DLS: Governor—s FY26 plan narrows shortfall but leaves structural gap

The Department of Legislative Services told the Health and Government Operations Committee that the governor—s FY26 spending plan reduces a projected shortfall for FY26 but leaves a growing structural gap in later years.

Tanya Zimmerman, operating budget manager, Office of Policy Analysis, Department of Legislative Services, said "All across all funds the budget increases by about $790,000,000 or 1.2%." She told the committee the plan reduces a multi‑year shortfall so the general‑fund balance would be about $106 million at the end of FY26 and the rainy‑day fund would be about $2.1 billion (roughly 8 percent of general fund revenue).

Why it matters: DLS said ongoing spending in the governor—s allowance exceeds ongoing revenue by about $186 million in FY26, a shortfall that grows in later years under current policy. The office warned the largest out‑year pressure is implementation of the Blueprint for Maryland—s Future, which will shift costs to the general fund when dedicated balances are exhausted.

Most important facts: DLS staff described how the governor—s package uses revenue proposals and transfers included in the companion budget reconciliation and financing legislation to narrow the gap. Key revenue items cited included a personal income tax reform that DLS estimates would raise about $692 million in FY26 and a capital‑gains surcharge expected to raise about $128 million. The briefing noted roughly $1 billion in spending reductions tied to BRFA measures and other actions, and additional fund swaps and transfers that affect special funds, MDOT support, and the Blueprint fund.

Zimmerman walked members through the structural outlook charts, saying the DLS December forecast had shown a larger deficit that the governor—s plan reduces for FY26 but does not eliminate for later years. She also listed major categories of policy change driving reductions or increases, including proposals that cap childcare enrollment, reduce some higher education support, and contain costs in the Developmental Disabilities Administration, as well as increases in Medicaid spending and several targeted initiatives.

Questions from committee members focused on tradeoffs: delegates asked about how the personal income tax changes would affect low‑ and middle‑income households; how much of the budget change reflects one‑time transfers versus ongoing revenue; and the mechanics and incidence of a proposed increase in the hospital deficit assessment that the BRFA would raise by $50 million in FY25 and $100 million in FY26.

The briefing concluded with DLS telling members it will produce fiscal notes and additional details during the hearing cycle and that several items remain contingent on BRFA enactment and future administrative action.

Looking ahead: Committee members asked for follow‑up materials on revenue estimates, the BRFA fiscal note and the hospital assessment mechanics; DLS analysts offered to provide those documents to the committee.