STATE OF MARYLAND  |  POLICY BRIEFING  |  APRIL 2026

Maryland’s Budget Deficit and Gap-Closing Options

The whoe report could be downloaded at

A Fiscal Strategy Briefing for the Governor and the Maryland General Assembly

$71.3 Billion FY2027 Total Budget	$28.3 Billion FY2027 General Fund	$201 Million FY2027 Closing Cash
$2.2 Billion (8%) Rainy Day Fund	$21.1B / 29.7% Federal Funds Share	$598 Million FY2027 Structural Gap

Prepared by: Office of Policy Analysis  |  Data current as of April 2026  |  For official use

Table of Contents

Executive Summary	3
Section 1. Why Structural Deficits Matter	4
Section 2. Fiscal Baseline	6
2.1  General Fund Budget Overview	6
2.2  Revenue Trends	7
2.3  Spending Trends and Major Cost Drivers	8
2.4  Reserve Position	9
Section 3. Deficit Diagnosis	10
3.1  Cyclical vs. Structural Components	10
3.2  Out-Year Structural Gap	11
3.3  Risk Exposures	12
Section 4. Comparative Analysis with Peer States	14
Section 5. Policy Options to Close the Gap	16
Option 1 – Blueprint Cost Management and Phased Sequencing	16
Option 2 – Medicaid Program Integrity and Managed Care Reform	17
Option 3 – Targeted Revenue Broadening	18
Option 4 – Agency Consolidation and Administrative Efficiency	19
Option 5 – Strategic Reserve Deployment and Debt Restructuring	20
Option 6 – Economic-Growth-Oriented Tax Competitiveness Reform	21
Option 7 – Federal Contingency Planning and Grant Diversification	22
Section 6. Integrated Policy Packages	23
Package A – Spending-Focused Stabilization	23
Package B – Balanced Mix	24
Package C – Structural Reform + Growth	25
Section 7. Baseline vs. Policy Forecast	26
Section 8. Prioritization Matrix	30
Section 9. Final Recommendation	32
References	34

Executive Summary

The Bottom Line Maryland’s enacted fiscal 2027 budget is balanced on a cash basis, but it is not in durable structural balance. The Department of Legislative Services (DLS) projects a fiscal 2027 general fund structural shortfall of $598 million, rising to an estimated $2.57 billion in fiscal 2028 and $3.43 billion by fiscal 2030 under current law and current-services assumptions (DLS, 2026 90-Day Report, p. 26). DLS further reports that the structural gap widens sharply beginning in fiscal 2028 because Blueprint costs exceed dedicated Blueprint revenues and require nearly $2.6 billion of general fund support (DLS, 2026 90-Day Report, p. 27). Maryland therefore does not face an immediate cash insolvency problem; it faces a medium-term structural imbalance problem that will intensify quickly if the State relies on one-time balancing actions rather than recurring reforms.

The immediate fiscal position is tighter than Maryland’s reserve headline suggests. The enacted plan leaves an estimated fiscal 2027 closing cash balance of $201 million, in addition to a $2.2 billion Rainy Day Fund equal to 8.0% of estimated general fund revenues (DLS, 2026 90-Day Report, pp. 12, 26). That reserve posture is still credible, but it does not eliminate the underlying mismatch between ongoing revenues and ongoing spending. The core drivers of that mismatch are Maryland-specific: rising Blueprint and education commitments, Medicaid and disability-service cost growth, continued federal exposure equal to about 29.7% of all spending, and a revenue base tied to slower private-sector growth than several peer states.

Key Findings

• Current structural position: DLS projects a fiscal 2027 structural shortfall of $598 million, even after the 2026 session’s enacted budget actions (DLS, 2026 90-Day Report, p. 26).
• Out-year trajectory: DLS projects the structural deficit to widen to $2.57 billion in fiscal 2028 and $3.43 billion by fiscal 2030 under current law (DLS, 2026 90-Day Report, p. 26).
• Blueprint pressure: DLS states that the gap grows substantially beginning in fiscal 2028 as Blueprint costs exceed Blueprint revenues and require nearly $2.6 billion of general funds (DLS, 2026 90-Day Report, p. 27).
• Federal exposure: Federal funds account for approximately 29.7% of all fiscal 2027 spending, or about $21.1 billion, leaving Maryland unusually exposed to federal budget, grant, and procurement risk (DLS, 2026 90-Day Report, pp. 13, 50).
• Reserve position: The enacted plan meets the Spending Affordability Committee target of an 8.0% Rainy Day Fund balance, with $2.2 billion in the Revenue Stabilization Account and a $201 million closing cash balance (DLS, 2026 90-Day Report, p. 26).
• Gap-closing actions already taken: The 2026 session reduced the fiscal 2027 structural gap by 52% versus the December 2025 projection through $803.1 million in general fund reductions and $132.8 million in additional ongoing general fund revenue (DLS, 2026 90-Day Report, pp. 26, 31).

Top Policy Recommendations

• 1. Blueprint Sequencing Reform: Preserve the statutory framework while slowing or reordering the most fiscally intensive implementation steps beginning in fiscal 2028, when DLS shows the major structural widening begins.
• 2. Medicaid and Human Services Cost Management: Pursue managed-care contracting, eligibility integrity, behavioral-health reimbursement redesign, and disability-service efficiency rather than blunt eligibility cuts.
• 3. Revenue Base Modernization: Broaden selected tax bases and compliance tools instead of relying solely on higher headline rates on an already narrow and mobile base.
• 4. Administrative Consolidation and Procurement Reform: Focus on shared services, overlapping economic-development functions, licensing, and purchasing systems where savings are plausible and recurring.
• 5. Capital and Reserve Smoothing: Use reserve or debt-management tools only as a bridge and only alongside recurring reforms, not as a substitute for them.
• 6. Federal Risk Management: Build a standing fiscal-response process for federal grant, procurement, and workforce shocks given Maryland’s unusually high federal exposure.
• 7. Growth-Oriented Competitiveness Reform: Improve the long-run tax base through targeted business-climate, housing, commercialization, and labor-force actions that complement fiscal repair rather than compete with it.

Expected Results (5-Year Horizon, Package B Baseline)

Table 1. Expected Fiscal and Economic Outcomes Under a Balanced Policy Package

Source: DLS 2026 90-Day Report, pp. 26-27; BLS (2026); Author scenario analysis

► Even under optimistic assumptions, full structural balance requires 4–5 years of sustained action.

Metric	FY2026 Baseline	FY2028 Policy (1-Yr)	FY2030 Policy (3-Yr)	FY2031 Policy (5-Yr)
Structural GF Gap	$598M shortfall	$1.4–2.0B	$0.7–1.4B	Near balance / manageable residual gap
Rainy Day Fund Balance	$2.2B (8.0%)	$1.9–2.1B (7%+)	$2.1–2.4B (7.5%+)	$2.3–2.8B (8%+)
GF Revenue Growth	3.0% ongoing revenue growth*	3.0–4.0%/yr	3.0–4.0%/yr	3.0–4.5%/yr
Ongoing Spending Growth	5.8% vs. FY2027 plan*	3.5–4.5%/yr	3.0–4.0%/yr	3.0–4.0%/yr
Competitiveness / Credit	AAA maintained; structural risk noted	AAA maintained if reforms enacted	stabilized outlook	stronger medium-term position

Section 1. Why Structural Deficits Matter

1.1 Cyclical vs. Structural Imbalance: A Critical Distinction

Not all budget gaps are equal. A cyclical shortfall arises when the economy contracts, temporarily depressing tax revenues and lifting demand for social services; it resolves as growth returns. A structural deficit persists even at full employment: it reflects a fundamental mismatch between the spending obligations a state has committed to and the revenue its tax base can sustainably generate. Maryland’s current gap is predominantly structural. DLS explicitly characterizes fiscal 2027 as ending with a structural shortfall of $598 million and fiscal 2028 with a structural deficit of $2.57 billion (DLS, 2026 90-Day Report, p. 26). The Blueprint’s escalating education spending, Medicaid’s trend growth, and other mandated costs do not abate when the economy improves. Revenue growth, meanwhile, is projected to average just 3.0% while ongoing spending grows 5.8% between fiscal 2027 and 2031 (DLS, 2026 90-Day Report, p. 27).

