When Maryland lawmakers return to Annapolis to work on the next state budget, they’ll have to close a budget hole of $1.4 billion — a significantly tougher challenge than they’d anticipated.

In the two months since the state’s last financial update, new estimates show economic woes and extensive federal tax changes are cutting into state revenues more than expected. At the same time, costs for Medicaid, child care programs and other services are rising — squeezing the state’s budget from both sides.

The outlook is “quite a bit worse” than what was expected when lawmakers finished their last legislative session in April, said David Romans, the General Assembly’s top nonpartisan budget adviser, who briefed lawmakers Wednesday.

Back in the spring, lawmakers thought the next budget cycle — which will cover July 2026 through June 2027 — would have a comparatively modest gap of a couple hundred million dollars out of a total expected budget of more than $60 billion.

In April, the federal “One Big Beautiful Bill Act” hadn’t yet been passed. The corporate tax cuts, provisions allowing people to deduct high property taxes from their taxable income, and other changes mean a $371 million hit to Maryland’s bottom line.

The federal law also institutes new components of social safety net programs that will cost the state money to enforce, such as work requirements for food aid.

The state also is facing cost overruns in a variety of departments, ranging from the Medicaid health insurance program to group homes for foster children and a popular child care scholarship program.

Maryland also will start to see a shortfall next year for the Blueprint for Maryland’s Future, the state’s ambitious public education improvement program. Next budget year, the Blueprint fund will be $71 million short of what it needs for education programs, a number that will grow to more than $1 billion in future years if no action is taken.

Romans told lawmakers they have some options for keeping the books in balance next year. Lawmakers could set aside less money into the Rainy Day Fund than they have in past years, though that money could be needed if the state careens into a recession.

They also could tap an account called the Fiscal Responsibility Fund, though Gov. Wes Moore has already used some of that fund to send money to food banks and pay partial Supplemental Nutrition Assistance Program benefits during the federal government shutdown.

There was no discussion Wednesday of raising taxes or cutting spending, two unpopular options that lawmakers went through this past year.

To close a more than $3 billion gap for the current budget year, lawmakers and the governor negotiated a deal that raised more than $1.6 billion in taxes and fees, including a new 3% tax on data and information technology services. Lawmakers also cut back on planned spending.

With the governor and all 188 seats in the General Assembly up for election in 2026, it’s unlikely that any lawmakers want to raise taxes and fees further.

Lawmakers will get further information on economic forecasts in December, and Moore will propose the next budget in January. Lawmakers will then pore over and tweak that spending plan during their 90-day session.

Senate President Bill Ferguson, a Baltimore Democrat, didn’t speak during the online briefing, but issued a statement afterward urging lawmakers to focus on the financial challenges.

Left unmentioned in the statement was that many Democrats, including the governor, are pressing lawmakers to redraw the boundaries of the state’s eight congressional districts as part of a national partisan redistricting back-and-forth. Ferguson has been staunchly opposed to such an endeavor.

“The highest and best use of the General Assembly’s time is keeping Maryland on strong fiscal footing by lowering costs on Maryland families and addressing the $1.4 billion structural deficit so we can meet our constitutional obligation to pass a balanced budget next session,” Ferguson said in the statement.

Republican lawmakers blamed the financial outlook on poor decisions by Democrats and urged them not to close the budget hole with new taxes.

“Today’s report reveals what a complete disaster total Democratic control of Maryland’s budget and taxation policies has become for our state,” Del. Jason Buckel of Allegany County, the House minority leader, said in a statement.

“After passing the largest tax and fee increases in state history, Marylanders were told the budget was on solid ground,” said Sen. Steve Hershey of the Eastern Shore, the Senate minority leader. “Instead, we’re staring down a $1.4 billion deficit. You can’t keep blaming Washington when the real problem is reckless spending here at home.”