Senate warns of $500 million more in budget cuts, ahead of likely ‘disastrous' federal action

Yahoo

22-02-2025

Senate President Bill Ferguson (D-Baltimore City) said lawmakers are attempting to craft a state budget even as they expect cuts to federal aid before the end of the 2025 legislative session. (Photo by Bryan P. Sears/Maryland Matters)
Senate leaders said the legislature is preparing for as much as $500 million in additional cuts to an already strapped fiscal 2026 budget, as they brace for federal reductions and look to rework Gov. Wes Moore's tax proposals.
'We do believe in the next couple of weeks we will get a better picture as to the extent of the, honestly, disastrous cuts that are likely going to be shifted to the states ahead of the March 14 shutdown date,' Senate President Bill Ferguson (D-Baltimore City) said during a weekly meeting with reporters.
Ferguson said he is hopeful that when other state start seeing cuts from a Republican-controlled White House and Congress, 'be it Medicaid, FEMA, public education —that they speak to their congressional representatives and explain the pain that would be ahead for cost shifts. But we don't know where that's going to land yet, and so that's a big uncertainty.'
In addition to uncertainty about the federal budget, Senate Budget and Taxation Chair Guy Guzzone (D-Howard) said fiscal committees in the House and Senate are looking for $200-$500 million in cuts to offset likely changes to unpopular parts of the governor's budget.
'Some of it will be a backfill of cuts that have already been made that we disagree with that are in the governor's budget,' Guzzone said in an interview. 'Some of it will be some changes in the tax policies.'
Guzzone said lawmakers in both chambers are interested in restoring cuts Moore made to mental health, the Victims of Crime Act and cancer research. The are also trying to restore $235 million in cuts to the Developmental Disabilities Administration.
'There are things that we have very common beliefs in,' Guzzone said. 'We see it as our responsibility.'
Guzzone said lawmakers are also set on altering Moore's plan to eliminate itemized deduction in income taxes — a key element of his effort to clear what was already projected to be a $3 billion budget deficit for the coming year.
'There's a middle-class component — although a higher middle-class component — that is still of concern to people, particularly in the overall context of inflation, energy prices and mortgage rates,' Guzzone told Maryland Matters. 'You put all that together and we're very, very sensitive to thinking about how Marylanders, at multiple income levels, are surviving right now and whether or not they're thriving.'
When asked about possible changes to the governor's tax plan, Moore spokesperson Carter Elliott said in a prepared statement Friday eveninig that the governor 'will continue to work in partnership with the dedicated leaders of the General Assembly to pass a balanced budget that makes Maryland safer, more affordable, more competitive.'
Moore in January proposed a revamping of the state tax code that he said would cut taxes for roughly six in 10 taxpayers. Those taxpayers would get an additional $173 on average, according to a report earlier this month from the Board of Revenue Estimates.
The board said nearly two in 10 would pay more — $1,458 more on average — and high-income taxpayers would pay $20,800 more on average.
The board also warned that eliminating itemized deductions would mean higher taxes even for those 'with modest income.'
Moore's plan also adds a 1% surcharge on capital gains for high earners — which the board described as 'volatile' source of revenue. The board has become more cautious in the recent past about projecting capital gains revenue, and has urged lawmakers to keep expectations modest because of volatility in capital gains.
'The proposal on net shifts tax burdens to a smaller number of high-income taxpayers who have a greater share of volatile nonwage income,' board Chair Robert Rehrmann wrote in a Feb. 6 letter to state Budget Secretary Helene Grady and Department of Legislative Services Executive Director Victoria Gruber.
Rehrmann said the surcharge on capital gains means revenues 'will increase more in good years and grow more slowly or decline by a greater amount in recessions and/or stock market corrections. As such, the revenue gained from the proposed changes likely will vary from year-to-year as we go from booms to busts.'
Guzzone said he and others are concerned that eliminating itemization will create a disincentive to donate to charities who fill gaps in government services.
When asked if there is a chance the governor's plan could be shelved this session, Guzzone said lawmakers 'may end up there easily.'
'If nothing else, by nature, legislative bodies tend to be more slow moving, more deliberative,' he said. 'I tend to be that myself. I'm not one to jump into things quickly.'
Meanwhile, President Donald Trump has moved quickly to act on his campaign promise to slash the federal workforce, which could cut into 'exrevenues for Maryland, with its high number of federal workers.
The Republican-controlled Congress could follow suit with budget proposals in the coming weeks, further complicating Maryland's budget picture.
Lawmakers will get an updated look at revenue projections when the Board of Revenue Estimates meets March 6, its last meeting before the April 7 end of the legislative session.
A week after that meeting, the federal government could shut down, when a continuing budget resolution expires March 13. Democratic lawmakers in Annapolis believe at this point that a government shutdown is more likely than not.
The uncertainty has scrambled the schedule for the budget: Instead of the House sending the budget to the Senate by March 5, that handoff has now been pushed back to March 18 or 19.That means lawmakers will likely miss a March 31 deadline to complete the budget, triggering an automatic letter from the governor ordering the General Assembly to stay in session until a budget is done.
Ferguson downplayed that scenario, saying such orders are not unusual.
'That is a mandatory message. It always causes a lot of angst,' Ferguson said earlier this week. 'We are making a note: That message will come out this year, but it is anticipated, and we're adjusting and accounting for it in the budget now, so that we can figure out what happens after March 13 at the federal level, and try — to the degree feasible — to take that into account.'
He called it 'exceedingly, exceedingly unlikely' at this point that the General Assembly will have to remain in session past April 7, its scheduled last day for 2025. But a government shutdown as the session ends could change things.
'It's hard to predict anything right now given the level of uncertainty that's out there,' Ferguson said. 'I can't imagine us extending session. I think we'll have a general idea of where things stand in the case the shutdown is still going on for weeks and weeks. We may have to readjust at a different time in the year.'
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There is growing talk of a special session later this year to address budget issues, possibly before the federal fiscal year starts on Oct. 1.
Before then, the Board of Public Works — consisting of the governor, the comptroller and state treasurer — has the ability to cut up to 25% of the budget. The last two governors — Larry Hogan (R) and Martin O'Malley (D) — used the board to make budget cuts during the COVID-19 pandemic and the Great Recession, respectively.
The board in July approved nearly $150 million in changes to the current budget, which Moore characterized at the time as cuts. Reductions then in some areas of the budget were used to offset higher-than-expected costs to Medicaid and other programs.
Guzzone said House and Senate lawmakers have adjusted the budget schedule to allow the House 'to hear or receive the results of what may happen' with a possible government shutdown. 'Obviously, that could dramatically change everything in one second.'
Guzzone and others are hoping the change will give decision-makers the time and information, 'whether or not it becomes a government shutdown or not.'
'We hope we will at least be able to glean some information from the intent that's implied, if there is a new CR [continuing resoution], to what will be happening in the future.,' he said.