1.2 The Six Harms of Structural Deficits

• Fiscal instability and reserve erosion: A structural deficit steadily draws down reserves, leaving the state exposed to revenue shocks. Maryland’s enacted fiscal 2027 plan leaves only a $201 million closing cash balance in addition to the 8% Rainy Day Fund target, which is adequate for short-term smoothing but not for repeated structural support (DLS, 2026 90-Day Report, p. 26).
• Credit quality pressure: The three major rating agencies (Moody’s, S&P, Fitch) monitor structural balance as a primary credit factor. Maryland’s AAA rating—one of only 14 states to hold this designation as of May 2024—is a direct fiscal asset, saving tens of millions annually in borrowing costs. Persistent structural deficits put that rating at risk.
• Reduced flexibility during downturns or federal cuts: A state entering a recession or federal funding reduction with structural imbalance has no cushion to absorb the shock. Maryland’s 29.7% federal fund dependency ($21.1 billion of $71.3 billion total enacted spending) makes this risk acute: the BRE 60-Day Report on the One Big Beautiful Bill (2026) flags potential federal cuts that could remove billions from Maryland’s budget with little notice.
• Forced abrupt tax hikes or spending cuts: Without structural correction, Maryland will face an annual cycle of crisis-driven budget negotiations—raising taxes on a weakening base or cutting services that local governments, nonprofits, and vulnerable populations depend on.
• Crowding out long-term investment: Capital investment in transportation, broadband, housing, and innovation infrastructure competes directly with structural spending obligations for general fund resources. When deficits dominate the budget conversation, long-term investments are deferred.
• Institutional and political erosion: Recurring structural gaps breed short-termism in budget decisions, incentivize one-time fixes over genuine reform, and erode public and investor confidence in Maryland’s fiscal management.

1.3 Why This Matters Specifically for Maryland

Maryland’s structural deficit is compounded by three Maryland-specific factors that amplify the standard harms:

• Blueprint obligations are statutory, not discretionary. The Blueprint for Maryland’s Future, enacted in 2021, is state law with defined funding schedules. These are not aspirational targets that can be quietly deferred—they carry legal, political, and accountability-board enforcement weight. Any phasing or sequencing strategy requires legislative action and AIB concurrence.
• Federal exposure is uniquely high. With about $21.1 billion in federal funds representing 29.7% of enacted fiscal 2027 spending, Maryland is more exposed to federal fiscal decisions than most peers. Virginia (also high-dependency) benefits from a more diversified private tech sector. Maryland’s exposure is concentrated in health (Medicaid), education (Title I, IDEA), and defense contracting.
• Private-sector growth has been systematically weak. Total nonfarm employment fell 1.9% year-over-year in early 2026, with professional and business services—the highest-wage private sector—down 4.3–4.9%. This directly suppresses income and corporate tax revenues, the core of the general fund. Unlike a cyclical shock, this reflects persistent structural competitiveness deficits that a growing deficit makes worse, not better.

Policy Implication Maryland cannot deficit-spend its way to growth. The fiscal and economic problems are mutually reinforcing: a structural deficit diverts capital from growth-enabling investment, while weak growth shrinks the tax base that could close the deficit. The policy agenda must address both sides simultaneously.

Section 2. Fiscal Baseline

2.1 General Fund Budget Overview (FY2026)

The enacted fiscal 2027 Maryland budget totals $71.314 billion across all fund sources. The general fund—the primary vehicle for unrestricted state spending and the central metric for fiscal health analysis—stands at $28.308 billion in appropriations. Federal funds total approximately $21.180 billion, or 29.7% of all spending. These figures come from the enacted budget totals in the 2026 90-Day Report, Exhibit A-1.15 (p. 50).

Table 2. FY2027 Maryland State Budget by Fund Source

Source: DLS, 2026 90-Day Report, Exhibit A-1.15, p. 50

► Federal funds at 29% represent Maryland’s most significant fiscal vulnerability.

Fund Source	FY2026 Appropriation	Share of Total
General Fund	$28.308 billion	39.7%
Federal Funds	$21.180 billion	29.7%
Special / Other Funds	$21.826 billion	30.6%
Total	$71.314 billion	100.0%

2.2 Revenue Trends

Maryland’s general fund revenues depend heavily on individual income taxes, sales taxes, general fund), corporate income taxes (≈8%), and sales and use taxes (≈20%). This concentration creates both strength and vulnerability:

• Individual income tax: Maryland’s progressive income tax structure generates high per-capita collections ($3,177 per capita, ranked 4th nationally; Tax Foundation, 2026), but is highly sensitive to employment and income trends among high-earning households. Net domestic out-migration of higher-income taxpayers—documented in IRS migration data and Tax Foundation analysis (2026)—is measurably eroding this base. The top combined state-local marginal rate of up to 9.9% compares unfavorably with Virginia (5.75% flat top rate) and North Carolina (4.75% flat rate as of 2024).
• Corporate income tax: Maryland’s 8.25% corporate income tax rate is among the highest in the mid-Atlantic region and limits business formation and headquarters retention. Virginia levies 6%, North Carolina 2.5% (reduced from 2.25% in 2024), and Pennsylvania 8.49% (in ongoing reduction).
• Sales and use tax: Maryland’s 6% state sales tax applies narrowly. The exclusion of most services—while services now constitute over 70% of consumer spending—significantly constrains the sales tax base relative to economic activity. This structural narrowing suppresses revenue growth below GDP growth in normal years.
• Revenue growth vs. spending growth mismatch: DLS projects ongoing revenues to grow at an average annual rate of 3.0% between fiscal 2027 and 2031, while ongoing spending grows 5.8% over the same period. That differential is the basic arithmetic behind the out-year structural gap (DLS, 2026 90-Day Report, p. 27).

2.3 Major Spending Drivers

The following five categories account for the large majority of general fund spending pressure over the next five years. Absent corrective action, these drivers will collectively consume virtually all projected revenue growth:

Table 3. Major Budget Pressure Points, FY2027 and Out Years

Source: DLS, 2026 90-Day Report, pp. 15, 17, 26-27, 47

► Blueprint education aid and Medicaid together account for the majority of out-year structural pressure.

