David Romans, a fiscal analyst with the Department of Legislative Services, told the Education, Energy, and the Environment Committee that the governor’s fiscal 2026 budget totals about $67.3 billion and “on a cash basis, it is balanced. It has a $106,000,000 general fund surplus at the end of fiscal 26.”

The governor’s plan narrows the multi‑year structural gap relative to the December forecast but does not achieve structural balance, Romans said. He described a package of statutory changes in a Budget Reconciliation and Financing Act (BRFA) that together involve roughly $3.0 billion of actions and include both revenue increases and spending reductions.

Why it matters: the proposal would generate revenues up front while delaying or reducing some statutory commitments (including components of the Blueprint for Maryland’s Future), producing near‑term savings but leaving larger structural shortfalls projected in fiscal 2028–2030 that would require additional policy changes later.

Key budget totals and balances
- Total budget presented: $67,300,000,000 (fiscal 2026). Romans said that under the governor’s proposal the state would show a $106,000,000 general fund surplus on a cash basis in fiscal 2026 and hold over $2.0 billion in the rainy day fund (about 8% of general fund revenues).
- Structural balance: the presentation showed the budget remains out of structural balance by about $186,000,000 for fiscal 2026 and grows into multi‑billion dollar shortfalls by 2028–2030 under current assumptions.

Major BRFA revenue and transfer items
- Romans summarized about $1.3 billion of revenue adjustments inside the BRFA. The single largest revenue item he flagged was nearly $700,000,000 associated with personal income tax reform as described by the administration.
- The proposal would eliminate the state’s revenue volatility cap in the near term, freeing about $272,000,000 of revenue that otherwise would be set aside against volatile capital gains and non‑withholding receipts.
- The governor proposes a four‑year capital gains surcharge equal to 1% of capital gains income for filers above a threshold.
- Transfers to the general fund in the package total about $634,000,000; the largest is a $230,000,000 draw from the Local Income Tax Reserve Fund to be repaid over a 10‑year period beginning in fiscal 2029. The Strategic Energy Investment Fund (SEIF) would transfer $150,000,000 to the general fund under the proposal.

Spending reductions and cost containment
- The BRFA contains more than $1.0 billion in spending reductions. The largest single cut shown is a $420,000,000 reduction in planned deposits to the rainy day fund, with the state nevertheless keeping roughly $2.0 billion in that reserve after the change.
- The governor proposes to increase the annual Medicaid hospital assessment by $100,000,000 (a permanent statutory change), which Romans said would raise the assessment to almost $400,000,000 a year starting in fiscal 2026.

Items affecting local governments and school systems
- Teacher retirement/unfunded liability: under current law local jurisdictions pay the “normal cost” for teacher pensions while the state covers growth in the unfunded liability. The governor’s proposal would require local governments to pay half of the unfunded liability growth in fiscal 2026 (about $93,000,000 of the roughly $180,000,000 growth in unfunded liability), with the state paying the other half. Romans noted this is a permanent change that increases local costs going forward.
- Other local cost shifts: Romans identified several changes that would shift costs to local governments (totaling roughly $144,000,000 across localities), including a greater local share of Department of Assessments and Taxation property assessment costs (proposed to move local share from 50% to 90%) and increased local responsibilities for certain special education and community college retirement costs.
- Local revenue offset: the administration projects about $100,000,000 in additional revenue to local governments from parts of the tax package; Romans said the administration supplied a statewide top‑line number but had not provided county‑by‑county allocations to Legislative Services at the time of the briefing.

Education and Blueprint for Maryland’s Future impacts
- K–12 education: the governor’s budget adds about $551,000,000 in education aid in fiscal 2026 (about a 6% increase overall to local school systems) but includes proposals that pause or reduce near‑term Blueprint growth:
- Behavioral health consortium funding (statute directs $130,000,000 annually) would be capped at the current year funding level of $40,000,000 under the proposal.
- The administration proposes delaying a planned foundation increase for collaborative time for teachers until fiscal 2030 (a four‑year delay) to save about $124,000,000 in fiscal 2026 and larger sums in later years.
- The Concentration of Poverty program would be held flat (no growth) for fiscal 2027–2028 then resume growth in 2029, producing near‑term savings of roughly $70,000,000 in 2027 and $193,000,000 in 2028.
- Romans’s analysis shows the Blueprint fund would be able to cover implementation costs through fiscal 2027 under the governor’s package but would exhaust fund balances and require general fund support beginning in fiscal 2028.

