Maryland’s FY26 Budget - Review
Cuts & Taxes Balance Budget
After 90 days, the 2025 Maryland General Assembly session concluded with a finalized FY26 budget that saw significant revenues increases and cuts to programs. Confronting a $3.3B projected deficit, state lawmakers debated heavily over proposed tax and fee increases, while many advocacy groups lobbied to restore necessary funding for programs serving their respective constituents. Here’s a complete breakdown of the key takeaways for Marylanders, and what it means for St. Mary’s County specifically.
Budget Overview:
Total State Budget: Approximately $64.6 billion.
General Fund Revenues: Estimated at $26.4 billion.
Rainy Day Fund: Maintains a balance at 8% of revenues, even with a reduced new deposit.
Governor Wes Moore’s initial budget proposal had major cuts to funding for education, developmental disability services, and more. Moore and legislative leaders approached the session with a goal of “fiscal realism,” managing major shortfalls without sacrificing essential services. Ultimately, the session struck a balance between immediate restraint–through reducing some FY25 and FY26 expenditures while delaying the implementation of other funding requirements.
Instead of broad-based income or sales tax hikes, Maryland’s FY26 budget focuses on more purpose-driven fee and tax increases. Much was made of income tax changes, where “94% of Marylanders would see an income tax cut or no change at all” according to the Governor. He was right in that top earners, a small percent of the residents, will pay an increased income tax rate. Those affected by income tax cuts will realize a small savings of around $50.
There was much talk about the retail delivery tax of $0.75 per delivery as well as the vending machine “snack tax.” The retail delivery tax did not pass, but the vending machine tax did with some exclusions. The following list, though comprehensive, may not include all specified tax or fee changes in the final bill.
Income Tax: New brackets, 6.25% for incomes between $500K-$1M, 6.5% for incomes over $1M.
Capital Gains Surtax: 2% surcharge for individuals earning more than $350K in federal AGI.
Sales Tax Expansion: A new 3% sales tax on data/information technology services. Also, expanded 6% sales tax to sales of bullion, coins, photographic materials, and custom software.
Cannabis Tax: Increases from 9% to 12%.
Vending Machine Tax: Adds a 6% tax to vending machine sales, excluding milk, fresh fruit & vegetables, and yogurt.
Mobile Sports Betting: Mobile wagering tax rate increases from 15% to 20%
Estate Tax Limit: Reduces from $5M to $2M per individual the amount of money excluded from this tax.
Corporate Combined Reported: Mandated beginning January 1, 2028
Pass-through Entity Income Tax: New tax on member income exceeding $1M.
Single Sales Factor and Tax Nexus regulations for businesses have generally expanded.
Transportation Related Fees:
Vehicle Excise Tax: increase from 6% to 6.5%. New rental vehicle excise tax of 3.5%.
Title Fees: double from $100 to $200.
Tire Fee: New $5 fee on all new tires purchased beginning January 1, 2026.
Vehicle Emissions: Inspection fees increase from $14 to $30
Oil Transfer Fee: Increase from $0.08 to $0.13 per barrel to support oil spill containment and cleanup.
Scrap Tire Fee: Increase from $0.80 to $1 per tire.
Vehicle Trade-in Allowance: Caps the maximum trade-in credit at $8K for vehicles at or under purchase price of $15K.
Rental Property: Increases the Lead Registration Fee from $30 to $50 per year.
Environmental Related:
Surface Mining: License and Permit Fees are, in general, doubling for this category.
Coal Combustion Byproducts: New fee of $2.50 per ton to support coal ask management.
Voluntary Cleanup Program: Various fees in this category increase to support brownfield site cleanups.
Wetland/Waterways Permits: In general, fees increase based on project size to support waterway regulation enforcement.
Responsible Personnel Training: New annual program fee to ensure industry environmental compliance.
Building Energy Performance Standards: New annual reporting fee for large building owners to support energy efficiency initiatives.
Clear Air Emissions: Fee increases for larger polluters to support air pollution control efforts.
Nursery Inspection Fees: Increased based on size of commercial nursery.
Wholesale Seedsman Permit Fee: Increased license fee from $100 to $125.
Bee Colony Registration: Late registration penalties between $25 and $100 depending on lateness.
Horse Establishment License: New late/reinstatement fees for horse businesses.
Sediment/Erosion Certification: Amount to be determined by updated regulation, would apply to certification for construction site supervisors.
Notable cuts to the FY26 budget include:
Reducing by $419.5M the contribution to the State’s Rainy Day Fund, which has a $2.1B balance.
Deferring $50M in extra pension/post-employment benefit contributions.
Cutting $9M from the Sunny Day Fund for Economic Development.
Shifting $98M in educator pension costs to the county level.
Cutting $13.5M from higher education programs for teacher development.
Reducing FY25 budget spending by $543M.
The final budget has a total of $1.48B in revenue increases, and $2B in spending reductions. It also incorporates the loss of $981.2M in federal funding, $300M of which was for Supplemental Nutrition Assistance Program, and student nutrition funding.
Despite budgetary pressures, St. Mary’s County secured important state investments:
$350,000 grant for St. Mary’s Regional Airport to expand fuel storage facilities, supporting aviation sector growth.
$7.5 million for Chopticon High School renovations.
$576,000 for the College of Southern Maryland’s Leonardtown Campus expansion.
$1 million for Point Lookout State Park marina improvements.
$4.1 million for public health grant programs (+6.4% from FY25).
$3.77 million for transportation aid (+12.9% from FY25).
State Paid Retirement Costs: $18.08 million to cover retirement payments for teachers, librarians, and faculty.
Yet not all news was positive:
Community college funding dropped 4.2%, part of broader cuts to higher education.
The state also continues significant health and social services funding for St. Mary’s:
$69.7 million for Medicaid.
$19.6 million for behavioral health.
$17 million for developmental disabilities services.
For St. Mary’s County, it’s a mixed outcome. While critical transportation and education projects are moving forward, the county—like the rest of the state—must prepare for rising regulatory costs and leaner higher education funding.