Spending Category	FY2026 Estimated Cost	Annual Growth Rate	Notes
Blueprint Fund / K-12 aid	> $350M increase in FY2027	Steep step-up in FY2028	DLS says Blueprint costs exceed Blueprint revenues and require nearly $2.6B in GF beginning FY2028
Medicaid / health spending	> $225M federal Medicaid increase in FY2027	Continued upward pressure	DLS also cites $287.6M in GF within $718.3M of DDA/Medicaid-related support for prior-year costs
Personnel	$13.18B total funds	Ongoing salary and staffing pressure	17.7% of total FY2027 State budget (DLS, 2026 90-Day Report, p. 47)
Transportation / capital	$1.39B system preservation	Capital affordability pressure persists	DLS indicates transportation goals were met in FY2027 but capital choices remain constrained
Other mandated spending	Disability and formula aid growth	Upward out-year pressure	Budget rigidity limits flexibility once revenues soften

2.4 Reserve Position

The Spending Affordability Committee target for fiscal 2027 required both a closing cash balance of at least $100 million and a Rainy Day Fund balance of at least 8.0% of estimated general fund revenues. The enacted budget meets those tests with a projected $201 million closing cash balance and a $2.2 billion Rainy Day Fund balance (DLS, 2026 90-Day Report, p. 26).

The reserve picture is therefore mixed rather than immediately alarming. Maryland still has usable liquidity, but the small cash balance means the State has limited room to absorb a revenue miss or federal reduction without quickly returning to the legislature or drawing on reserves. In practical terms, the reserve position buys time; it does not solve the structural problem.

Section 3. Deficit Diagnosis

3.1 Cyclical vs. Structural Components

The Maryland structural deficit has both cyclical and structural components. The October–November 2025 federal government shutdown created a temporary drag estimated by BEA at approximately 1.0 percentage point of national real GDP growth in Q4 2025, with disproportionate impact on Maryland due to its federal worker and contractor concentration. This cyclical element will partially self-correct. (BEA GDP Third Estimate, Q4 2025, April 9, 2026)

However, the structural components are larger and more durable. DLS identifies the fiscal 2027 problem explicitly as a structural shortfall and shows the gap widening sharply in fiscal 2028 as Blueprint costs outrun dedicated revenues. The report’s baseline growth assumptions imply that the problem persists even without a recession. In other words, Maryland’s current vulnerability is not mainly that revenues could dip; it is that ongoing commitments are already set to grow faster than ongoing revenues.

Table 4. Maryland Structural vs. Cyclical Deficit Components (FY2026–FY2030)

Source: DLS, 2026 90-Day Report, pp. 26-27; author classification of sourced drivers

► Blueprint becomes the dominant structural pressure once dedicated Blueprint revenues are exhausted.

Component	FY2026 Gap Estimate	FY2028 Estimate	FY2030 Estimate	Type
Blueprint costs above Blueprint revenues	Driver emerges	Nearly $2.6B GF required	Major continuing driver	Structural
Medicaid / DDA / behavioral health	Ongoing pressure	Continued upward pressure	Continued upward pressure	Structural
Federal grant / procurement exposure	Tail risk	Material risk if federal cuts occur	Material risk if federal cuts persist	Mixed
Cyclical revenue weakness	Moderate	May fade with recovery	Uncertain	Cyclical
Total structural gap	$598M	$2.57B	$3.43B	—

3.2 Out-Year Structural Gap Trajectory

Under a current-services baseline—no policy changes, baseline economic growth, full Blueprint implementation on schedule—the structural general fund gap escalates as follows. These ranges reflect scenario uncertainty around federal cuts, revenue performance, and Medicaid caseloads. The lower bound assumes modest federal risk materialization; the upper bound assumes DOGE-level federal spending reductions affecting Maryland’s grant and contract revenues.

Table 5. Out-Year Structural Gap Trajectory (General Fund, Before Gap-Closing Actions)

Source: DLS, 2026 90-Day Report, pp. 26-27; FY2031 author extension based on DLS growth assumptions

► The sourced DLS forecast shows the structural gap widening by more than fivefold from FY2027 to FY2030.

Fiscal Year	Low Scenario	Mid Scenario (Base)	High Scenario	Key Driver
FY2027	$598M	$598M	$598M	Enacted budget after 2026 session actions
FY2028	$2.57B	$2.57B	$2.57B	Blueprint costs exceed Blueprint revenues
FY2029	$2.9B	$3.1B	$3.4B	Education and health cost growth; author scenario
FY2030	$3.43B	$3.43B	$3.43B	DLS out-year estimate
FY2031	$3.8B	$4.1B	$4.6B	Author extension using DLS revenue/spending growth rates

3.3 Risk Exposures

Federal Dependency Risk

Federal funds represent approximately $21.1 billion of Maryland’s $71.3 billion enacted fiscal 2027 budget, or 29.7% of all spending (DLS, 2026 90-Day Report, pp. 13, 50). Key federal funding streams at risk include:

• Medicaid federal match (FMAP): Maryland’s federal medical assistance percentage typically covers 50%+ of Medicaid costs. Any FMAP reduction or work requirement that reduces enrollment will shift costs to the state general fund.
• Education grants (Title I, IDEA, Head Start): These together represent several hundred million dollars annually. Federal grant consolidation or block grant conversion could reduce flexibility or total funding.
• Defense and intelligence procurement: Fort Meade, NSA, the Applied Physics Laboratory (APL), and related contractors generate tens of billions in Maryland economic activity and indirect tax revenue. Procurement reductions at these facilities have immediate revenue and employment impacts.
• Research grants (NIH, NSF, NIST): NIH, headquartered in Bethesda, Maryland, is the world’s largest funder of biomedical research and anchors Maryland’s life sciences cluster. FY2025 and early FY2026 reports of NIH grant freezes and headcount reductions threaten the $20+ billion in annual NIH-supported economic activity in Maryland.

Tax Base Erosion Risk

Tax Foundation migration data (2026) documents that Americans are moving to states with lower taxes and more competitive structures. Maryland has experienced consistent net domestic out-migration, primarily to Virginia, Florida, Pennsylvania, and the Carolinas. IRS Statistics of Income data show that Maryland loses a disproportionate share of high-income filers—the same taxpayers who generate the majority of income tax revenue. This creates a self-reinforcing cycle: the high-income taxpayer base shrinks, the remaining base must be taxed at higher rates to maintain revenue, which further accelerates out-migration.

Section 4. Comparative Analysis with Peer States

Peer state comparisons are most useful when they reveal specific lessons Maryland can apply, not when they simply rank states on aggregate indices. The four peer states— Virginia, North Carolina, Pennsylvania, and New Jersey—each offer distinct lessons for Maryland’s fiscal strategy.

Table 6. Maryland Fiscal and Economic Comparison with Peer States

Source: Tax Foundation (2026); BLS (Jan 2026); NASBO Fiscal Survey 2025; BEA Regional Data; Author compilation

► North Carolina’s decade of tax simplification has produced stronger growth and budget resilience.

Indicator	Maryland	Virginia	North Carolina	Pennsylvania	New Jersey
Top State Income Tax Rate	5.75%*	5.75%	4.75%	3.07% (flat)	10.75%
Corporate Income Tax Rate	8.25%	6.00%	2.50%	8.49%→4.99%	9.00%
State Tax Competitiveness Rank (2026)	46th	~25th	~10th	~32nd	~49th
State-Local Tax Burden (% income)	11.3%	~9.3%	~8.9%	~10.1%	~13.2%
Rainy Day Fund (% of GF)	~8.8%	~10–12%	~15–18%	~10%	~5%
2025 Real GDP Growth (est.)	~1.5–2.0%	~2.5–3.0%	~3.5–4.0%	~2.0–2.5%	~2.0–2.5%
Unemployment Rate (Jan 2026)	4.3%	~3.2%	~3.7%	~3.9%	~4.5%
Federal Funds Share of Budget	~29%	~25%	~27%	~32%	~26%
Primary Structural Challenge	Blueprint + federal	Pension growth	Revenue sufficiency	Pension/OPEB legacy	Debt + spending

* Maryland’s top combined state-local rate reaches up to 9.9% with county income taxes.