Tax changes highlighted
- Income tax brackets and itemization: the governor would consolidate lower brackets into a single 4.70% rate for the first tiers and add two new top brackets (6.25% and 6.5% at high income thresholds). Romans said the proposal also doubles the Maryland standard deduction to about $5,610 for an individual and $11,200 for joint filers (figures presented in the briefing) and would eliminate itemized deductions on the state return, meaning state returns could not itemize even if taxpayers itemize federally.
- Romans noted historical context: federal law changes under the Tax Cuts and Jobs Act reduced the share of Maryland filers who itemize from roughly 50% to about 23% in tax year 2023; the administration’s state proposal would reduce that to 0% for state returns if adopted.
- Capital gains surcharge: a 1% surcharge on capital gains for filers with income of $350,000 or more (applies to both single and joint filers at the same threshold) is part of the package.
- Other tax/fee changes include: combined reporting for corporate income tax (phased in, generating revenue by fiscal 2028), a modest corporate rate reduction phased in (from 8.25% toward 7.99%), elimination of the state inheritance tax offset by lowering the estate exemption from $5 million to $2 million (administration scored the pair as roughly revenue‑neutral), a 75¢ per order delivery fee (estimated to raise roughly $225,000,000 for the Transportation Trust Fund), and a cap on vehicle trade‑in allowances for purchases over $15,000 (estimated revenue for the trust fund).

Programs and social services under pressure
- Childcare subsidies: the governor would cap participation in the childcare scholarship/subsidy program at 42,000 children in fiscal 2026; Romans said Legislative Services projected over 50,000 children would enroll in fiscal 2026 under prior trends (the program grew from about 23,000 children in fiscal 2023).
- Higher education: the University System would see about $106,000,000 less in state support in fiscal 2026 than in fiscal 2025 in nominal terms, which Romans said could prompt institutions to absorb cuts or raise tuition and fees.
- Developmental Disabilities Administration (DDA): Romans reported a roughly $450,000,000 current‑year shortfall that the governor partially funds via a deficiency appropriation and proposes cost containment steps totaling about $97,000,000 in fiscal 2025 and $235,000,000 in fiscal 2026; the fiscal and program impacts on providers and clients will be further examined in subsequent hearings.

Risk items and contingent liabilities
- Child Victims Act of 2023: Romans said about 3,500 claims related primarily to stays in Department of Juvenile Services facilities have been reported as credible so far. The statute allows a maximum tort claim of $890,000 per occurrence; Romans warned there is no money currently set aside in the budget for any settlement payments and that the state attorney general’s office has hired outside counsel and is negotiating with plaintiffs’ counsel. He said the total potential exposure could rise if more claims are filed because statute currently specifies no deadline for additional filings.
- Federal risks: the fiscal outlook does not assume potential federal actions (for example, changes to federal workforce levels, federal grants, Medicaid matching rates or a block grant) that could materially affect state revenues and spending needs; Romans flagged that these are important unknowns.

What the committee will do next
- Romans and Legislative Services staff said they are preparing fiscal notes and more detailed county‑level estimates on several items (the BRFA fiscal note, county allocations of local revenue impacts, and detailed scoring of the itemization change). The committee can expect more detailed estimates in follow‑up hearings.

Quote attribution
- David Romans provided most of the numeric detail during the briefing, for example: “On a cash basis, it is balanced. It has a $106,000,000 general fund surplus at the end of fiscal 26.” He also summarized programmatic and structural risks during the question period.

Ending
- The committee did not take formal action at this briefing; the session concluded after questions and direction to staff to prepare fiscal notes and follow‑up materials. The committee then paused briefly before transitioning to a subsequent Chesapeake Bay briefing.