Committee hears fiscal briefing on governor’s proposed FY26 budget, tax changes and program cuts

Charles Romans, a staff member presenting a fiscal briefing to the Judicial Proceedings Committee, told members the governor’s fiscal 2026 budget proposal totals about $67.3 billion and would grow roughly $800 million over fiscal 2025. "There is a cash balance of $106,000,000 at the end of fiscal '26," Romans said, and the state also holds about $2 billion in its rainy day fund, roughly 8% of general fund revenues.

The briefing outlined that the governor’s plan does not meet the Spending Affordability Committee’s structural-balance goal: Romans said the proposal is about $186 million short of structural balance and that the administration has included a Budget Reconciliation and Financing Act that contains roughly $3 billion in balancing actions. "The act includes about $3,000,000,000 of actions that ... erase that deficit and leave you with a $106,000,000 fund balance at the end of the year," Romans said.

Why it matters: the package mixes revenue changes, transfers and spending reductions rather than relying on one approach. Romans described roughly $1.3 billion in revenue adjustments (he cited nearly $700 million from personal income tax reform), about $633 million in transfers and roughly $1 billion in spending reductions. Key reductions include placing about $420 million less into the rainy day fund than current statute requires and shifting roughly $93 million in teachers’ retirement costs to local governments in perpetuity; Romans noted the net state-to-local cost shift in the plan is about $144 million.

Major program and revenue items. Romans highlighted several concrete items in the governor’s proposal: • Income-tax changes: the administration projects about $820 million in income-tax revenue changes in FY26. The plan would simplify lower-bracket rates to a consolidated 4.7% rate for some low- and mid-income slices while adding two new top brackets (about 6.25% and 6.5%) that would take effect at very high incomes. The proposal also would impose a temporary 1% surcharge on capital-gains income for taxpayers with taxable income above $350,000 for four years; Romans said that surcharge is projected to raise about $128 million and finance a temporary economic stimulus package. He also said the governor would double Maryland’s standard deduction (to $5,610 for individuals and $11,200 for joint filers) and eliminate the ability to itemize state deductions.

• Business, corporate and estate changes: the governor would institute combined reporting for corporate income tax and reduce the corporate tax rate in stages (from 8.25% toward 7.99% over two years), and would eliminate the state inheritance tax while lowering the estate-tax exemption from $5 million to $2 million; Romans said administration scoring shows those estate changes as roughly revenue-neutral overall.

• Transportation and fees: the proposal would add a 75¢ retail-delivery fee (once per order, not per package) projected to raise about $225 million annually and would limit the vehicle trade-in allowance so it applies only when the buyer purchases a vehicle valued at $15,000 or less.

• Education and the Blueprint Fund: K–12 aid would increase in total dollars, but the governor’s plan includes cost-containment steps for the Blueprint Fund. Romans said the governor would fund the Consortium on Coordinated Community Supports at $40 million a year instead of the statute’s $130 million (saving roughly $90 million) and delay funding for reduced teacher classroom time (shifting implementation from FY26 to FY30) to produce near-term savings (about $124 million in FY26). He said the concentration-of-poverty program would be fully funded in FY26 but have paused growth in FY27–FY28.

• Program cuts and caps: the governor would cap childcare scholarship enrollment at about 42,000 children (the current level), below forecasted demand; public higher education (the University System of Maryland) would see roughly $106 million less in FY26 compared to FY25 in Romans’ summary; the Developmental Disabilities Administration would see cost-containment steps producing roughly $97 million in FY25 savings and about $235 million in FY26 in general-fund savings.

• VOCA and victim-services funding: Romans said current law requires a $60 million combined state-and-federal annual mandate for Victims of Crime Act (VOCA) funds. The governor proposes capping the state obligation at about $35 million, which Romans said responds to a projected federal decline but leaves the allocation method and provider impacts to be determined during the budget process.

• Medicaid and fiscal risk: Romans told the committee the administration is accounting for higher-than-expected Medicaid enrollment and medical-inflation pressures; the recent unwinding of federal continuous-coverage waivers produced higher enrollment that contributed to a near-term deficit that the BRFA would address. He warned the long-term structural outlook still shows multi‑billion-dollar gaps by the end of the decade even with the governor’s package.

• Child Victims Act liability: Romans said roughly 3,500 claims related to the Child Victims Act of 2023 have been filed and characterized as potentially credible; he said the maximum tort liability in individual cases is $890,000 and that the Attorney General’s Office has hired outside counsel to negotiate possible settlements. He emphasized there is no settlement money currently reserved in the budget and that any settlement likely would require a separate appropriation if reached before the session ends.

Questions and committee concerns: committee members pressed staff on the local impacts of cost shifts (Romans pointed them to county-by-county figures cited on page 60 of the briefing), on the distributional effects of eliminating itemized deductions (Romans said about 23% of Marylanders itemize and that county-level analyses were being prepared), on the effect of the capital-gains surcharge and stimulus items, and on how VOCA reductions would affect service providers (Romans said allocation details were not yet available). Members also raised concerns about property-assessment and tax-yield shifts for specific counties, the proposed pause in concentration-of-poverty growth, and the planned reduction in the rainy-day contribution.

No formal committee actions or votes were recorded in the transcript of the fiscal briefing; the session concluded with committee members thanking Romans and moving to a short break before bill hearings.