4.1 Virginia: The Most Direct Competitor

Virginia’s fiscal position is instructive for Maryland in two ways. First, Virginia carries a structurally similar income-tax-heavy revenue mix but has maintained stronger private-sector job growth (unemployment ~3.2% vs. Maryland’s 4.3%), partly reflecting its more competitive 6% corporate tax rate, less regulatory friction, and lower combined income tax burden at most brackets. Second, Virginia actively competes with Maryland for major corporate headquarters, data centers, and federal-adjacent contractors—Amazon HQ2 and numerous defense tech firms chose Northern Virginia over Maryland in part due to tax and regulatory considerations. Maryland cannot match Virginia on tax rates without significant revenue trade-offs, but can narrow the gap on targeted business investments and regulatory speed.

4.2 North Carolina: A Growth Model with Structural Lessons

North Carolina has undergone the most dramatic fiscal transformation among mid-Atlantic and southeastern peers over the past decade. Beginning with a 6.9% top income tax rate in 2013, North Carolina has reduced its flat rate to 4.75% (with further reductions planned), lowered its corporate tax toward zero by FY2030 under current law, and broadened its sales tax base to offset revenue losses. The result: North Carolina consistently ranks in the top 10 on tax competitiveness, real GDP growth of approximately 3.5–4.0% annually, and a Rainy Day Fund at 15–18% of general fund appropriations. The lesson for Maryland is not to replicate North Carolina’s rate cuts immediately—Maryland’s fiscal position cannot bear that—but to adopt the sequenced approach: broaden first, then reduce rates as the base grows.

4.3 Pennsylvania: A Pension Warning

Pennsylvania‘s fiscal trajectory offers a cautionary example of deferred pension obligations compounding into a structural crisis. Pennsylvania’s pension debt forced a decade of difficult choices between tax increases and service cuts. Maryland’s pension system (estimated 65.7% funded as of FY2024, MSRPS estimates) is healthier than Pennsylvania’s at the onset of its crisis, but the direction matters: insufficient annual contributions today create larger obligations tomorrow. Maryland’s Act 2011 pension reform reduced future accruals, but OPEB liabilities remain large. Pennsylvania’s lesson: address unfunded liabilities before they compound.

4.4 New Jersey: High-Tax Instability

New Jersey represents the path Maryland should avoid. With the highest combined tax burden in the region (13.2% of income), a 9% corporate tax rate, and ranked last or near-last on tax competitiveness, New Jersey has experienced persistent out-migration, structural deficits, and multiple credit downgrades. New Jersey’s repeated reliance on short-term revenue measures (lottery monetization, pension payment deferrals, one-time federal funds) rather than structural reform has left it with minimal fiscal flexibility and a Rainy Day Fund below 5% of general fund. Maryland’s current trajectory—high taxes, growing mandated spending, weak growth, thin reserves—bears more resemblance to New Jersey than Maryland’s policymakers should be comfortable acknowledging.

Section 5. Policy Options to Close the Gap

The following seven policy options span spending restraint, revenue broadening, government operations, reserve management, and growth-oriented reform. Each is analyzed for fiscal effect, structural value, economic impact, and implementation feasibility. Options are presented as distinct and non-repetitive; the integrated packages in Section 6 combine them for maximum cumulative effect.

Option 1. Blueprint Cost Management and Phased Sequencing

Table 7. Option 1: Blueprint Cost Management — Analysis Summary

Source: DLS Education Policy; AIB Blueprint Implementation Reports; MACo County Budget Commentary

Dimension	Assessment
What it is	Negotiate with the Accountability and Implementation Board (AIB) to sequence Blueprint components by readiness and cost-effectiveness, deferring high-cost elements (full teacher salary scale; universal pre-K expansion at planned pace) by 2–3 years while accelerating high-return elements (career and technical education; college prep concentrations; curriculum alignment).
Why considered	Blueprint annual incremental costs are projected at $300–500 million per year through FY2030, totaling $2.5–3.2 billion in cumulative general fund obligation above the FY2023 baseline. This is the single largest driver of the structural gap.
Fiscal effect (1-yr)	Save $400–700 million in general fund outlays in FY2029 (relative to current schedule, if enacted January 2028).
Fiscal effect (3-yr)	Cumulative savings of $1.2–2.0 billion, while preserving the long-term Blueprint framework and statutory commitment.
Fiscal effect (5-yr)	Savings of $2.0–3.0 billion vs. baseline; structural gap reduced by 30–45% of the total.
Type	Recurring; addresses structural gap directly.
Structural value	High. Directly targets the largest structural spending driver.
Economic impact	Neutral to modestly negative short-term (slower teacher salary growth); positive long-term if sequencing prioritizes high-return investments.
County/local impact	Significant: counties bear 40–50% of Blueprint costs under local share formulas. Sequencing relief flows proportionally to county budgets. MACo has consistently identified Blueprint local cost exposure as a top fiscal concern.
Implementation req.	Requires legislative amendment to Blueprint timelines; AIB concurrence; MSDE planning revision. Complex but precedented—AIB has already made phasing adjustments.
Political feasibility	Moderate. Faces teacher union and advocacy opposition; however, broad fiscal pressure and county government support may create a coalition for responsible sequencing.
Risks & tradeoffs	Risk of being characterized as ‘gutting’ the Blueprint. Must be framed as evidence-based sequencing, not abandonment. International evidence (McKinsey, OECD) supports that teacher quality and curriculum matter more than pace of salary escalation in early reform phases.

Option 2. Medicaid Program Integrity and Managed Care Reform

Table 8. Option 2: Medicaid Managed Care Reform — Analysis Summary

Source: DHMH Maryland Medicaid Data; CMS Program Integrity Reports; MACPAC Medicaid Analysis

Dimension	Assessment
What it is	Expand value-based payment contracts with Maryland’s Medicaid managed care organizations (MCOs); implement enhanced fraud and abuse detection using data analytics; streamline eligibility redetermination to reduce improper enrollment; and expand integrated care models for dual-eligible (Medicare/Medicaid) populations.
Why considered	Medicaid consumes approximately $6.5–7.0 billion (all funds) in FY2026 and grows at 6–7% annually. The GF share (≈50%) means every 1% saved on Medicaid saves approximately $32–35 million in general fund. OIG audits and CMS program integrity reports consistently identify improper payments and care-delivery inefficiencies as addressable.
Fiscal effect (1-yr)	$100–200 million GF savings from enhanced integrity and targeted managed care renegotiation.
Fiscal effect (3-yr)	$300–500 million cumulative; larger savings from value-based contract maturation.
Fiscal effect (5-yr)	$600–900 million cumulative; dual-eligible integration and prevention models reduce acute care utilization.
Type	Recurring; grows over time as reforms mature.
Structural value	High for long-term Medicaid trend; moderate for near-term gap.
Economic impact	Positive: reduces burden on business through employer-sponsored insurance substitution; improves population health and workforce productivity.
County/local impact	Mostly positive for counties; improves health outcomes in Baltimore City and rural Eastern Shore where Medicaid enrollment is highest.
Implementation req.	DHMH administrative action; CMS waiver amendment for some elements; MCO contract renegotiation. Complex but within existing state authority.
Political feasibility	High. Managed care reform and fraud reduction have broad bipartisan support. Politically difficult only if managed care organizations resist.
Risks & tradeoffs	Savings estimates are inherently uncertain. Managed care efficiencies may be offset by adverse selection or sicker populations in value-based models. CMS federal policy changes (work requirements) could increase uncompensated care costs if enrollment drops.

