For the past couple of years, Maryland’s state government has been flush with cash thanks to an economy rebounding from the coronavirus pandemic and an influx of federal money from the American Rescue Plan, CARES Act and other stimulus programs.
Those days are in the past.
That was the warning from Gov. Wes Moore on Saturday as he addressed local leaders at the Maryland Association of Counties conference in Ocean City, telling them the state is entering “a new season of challenge.”
“I’m going to be transparent and clear-eyed about what we have and what we’re up against,” the Democratic governor said. “I’m going to tell you what it will take from every single one of us in order to come out stronger. And I am here to tell you that we will.”
Budget shortfalls could be coming in the future, Moore warned.
Despite the sobering message issued in the speech, the governor’s remarks were repeatedly punctuated with applause from several hundred officials in the audience. As he closed the 26-minute speech by saying this is a moment for Maryland to thrive despite budget challenges, audience members jumped to their feet in a standing ovation.
Moore noted that Maryland is lagging behind other states — and behind the nation as a whole — when it comes to economic growth. For example, in 2022, Marylanders’ personal income grew by 1.3%, compared to 2.4% nationwide.
And, in terms of employment, Maryland has not fully returned to pre-pandemic levels of participation in the labor force. (The latest federal unemployment numbers, however, show Maryland at an extraordinarily low 1.8% unemployment rate, down from 3.2% last summer.)
“While our budgets have only gotten bigger over time, our economy has not,” Moore said. The economy, he said, “is not keeping pace.”
The outlook is not entirely negative. The governor pointed to “untapped potential” that can drive Maryland’s economy, such as the strength in the education system, the state’s diversity and a concentration of federal labs and cybersecurity facilities.
“Maryland has some of the best assets in the world. But our economy is not reaching its full potential,” Moore said.
The governor did not offer specifics on how he plans to deal with the worsening financial picture, such as spending cuts or increasing taxes.
Moore spoke broadly of three principles that will “guide our work and build a responsible budget”: taking a balanced approach, using data and prioritizing spending in a way that grows the economy in the long term.
He plans to hire a chief performance officer charged with “monitoring the progress that we’ve made and the progress that still needs to happen.”
Moore said there will need to be a focus on “discipline” — including from himself.
“Yes — it’s going to take the discipline of the governor, who as much as I want to say ‘yes,’ you are going to hear some ‘no’s,’” Moore said.
Signs have been pointing to a potentially tough budget picture for a while. A report from nonpartisan legislative analysts in June warned that, while the state’s $63 billion budget is in balance now, it will soon have a projected deficit of hundreds of millions of dollars. By 2028, the shortfall will grow to $1.8 billion if no actions are taken.
That structural deficit eventually will need to be rectified because the state is legally required to have a balanced budget each year.
The state’s financial picture will start to become clearer next month, when the Office of the Comptroller issues a report estimating how much money will be coming into the state government for the next budget year.
The worsening economic outlook presents a challenge for Moore, a rising star in the Democratic Party who has articulated broad goals for his time in office, including eliminating childhood poverty and rebuilding the state government’s workforce by hiring thousands of workers to open positions.
In his first months in office, Moore successfully pushed to enhance tax credits for the working poor and low-income families with children — essentially making permanent temporary boosts enacted at the height of the pandemic. He also successfully sponsored an increase in the minimum wage, bringing it to $15 per hour starting Jan. 1.
Those initiatives come at a cost to the state, though. Future minimum wage increases will likely lead to higher salaries for some state workers and increased reimbursements to organizations that provide services to people with disabilities and with behavioral health issues.
Those measures combined with others passed by the General Assembly this year will result in $886 million less coming into the state, as well as $500 million more in required spending over the next five years, according to the nonpartisan report.
The state and county governments together are on the hook to spend billions more on public schools through the Blueprint for Maryland’s Future, an ambitious plan approved in 2020, before Moore took office.
Ahead of the speech, senior officials in the Moore administration defended those measures as necessary investments that will reap benefits for the individuals affected and the economy as a whole.
They also noted that, as Moore started his term with a record surplus, he used that to fill up the state’s Rainy Day Fund and set aside money for future transportation and education needs, and spent the rest on one-time projects, rather than funding ongoing programs.
The state has tapped new sources of income in recent years, legalizing gambling on sports and recreational cannabis use. Although both have proven popular with the public, neither industry is sending vast amounts of cash to the state.
Moore’s speech capped the four-day summer conference, which draws some 3,000 politicians, government workers, government contractors, lobbyists and a handful of journalists to Ocean City’s convention center each August.
Moore was at the conference from Thursday through his closing speech Saturday and did not field questions from reporters during his time in Ocean City. Lt. Gov. Aruna Miller spoke to reporters after Moore’s speech to amplify his message.
“We know that there’s going to be deficits,” Miller said, noting that 17 of the past 20 state budgets were balanced using cuts. “The governor believes how we can address the budget going forward is to grow the economy.”
This article has been updated to correct an error about the minimum wage increase. The wage minimum wage will be $15 per hour on Jan. 1, and no further increases are scheduled.