ANNAPOLIS, Md. — The Maryland House of Delegates advanced a budget plan on March 23, 2025, that mitigates some proposed cost shifts to county governments while still imposing significant new financial burdens. The Budget Reconciliation and Financing Act (BRFA) of 2025, now headed to the Senate, addresses a $3.3 billion state shortfall through a mix of over $1 billion in new tax revenue, budget cuts, and cost transfers to local governments. Counties, while successful in blocking some of the most severe proposals, face challenges that could force property tax hikes or service reductions.
The House Appropriations and Ways and Means Committees finalized the BRFA after intense negotiations, rejecting a full shift of teacher pension costs, cuts to local Program Open Space (POS) funding, and reductions to Enterprise Zone tax credits. However, the plan still shifts $97.7 million in partial teacher pension costs to counties, alongside a 90% funding mandate for the State Department of Assessments and Taxation (SDAT), a phase-out of teacher retirement supplemental grants, and a requirement that counties pay half of wrongful incarceration compensation settlements.
The Maryland Association of Counties (MACo) has voiced concerns over these shifts, arguing they exacerbate an already strained fiscal landscape. Counties currently contribute $1.4 billion more to public school funding in fiscal 2026 than required under the Blueprint for Maryland’s Future, according to the Department of Legislative Services (DLS). Gaps in state funding for special education ($1 billion annually) and student transportation ($500 million annually) have forced local governments to bridge the difference, a burden worsened by inflation and post-COVID economic shifts.
New revenue measures in the BRFA include a 6.25% income tax rate on incomes between $500,001 and $1 million, and 6.5% on incomes above $1 million, raising $344 million. A 2% surcharge on capital gains over $350,000 will generate $367 million, split between the General Fund and the Transportation Trust Fund. A 3% sales tax on data and IT services is projected to bring in $497 million, while increases in vehicle excise taxes (from 6% to 6.8%, yielding $158 million) and doubled titling fees ($200, yielding $80 million) bolster transportation funding.
Counties secured a modest win with the option to raise local income tax rates from 3.2% to 3.3%, providing limited fiscal flexibility. However, MACo contends this falls short of addressing the structural issues driving local budget pressures. The House also scaled back the governor’s income tax proposal, softening increases to the standard deduction and limits on itemized deductions, reducing the fiscal hit to counties. The Comptroller’s office is still analyzing the full revenue impact.
Among the most contentious shifts, the SDAT mandate requires counties to fund 90% of the agency’s $21.2 million annual cost despite having no control over its operations. Critics argue this undermines accountability, as SDAT’s property assessments directly affect county revenue yet remain a state-managed function. The phase-out of the teacher retirement supplemental grant, halved in fiscal 2026 and eliminated by 2027, adds a $13.8 million burden, while the wrongful incarceration compensation shift forces counties to pay for state judicial outcomes.
The budget framework, announced Thursday by the Speaker of the House, Senate President, and Gov. Wes Moore, set the stage for these decisions. Counties successfully preserved Enterprise Zone tax credits, vital for economic development, and local POS funding, which supports parks and recreation. Still, the partial teacher pension shift—down from a proposed $195.5 million to $97.7 million—remains a significant concern, as counties lack authority over pension policies.
As the BRFA moves to the Senate, counties are bracing for further debate. MACo plans to advocate against additional cost shifts, emphasizing the need for sustainable state funding. The DLS analysis underscores that local governments already shoulder substantial education costs beyond state mandates, a trend the current plan does little to alleviate. With rising costs and uncertain federal support, counties face tough choices ahead.
The transportation sector sees notable revenue boosts, including a sports wagering tax increase from 15% to 20% ($32 million), a cannabis sales tax hike from 9% to 12% ($39 million), and a 3.5% excise tax on short-term car rentals ($47 million). Vehicle registration fees will accelerate ($51 million), and the Vehicle Emissions Inspection Program fee will rise to $30 ($20 million). These measures aim to stabilize the Transportation Trust Fund amid growing infrastructure demands.
Counties’ ability to manage these new responsibilities hinges on Senate deliberations. The BRFA’s final form will determine whether local governments can maintain essential services without drastic tax increases or cuts. For now, the House plan reflects a compromise—averting the worst of the proposed shifts while leaving counties to navigate a challenging fiscal future.