Option 3. Targeted Revenue Broadening

Table 9. Option 3: Targeted Revenue Broadening — Analysis Summary

Source: Tax Foundation (2026); DLS Fiscal Planning; Comptroller BRE Annual Reports

Dimension	Assessment
What it is	Expand Maryland’s 6% sales tax to selected business-to-business services (accounting, legal, IT consulting) and close the digital goods tax gap (streaming, software-as-a-service). Alternatively or additionally: modernize the tobacco and cannabis tax structure and close the limited-liability company pass-through income tax gap identified in DLS fiscal reviews.
Why considered	Maryland’s sales tax base has structurally narrowed as the economy shifted to services. Over 30 states tax at least some services. A 6% tax on business services generates significant revenue while distributing burden across the business community rather than households. The digital goods gap is estimated at $200–400 million annually in foregone revenue.
Fiscal effect (1-yr)	$300–500 million in new recurring GF revenue.
Fiscal effect (3-yr)	$900M–1.5B cumulative.
Fiscal effect (5-yr)	$1.5–2.5B cumulative; revenue grows with economic activity.
Type	Recurring; structurally broadens the tax base.
Structural value	High; the most durable revenue option available.
Economic impact	Moderate negative for business-service intensive sectors. Tax Foundation’s analysis (2026) suggests sales tax base broadening has smaller economic efficiency costs than rate increases on income. Risk: business location decisions if Virginia does not adopt similar taxes.
County/local impact	Positive: additional revenue supports county-shared revenues and reduces pressure on local property taxes.
Implementation req.	Legislative action; Comptroller regulatory guidance; 2–3 year phase-in recommended to allow business adjustment.
Political feasibility	Moderate. Business community will oppose; however, framing as ‘modernization’ rather than ‘new taxes’ and pairing with modest rate adjustments can build a coalition. Six states adopted service tax expansions between 2020–2025.
Risks & tradeoffs	Virginia’s non-adoption creates competitive pressure for professional services firms. Risk of business relocation is real but modest for in-state service providers. Must be paired with a competitiveness offset (see Option 6).

Option 4. Agency Consolidation and Administrative Efficiency

Table 10. Option 4: Agency Consolidation and Administrative Efficiency — Analysis Summary

Source: DBM Efficiency Review (2023); DLS Analysis of the Maryland Executive Budget; Pew Charitable Trusts (2024)

Dimension	Assessment
What it is	Conduct a systematic review of Maryland’s 77+ cabinet and independent state agencies to identify consolidation opportunities, shared-services migrations, and duplication. Priority targets: overlapping economic development functions (Commerce, MEDCO, TEDCO, CASA, DBED remnants); licensing boards; and information technology procurement across agencies.
Why considered	Maryland operates one of the larger state agency structures in the mid-Atlantic relative to population size. Administrative overhead, duplicated back-office functions, and siloed IT systems cost hundreds of millions annually above efficient-scale benchmarks. A 2023 DBM efficiency review identified $150–250 million in near-term administrative savings without service cuts.
Fiscal effect (1-yr)	$80–150 million in administrative savings (position attrition, IT consolidation, procurement renegotiation).
Fiscal effect (3-yr)	$250–400 million cumulative.
Fiscal effect (5-yr)	$400–700 million cumulative; larger IT and shared-service savings materialize.
Type	Recurring, though front-loaded with one-time transition costs.
Structural value	Moderate. Administrative savings alone cannot close the gap, but improve government effectiveness and fiscal credibility.
Economic impact	Neutral to positive; more efficient government reduces business compliance costs and improves service delivery speed.
County/local impact	Mixed. Some county-administered state programs benefit from clearer agency mandates; some county pass-through funding may be affected by renegotiated state-agency contracts.
Implementation req.	Governor’s executive authority for most agency restructuring; legislative action for statutes defining certain board/commission functions; 12–24 months to achieve meaningful savings.
Political feasibility	Moderate. State employee unions will resist headcount reductions; but framing around service improvement and position attrition (rather than layoffs) reduces opposition.
Risks & tradeoffs	Transition costs can temporarily increase spending. Savings estimates from efficiency reviews are often optimistic; apply a 60–70% confidence discount to gross estimates. Do not project large savings without confirmed plans.

Option 5. Strategic Reserve Deployment and Debt Restructuring

Table 11. Option 5: Strategic Reserve Deployment — Analysis Summary

Source: DLS Spending Affordability Committee; NASBO Fiscal Survey 2025; Moody’s Maryland Rating Reports

Dimension	Assessment
What it is	Authorize a time-limited draw of up to $500 million from the Rainy Day Fund to bridge the structural gap while structural reforms take effect—conditioned on concurrent enactment of at least $1.5 billion in recurring gap-closing measures. Simultaneously, restructure the capital debt service schedule to shift near-term payments and reduce general fund pressure by $100–200 million in FY2028–FY2029.
Why considered	The Rainy Day Fund exists precisely to smooth structural transitions. A one-time bridge is prudent if—and only if—it is paired with structural solutions. Without the conditionality, reserve use merely defers the problem. The Spending Affordability Committee and DLS have both cautioned against reserve drawdowns absent structural reform.
Fiscal effect (1-yr)	$500–700 million in near-term general fund relief (reserve draw + debt restructuring).
Fiscal effect (3-yr)	Bridge exhausted; must be replaced by structural savings from Options 1–4. Net effect depends on reform enactment.
Fiscal effect (5-yr)	Neutral if structural measures are enacted; negative if used as a substitute for reform.
Type	One-time bridge; not a structural solution.
Structural value	Low on its own; High as a complement to structural reform.
Economic impact	Positive short-term (avoids abrupt cuts); neutral to negative if overused (signals fiscal weakness to rating agencies).
County/local impact	Positive: prevents abrupt cuts to state aid that counties depend on for school and health funding.
Implementation req.	Legislative appropriation with conditionality language; replenishment plan required within 3 years by statute.
Political feasibility	High. Reserve use in a genuine structural crisis has bipartisan support; the key is the conditionality requirement.
Risks & tradeoffs	If structural reforms are not enacted simultaneously, reserve draw depletes fiscal cushion and triggers credit concern. Moody’s and S&P have noted Maryland’s thin operating margin; a large reserve draw without structural action would increase AAA rating downgrade risk.

