation” thanks to COVID stimulus and higher inflation leading to higher sales and use tax revenues, according to the Department of Legislative Services.

“In truth,” Korman wrote, “we at the state level — (Democrats and Republicans) — balance the budget each year and it’s silly to pretend Governor Hogan had some secret budget sauce.”