Maryland lawmakers concluded the most tumultuous state budget process in years with just hours to spare on Monday, sending Gov. Wes Moore a plan that plugs a dramatic deficit by making roughly $2 billion in spending cuts and enacting $1.6 billion in tax increases or shifts.

The $67 billion budget raises income taxes on Maryland’s wealthiest earners, imposes sales taxes on certain technology services for the first time and makes dozens of other changes both large and small — from a new $5 tire fee to increasing the cannabis and sports gambling taxes.

Cuts to planned spending across state government programs include support for local governments, the advancement of certain education plans and public employee hiring.

Moore indicated he would sign the package, the framework for which he and Democratic legislative leaders agreed on in March.

“I did not get everything I wanted, but I feel like it’s very real progress,” Moore told The Baltimore Sun’s editorial board during an interview Monday morning.

House and Senate budget negotiators finished sorting out the remaining details Friday. The final budget votes on Monday — less than 12 hours before the midnight deadline of the annual 90-day lawmaking sprint — highlighted the complex situation legislators faced this year.

After entering the session in a $3 billion hole, they warned that budget talks would come down to the wire because of both disagreements over how to resolve it and because of President Donald Trump’s deluge of actions that kept Maryland officials guessing about the financial hit to the state.

Trump’s firing of federal workers, for instance, was the primary reason for a nearly $300 million addition to the deficit halfway through the session. Other federal changes after lawmakers adjourn on Monday could force them to come back to Annapolis before their scheduled return in January.

Democrats control a supermajority of both the 47-member state Senate and the 141-member House. Five Democrats in the Senate and eight in the House ultimately joined all of their Republican colleagues in voting against the Budget Reconciliation and Financing Act — the companion legislation to the state budget that includes the tax changes — on Monday after they made similar votes in recent weeks.

Republicans had spent months railing against the budget decisions, saying there should have been a heavier focus on cutting programs — including major cost drivers like Medicaid and the education-focused Blueprint for Maryland’s Future — and less on taxes. Still, some acknowledged it wasn’t as progressive as other plans floated this year.

Sen. Justin Ready, a Republican representing Carroll and Frederick counties, said during the final votes that the budget could have “been worse” from a tax perspective.

“I think we need to have the attitude of being much more willing to reexamine everything that we’re doing in state government long-term, because we cannot continue to raise the tax burden and the cost of living on working families,” Ready said.

‘No good decisions’

Democrats said the tax package, combined with the cuts they made, struck the right balance and turned a major deficit into a roughly $350 million cash balance at the end of the year.

“There were almost no good decisions,” said Senate President Bill Ferguson, a Baltimore Democrat. “It was, how do you make the least bad decision the best it can be.”

Del. Ben Barnes, a Prince George’s County Democrat who led the House Democrats in budget negotiations, said the structurally balanced budget was “a miracle” when considering what the state was up against this year.

“We present a budget that projects our shared values and priorities, while putting Maryland on a strong footing as we face continued uncertainty from the federal government,” Barnes said.

The final budget will turn the immediate cash deficit into a $317 million positive balance at the end of the fiscal year beginning July 1, and it wipes out all but $150 million of a projected $2.9 billion structural deficit for the following fiscal year, according to nonpartisan state fiscal analysts with the Department of Legislative Services.

It keeps $2.4 billion in cash reserves, “a prudent hedge against potential uncertainty,” DLS reported.

The budget reduces spending in the state’s general fund by $400 million compared to the current fiscal year, though overall spending — which factors in federal and other special funds — increases just slightly, by 0.1%.

Among the last-minute changes made to the budget bills on Friday was a slight narrowing of the roughly $500 million-per-year sales and use tax on technology that Democrats had proposed and fast-tracked in recent weeks.

The tax is the largest element of the $1.6 billion revenue package — a significant haul after lawmakers failed to pass new revenue streams to cover programs like the Blueprint for Maryland’s Future education reform plan, which will be the state’s largest cost driver in the coming years.

The final version of the 3% technology tax — which is half of the regular state sales tax rate — on data, information technology and software publishing. Quantum computing, cloud computing and cyber work are exempt.

The tax package also creates two income tax brackets above the current maximum rate of 5.75% for individuals making over $250,000. Under the new law, single filers making more than $500,000 will pay 6.25% and filers making more than $1 million will pay 6.5%.

Fair Share Maryland, a coalition of more than 75 organizations that had advocated for such a change for years, celebrated it finally passing — along with other elements the group backed, like a 2% tax on capital gains for higher earners and phasing out the ability for itemized deductions for taxpayers making over $200,000.

“These provisions will help rebalance Maryland’s upside-down tax system that currently has those earning the least paying a higher proportion of their taxes than the wealthiest Marylanders,” said Kali Schumitz, vice president for external relations with the Maryland Center on Economic Policy. “These provisions are a fair way to help the state generate revenue needed to fund key community priorities. Gov. Moore and the legislature deserve credit for passing this package.”

‘Increases on Main Street’

Others, meanwhile, continued to deride those and the addition of the sales tax.

“Despite the ongoing economic challenges facing Maryland’s small businesses, the General Assembly decided to go forward with tax and fee increases on Main Street and further exacerbate those challenges,” said Mike O’Halloran, a lobbyist for the Maryland chapter of the National Federation of Independent Business. “Unfortunately, lawmakers have only made it more difficult to run a small business in Maryland.”

Beyond the revenues passed to prop up the state’s general fund, lawmakers also included $500 million in new funding for the depleted transportation trust fund. Lagging financial support for that fund has led to the state pulling back on planned improvements to roads, transit and other infrastructure.

The new transportation funds will come from increases to the state’s vehicle excise tax rate and certificate of title fees, accelerating vehicle registration fee increases passed last year, imposing a new $5 fee on tires and more.

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Natalie Jones and Hannah Gaskill contributed to this report.

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