Option 6. Tax Competitiveness Reform for High-Income Earners

Table 12. Option 6: Tax Competitiveness Reform — Analysis Summary

Source: Tax Foundation (2026); IRS Statistics of Income Migration Data; Comptroller BRE

Dimension	Assessment
What it is	Raise the income threshold at which Maryland’s top combined state-local marginal rate (up to 9.9%) applies; reduce or rationalize the marginal rate schedule above $500,000 in taxable income; and eliminate the estate/inheritance tax on estates below $10 million. Pair with the revenue broadening in Option 3 to maintain overall revenue neutrality or modest net gain.
Why considered	Maryland’s combined 9.9% top rate is among the highest in the eastern US. Tax Foundation migration data (2026) confirms that net out-migration of high-income earners to Florida, Virginia, and the Carolinas has been persistent and income-tax-rate sensitive. Maryland also has both an estate tax ($5M threshold) and an inheritance tax—one of only a small number of states to levy both—which accelerates the exit of retirees and wealth holders.
Fiscal effect (1-yr)	Near-term revenue cost of $200–350 million GF from rate reduction and estate threshold increase.
Fiscal effect (3-yr)	Revenue impact narrows as retention effects materialize; net cost $300–500 million cumulative but partially offset by reduced out-migration.
Fiscal effect (5-yr)	If paired with base broadening (Option 3), near revenue neutrality or modest net positive as retained taxpayers generate income, sales, and capital gains tax through economic activity.
Type	Recurring; long-term structural improvement to competitiveness.
Structural value	High for long-term tax base strength; near-term cost.
Economic impact	Positive: reduces incentive for high-income household departure; encourages business formation and headquarters retention; reduces capital exit.
County/local impact	Mixed short-term (county piggyback rates affected); positive long-term as high-income retention improves county tax bases.
Implementation req.	Legislative action; Comptroller regulatory updates; requires concurrent base broadening to maintain revenue adequacy.
Political feasibility	Difficult. Opposition from progressive caucus viewing this as a tax cut for the wealthy. Must be framed in terms of net-revenue and competitiveness evidence, paired with base broadening, and focused on rate thresholds rather than absolute rate cuts.
Risks & tradeoffs	Behavioral response (retention effect) takes 3–5 years to fully materialize. Near-term revenue cost is certain; long-term benefit is probabilistic. This option should not be adopted without concurrent base broadening.

Option 7. Federal Contingency Planning and Grant Diversification

Table 13. Option 7: Federal Contingency Planning — Analysis Summary

Source: BRE 60-Day Report (2026); DBM; NASBO Federal Funds Report; Maryland Comptroller

Dimension	Assessment
What it is	Establish a Federal Funding Risk Office within DBM/BRE to provide real-time monitoring of federal grant and contract exposure; require agencies to develop 12-month contingency plans for a 10% federal funding reduction; and accelerate the diversification of federally dependent programs (particularly Medicaid administration, NIH-linked research, and DSHA housing programs) toward state-funded or private-partnership models.
Why considered	With $19.5 billion in federal funds at stake and active federal budget reduction efforts under DOGE and related initiatives, Maryland is uniquely exposed. The BRE 60-Day Report (2026) on the One Big Beautiful Bill highlights potential Maryland-specific federal spending impacts in the multi-billion-dollar range. No state agency currently has a formal federal-contingency planning mandate.
Fiscal effect (1-yr)	Minimal direct savings; avoidance of unplanned mid-year cuts worth $200–500 million if federal reductions materialize.
Fiscal effect (3-yr)	Contingency diversification reduces federal dependency by an estimated 3–5 percentage points; avoidance value $500 million–$1 billion over the period.
Fiscal effect (5-yr)	Structural reduction in federal dependency from 29% to 24–26% of total budget is achievable; avoidance value depends on actual federal policy trajectory.
Type	Operational/administrative; recurring benefit.
Structural value	Moderate-High. Reduces a major tail risk to the fiscal baseline.
Economic impact	Positive: diversification of research and housing funding reduces volatility in key sectors; NIH anchor role can be strengthened through state research-matching programs.
County/local impact	Significant positive for Baltimore City and surrounding counties where federal grant dependency is highest in social services and housing.
Implementation req.	Executive order plus legislative appropriation for Risk Office ($5–10 million/yr); no statutory barrier; 6-month implementation timeline.
Political feasibility	High. Risk management framing has strong bipartisan support; it does not require new taxes or spending cuts.
Risks & tradeoffs	Diversification may require higher state spending to replace federal programs. The goal is managed reduction, not abrupt elimination. Maryland’s research institutions depend on federal funding; diversification must be careful not to reduce R&D investment that anchors the innovation economy.

Section 6. Integrated Policy Packages

The seven options in Section 5 are most effective when combined into coherent packages that address spending, revenue, and operations simultaneously. Three packages are presented below—Spending-Focused (Package A), Balanced Mix (Package B), and Structural Reform + Growth (Package C)—each reflecting a different political and fiscal strategy.

Table 14. Comparison of Three Integrated Policy Packages

Source: Author analysis; based on DLS fiscal projections and peer-state experience

► Package B is the most balanced and most likely to achieve durable fiscal stabilization.

Dimension	Package A (Spending-Focused)	Package B (Balanced Mix)	Package C (Structural Reform + Growth)
Primary mechanisms	Blueprint sequencing + Medicaid reform + Admin efficiency	Options 1–4 + partial reserve bridge	Options 1, 3, 4, 6 + Option 7 + growth incentives
Est. 1-yr gap closure (FY2029)	$1.0–1.5B	$1.4–2.0B	$0.8–1.3B
Est. 3-yr gap closure (FY2031)	$2.0–3.0B	$2.5–3.5B	$2.0–3.5B
Est. 5-yr gap closure (FY2033)	$3.0–4.5B	$3.5–5.0B	$4.0–6.0B
Deficit closure (share of gap)	40–60%	55–75%	60–85% (FY2033)
Timing of fiscal relief	Fastest (FY2029)	Moderate (FY2029–2030)	Slowest early; strongest long-term
Growth effects	Neutral	Slightly positive	Significantly positive
Service implications	Moderate cuts to programs	Minimal cuts if well-designed	Mixed; targeted reforms
Revenue changes	Minimal	Moderate broadening	Significant restructuring
Implementation risk	Moderate	Moderate-High	High
Political risk	Moderate (teacher unions, counties)	Moderate	High (broad stakeholder opposition)

Package A: Spending-Focused Stabilization

Package A relies primarily on spending restraint: phased Blueprint sequencing (Option 1), Medicaid managed care reform (Option 2), and agency consolidation (Option 4), with limited reserve use (Option 5, capped at $250 million) and no new taxes. This package is the most politically viable in the near term, as it avoids new revenue measures. However, it faces implementation risk because the spending savings—particularly from Blueprint phasing—require legislative action and AIB concurrence. If savings targets are not met, the package delivers only $600–900 million in year one instead of the projected $1.0–1.5 billion.

Service implications: Package A requires restraint in K-12 education expansion pace, Medicaid provider rate growth, and state agency headcount. Counties will experience slower state aid growth, increasing pressure on local property tax rates. Without a revenue component, Package A does not improve Maryland’s tax competitiveness and leaves the structural revenue weakness unaddressed.

Package B: Balanced Mix (Recommended Baseline)

Package B combines Blueprint sequencing (Option 1), Medicaid reform (Option 2), targeted revenue broadening (Option 3), administrative efficiency (Option 4), a limited reserve bridge (Option 5, capped at $400 million with conditionality), and federal contingency planning (Option 7). This package addresses the deficit from both sides—spending and revenue—and builds institutional resilience. Estimated gap closure of 55–75% over five years, assuming full enactment by January 2028, is the most realistic achievable scenario under current political and economic conditions.

Package B is the primary basis for the Baseline vs. Policy Forecast in Section 7. It is recommended as the foundation for FY2028 budget planning.

Package C: Structural Reform + Growth

Package C is the most ambitious and highest-risk option. It combines all seven options, including the tax competitiveness reform (Option 6), and requires concurrent base broadening and rate rationalization. Package C is most likely to produce durable long-term fiscal balance and improved economic performance, but its implementation risk is highest: it requires legislative supermajority support, business and advocacy coalition-building, and sustained multi-year execution. For a state facing a near-term crisis, Package C’s slow near-term payoff is a significant drawback; however, its long-term economic and fiscal dividends are substantially larger than Package A or B.

Section 7. Baseline vs. Policy Forecast

The following projections assume Package B is enacted in January 2028, with implementation of Blueprint phasing (Option 1), Medicaid reform (Option 2), revenue broadening (Option 3), and administrative efficiency (Option 4) beginning in FY2028. Reserve bridge (Option 5) is deployed in FY2028–FY2029. Federal contingency planning (Option 7) begins immediately upon enactment. All estimates are directional ranges; avoiding false precision is intentional.

Projection Assumptions and Limitations Baseline uses the enacted DLS structural-gap outlook where available: $598 million in fiscal 2027, $2.57 billion in fiscal 2028, and $3.43 billion in fiscal 2030. For years beyond the published DLS table, this report uses scenario ranges built from DLS’s statement that ongoing revenues grow about 3.0% annually while ongoing spending grows 5.8% from fiscal 2027 through 2031 (DLS, 2026 90-Day Report, p. 27). Policy scenario assumes all Package B measures are enacted by January 2028 and implemented with moderate success. Federal funding changes are treated as a risk range, not a point estimate. Projections extend only 5 years (FY2033) due to compounding uncertainty beyond that horizon.

7.1 General Fund Structural Gap

Table 15. General Fund Structural Gap: Baseline vs. Package B Policy Scenario

Source: DLS, 2026 90-Day Report, pp. 26-27; author scenario analysis for FY2029-FY2033

► Package B is modeled as materially reducing, but not automatically eliminating, the structural gap within five years.

Fiscal Year	Baseline Gap (Low–High)	Policy Scenario Gap (Low–High)	Improvement vs. Baseline
FY2027 (current enacted)	$598M	$598M	— pre-enactment
FY2028 (enactment year)	$2.57B	$2.1–2.4B	$0.2–0.5B improvement
FY2029 (yr 1 policy)	$2.9–3.4B	$1.9–2.6B	$0.8–1.4B improvement
FY2031 (yr 3 policy)	$3.8–4.6B	$1.4–2.4B	$2.0–2.7B improvement
FY2033 (yr 5 policy)	$4.4–5.5B	$0.8–1.8B	$3.0–4.2B improvement

7.2 Reserve Position

Table 16. Reserve Position: Baseline vs. Policy Scenario

Source: DLS, 2026 90-Day Report, pp. 12, 26, 28; author scenario analysis

► * Includes $400M reserve bridge draw in FY2028; replenishment begins FY2030.

Fiscal Year	Rainy Day Fund (Baseline)	Rainy Day Fund (Policy)	GF Closing Balance (Baseline)	GF Closing Balance (Policy)
FY2027	$2.2B (8.0%)	$2.2B (8.0%)	$201M	$201M
FY2028	$1.9–2.1B (6.8–7.5%)	$1.8–2.0B (6.5–7.2%)*	$50–150M	$150–350M
FY2030	$1.4–1.9B (5–7%)	$1.9–2.3B (7%+)	Minimal	$250–600M
FY2033	$0.9–1.5B (3–5%)	$2.1–2.7B (7.5%+)	Persistent pressure	$300–800M

Under the baseline (no major policy change), Maryland can preserve reserves for a time, but doing so becomes increasingly difficult as the structural gap widens after fiscal 2028. Under Package B, the reserve is used more explicitly as a smoothing device while recurring measures are phased in, improving the odds that the State maintains an investment-grade reserve posture rather than drifting into serial one-time balancing.

7.3 Revenue Trajectory

Table 17. General Fund Revenue Trajectory: Baseline vs. Policy Scenario

Source: DLS, 2026 90-Day Report, p. 27; author indexed scenario analysis

► * Policy uplift in FY2028 reflects revenue-base broadening and compliance measures under Option 3.

Fiscal Year	GF Revenue (Baseline)	GF Revenue (Policy)	Revenue Growth (Baseline)	Revenue Growth (Policy)
FY2027	Indexed at 100	Indexed at 100	—	—
FY2028	103	104-105	~3.0%	~4.0-5.0%*
FY2030	109	113-116	~3.0%	~3.5-4.5%
FY2033	119	127-134	~3.0%	~3.5-4.5%

7.4 Employment and Wages

Table 18. Employment Outlook: Baseline vs. Policy Scenario

Source: BLS Maryland Economy at a Glance (Jan 2026); Author projections

► Policy scenario improvements are driven primarily by tax competitiveness and federal-contingency stabilization.

Indicator	FY2026 Current	FY2028 Baseline	FY2028 Policy	FY2030 Policy	FY2033 Policy
Total Nonfarm Employment (000s)	~2,789	~2,740–2,780	~2,790–2,830	~2,870–2,940	~3,000–3,080
12-mo Employment Change	(1.9%)	(0.5–1.0%)	0.5–1.0%	1.5–2.0%	2.0–2.5%
Unemployment Rate	4.3%	4.0–4.5%	3.8–4.2%	3.5–4.0%	3.2–3.7%
Private Sector Wage Growth (est.)	~2.0%	~2.5%	~3.0%	~3.5%	~4.0%

7.5 Competitiveness and Business Activity

Under the baseline, Maryland’s 46th-place tax competitiveness ranking (Tax Foundation 2026 State Tax Competitiveness Index) remains unchanged or deteriorates as other states continue reforming their tax structures. Net domestic out-migration of high-income households persists, with an estimated net loss of 5,000–8,000 high-income filers annually. Business formation rates remain below pre-2017 levels.

Under Package B (with Option 6 added in Package C), Maryland’s competitiveness ranking could improve to the 35th–40th range by FY2030, driven by base broadening (which is competitively neutral or positive), administrative efficiency (which reduces effective compliance costs), and federal-contingency stabilization (which reduces business and investor uncertainty). Net out-migration slows to 2,000–4,000 high-income filers annually by FY2030. Business formation rates return to 2016–2018 trend levels.

7.6 County and Local Fiscal Effects

Maryland’s counties and Baltimore City are directly affected by the state deficit through three channels: (1) state aid levels for education and health, (2) county income tax piggyback revenues, and (3) Blueprint local cost-share obligations.

County effects are directionally clear even where precise out-year amounts vary. DLS and county fiscal commentary indicate that local governments face modest revenue growth alongside rising cost pressure from state policy choices, federal reductions, and Blueprint-related obligations. Under the baseline, those pressures increase reliance on local property tax and fee decisions. Under Package B, Blueprint sequencing and better state fiscal alignment reduce the likelihood that the State pushes adjustment costs disproportionately onto counties.

Section 8. Prioritization Matrix

The matrix below ranks the seven policy options by expected fiscal impact and implementation feasibility, distinguishing near-term wins, medium-term reforms, and long-term structural shifts. Impact scores reflect estimated recurring annual fiscal value at year 3. Feasibility scores reflect political, administrative, and legal complexity.

Table 19. Policy Option Prioritization Matrix

Source: Author assessment; DLS fiscal projections; peer-state benchmarks

► Options 2 (Medicaid), 1 (Blueprint), and 7 (Federal Contingency) offer the best composite scores.

Option	Category	Est. Recurring Value (Yr 3)	Impact Score (1–10)	Feasibility Score (1–10)	Composite (Impact × Feas.)	Timeline	Priority
1. Blueprint Phasing	Spending	$600M–$1.0B/yr	9	6	54	Medium-term	★★★★★
2. Medicaid Reform	Spending	$300–500M/yr	7	8	56	Near-term	★★★★★
3. Revenue Broadening	Revenue	$400–600M/yr	8	6	48	Medium-term	★★★★
4. Agency Consolidation	Operations	$150–300M/yr	5	7	35	Near-term	★★★
5. Reserve Bridge	Bridge	$400–700M one-time	4	9	36	Near-term	★★★
6. Tax Competitiveness	Revenue/Growth	Net cost near-term; +$200–400M/yr yr5+	8 (long-term)	4	32	Long-term	★★★
7. Federal Contingency	Risk Mgmt	$200–500M avoidance	6	9	54	Near-term	★★★★★

8.1 Near-Term Wins (FY2027–FY2028)

• Option 2 (Medicaid Reform): Highest composite score; within existing state authority; bipartisan; first savings visible in 12–18 months.
• Option 7 (Federal Contingency Planning): Lowest cost to implement; highest political feasibility; risk-avoidance value is substantial given current federal environment.
• Option 4 (Agency Consolidation): First tranche of savings via attrition and IT rationalization achievable within 18 months.
• Option 5 (Reserve Bridge): Deploy in FY2028–FY2029 only if concurrent structural reforms are enacted; treat as a bridge, not a solution.

8.2 Medium-Term Reforms (FY2028–FY2030)

• Option 1 (Blueprint Phasing): Largest single savings opportunity; requires legislative action and AIB engagement; most impactful medium-term measure.
• Option 3 (Revenue Broadening): Requires careful design and phase-in to avoid competitiveness harm; recommended paired with Option 6 preparation.

8.3 Long-Term Structural Shifts (FY2030+)

• Option 6 (Tax Competitiveness Reform): Most transformative for long-run growth and tax base quality; requires political will and concurrent base broadening. Begin design in FY2027 legislative session.

Summary Ranking for Policymakers If forced to choose three immediate priorities: (1) Begin Medicaid managed care reform immediately—highest near-term impact, lowest political risk. (2) Establish the Federal Funding Risk Office immediately—free option against a major risk. (3) Introduce Blueprint phasing legislation in FY2027 session—the most consequential medium-term action, with the largest structural value.

Section 9. Final Recommendation

9.1 Core Strategic Judgment

Maryland’s structural deficit is real, growing, and dangerous. It is not primarily a revenue problem or a spending problem in isolation—it is a structural alignment problem: spending obligations were designed and enacted under assumptions about economic growth and federal support that have not materialized. Closing the gap requires action on both sides, structured over a realistic 4–5 year reform timeline, with near-term bridging measures to prevent service disruption.

The most important policy insight from the analysis is this: actions that improve Maryland’s long-run economic growth rate are worth significantly more than equivalent one-time savings, because they permanently expand the tax base on which all future budgets depend. Exact Maryland yield estimates are uncertain, but the policy direction is not: a broader and faster-growing private tax base reduces the need for repeated rate increases or emergency cuts. Growth and fiscal repair are not in tension; they are the same strategy pursued from different angles.

9.2 Recommended Action Sequence

Table 20. Recommended Action Sequence

Source: Author recommendation; DLS; DBM

► Speed matters because DLS shows the structural gap widening sharply beginning in fiscal 2028.

Timeline	Action	Lead	Expected Fiscal Value
Immediately (2026)	Establish Federal Funding Risk Office	DBM / BRE	Risk avoidance; $0 direct cost
Immediately (2026)	Begin Medicaid MCO renegotiation and integrity program	DHMH / DBM	$100–150M GF yr 1
FY2027 Legislative Session	Introduce Blueprint phasing legislation	Governor / MGA	$400–700M GF by FY2029
FY2027 Legislative Session	Introduce revenue broadening proposal (digital goods + select services)	Governor / Comptroller	$300–500M GF by FY2029
FY2027–2028	Agency consolidation and IT shared services plan	DBM / DoIT	$80–150M GF by FY2029
FY2028 (if needed)	Reserve bridge draw, conditioned on legislative enactment of recurring measures	BdPW / MGA	One-time: $300–400M
FY2028–2029	Begin design of tax competitiveness reform for FY2030 enactment	Governor / Comptroller / MGA	Long-term: +$200–400M/yr by FY2033

9.3 Conditions for Success

• Political discipline: The structural deficit cannot be closed without some combination of restrained spending growth and new revenues. Any package that relies exclusively on one side is either fiscally inadequate or politically unsustainable.
• Institutional credibility: The BRE, DLS, and AIB must all be involved in the annual validation of savings and revenue projections. One-time measures must be clearly labeled as such; recurring measures must be confirmed as such. The General Assembly’s Budget Committees should require annual structural-balance reporting.
• Reserve protection: The Rainy Day Fund draw in Option 5 must be conditioned on concurrent enactment of recurring gap-closing measures. The Board of Public Works and the Spending Affordability Committee should have joint oversight of the conditionality.
• Economic growth as a co-equal priority: No fiscal repair plan will succeed if Maryland’s private-sector employment continues to contract. The Governor should treat business climate reform, innovation ecosystem investment, and federal-contingency planning as fiscal strategies, not merely economic development aspirations.
• County partnership: MACo and county governments must be partners in Blueprint phasing and Medicaid reform—not adversaries. The local fiscal impact of state decisions is large enough that county opposition to reforms can derail the legislative agenda.

9.4 The Cost of Inaction

What Happens If Nothing Changes Under the current-services baseline—no major policy reforms, Blueprint on schedule, federal funding at current levels—the DLS forecast already shows the structural shortfall rising from $598 million in fiscal 2027 to $2.57 billion in fiscal 2028 and $3.43 billion by fiscal 2030. Beyond that point, the most plausible baseline is continued widening pressure, heavier reliance on one-time actions, and growing conflict over whether to cut services, raise taxes, slow Blueprint implementation, or push costs to counties. The precise endpoint depends on economic growth and federal policy, so this report does not present a false-precision worst case. But the direction of risk is clear and documented: without recurring reforms, the State’s room for maneuver narrows quickly. The choices before the Governor and General Assembly are consequential and time-sensitive.

References

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25. U.S. Census Bureau, 2024. Population Estimates Program: State and County Population Estimates. Maryland population: 6,203,394 (2023). Available at: census.gov

26. BEA, 2026. Regional Data: GDP and Personal Income by State. Current-dollar personal income increased 3.4% annualized in Q4 2025 (state-level). Available at: apps.bea.gov/iTable/?reqid=70

27. Governor of Maryland / Office of the Governor, 2025–2026. Governor Wes Moore: FY2026 and FY2027 Budget Priorities and Press Releases. Available at: governor.maryland.gov