Maryland's federal workforce is still shrinking, but the bleeding has slowed considerably compared to the early days of the Department of Government Efficiency's cuts. The state lost about 25,000 federal jobs in calendar year 2025 alone, followed by another 4,000 in 2026, and officials meeting in Annapolis on Wednesday, September 23, say the losses, while ongoing, are no longer accelerating at the pace that rattled the state budget last year.
Maryland's federal job losses have slowed, WBAL NewsRadio reported. Even so, the state continues to lose federal positions, and those losses — combined with ripple effects on private-sector jobs tied to government contracting — have translated into lower tax collections for Maryland's general fund.
Revenue Still Sliding Into Fiscal 2027
At Wednesday's meeting, the state's tax collections were shown declining a little less than 1% on an ongoing basis compared with fiscal 2026, per the same WBAL report. The Maryland Board of Revenue Estimates projected that overall state revenues will dip by less than 1% in fiscal year 2027 versus fiscal 2026, before rebounding with a projected 3% increase in fiscal year 2028, according to the Maryland Daily Record.
Rehrmann has attributed the projected fiscal 2027 decline to temporary, one-time negative revenue impacts rather than signs of a broader economic recession, the Daily Record reported. That framing matters for a state still calibrating just how much of its budget pain is structural versus short-term noise from the federal downsizing wave.
A Disproportionate Hit to Maryland's Economy
The scale of the federal contraction in Maryland has been striking by national standards. A June 4, 2026, analysis from the Brookings Institution examined Maryland's economic resilience amid federal cuts. Maryland's federal workforce contracted 18%. Brookings researchers linked the state's exposure to its concentration of major non-defense federal agency headquarters.
That vulnerability is structural. Federal government activity accounted for approximately 30%, or $150 billion, of Maryland's gross domestic product in 2024, with about 229,000 residents employed in non-defense and defense federal civilian jobs before the downsizing began, according to a joint study by the Comptroller of Maryland and the University of Maryland's Robert H. Smith School of Business cited by Brookings. Nearly 40% of Maryland's 87,000 federal jobs were at HHS, most within the National Institutes of Health or the Food and Drug Administration, Inc. Magazine reported.
The fallout has shown up in national rankings. Maryland plummeted from 26th place in 2025 to 49th nationwide in CNBC's 2026 “Top States for Business” economic ranking, as reported by Inc. Magazine, largely because state economic growth flatlined following the federal job losses. Neighboring Virginia, by contrast, ranked 23rd in the same category despite facing similar federal payroll reductions.
Regional Job Losses Ripple Beyond Maryland
Maryland's losses are part of a wider regional contraction. The Washington metropolitan area lost 103,900 total jobs between January 2025 and January 2026 — the largest job drop of any U.S. metro area — with roughly 96% of those losses directly attributable to federal workforce reductions, according to UrbanTurf, which cited U.S. Bureau of Labor Statistics data. The full severity of those regional job drops was masked until late 2025 because thousands of federal employees remained on payrolls through September under buyout and deferred resignation programs.
A Gallup and Greater Washington Community Foundation survey found that about two-thirds of residents of D.C. proper reported direct household impacts from federal cuts, according to the Associated Press, fueling heightened regional economic anxiety and interest in leaving the area. Federal cuts have also affected household finances across the region.
Consumer Spending Cushions the Blow
Despite the federal contraction, Maryland's underlying economy hasn't collapsed. Personal income tax collections rose by up to 7% and sales tax collections climbed by up to 9% in fiscal year 2026, marking the strongest growth rates for both revenue streams since the COVID-19 pandemic, the Maryland Daily Record reported. The Daily Record said most of the 2026 growth came from non-wage income and that revenue growth remained strong despite labor-market contraction.
A separate statutory factor has also weighed on state revenue. General fund tax collections lost $117.9 million in fiscal year 2026 and are expected to lose another $71.4 million in fiscal year 2027 due to federal tax policy changes enacted under the federal One Big Beautiful Bill Act, according to official findings published by the Comptroller of Maryland. Maryland decoupled from certain federal business deductions, while several individual deductions do not affect state tax liability.
Agencies Told to Model Budget Cuts
The combined pressure has already reached executive agencies. Maryland budget officials instructed executive branch agencies this month to draft contingency plans for 10% operating budget cuts to address structural deficits tied to slowing revenue growth, the Maryland Daily Record reported. Because Maryland law requires a balanced state budget, lawmakers must weigh agency spending cuts or tax policy adjustments to close the gap.
For now, Wednesday's board meeting suggests the state has moved past the sharpest phase of federal workforce disruption, even as its financial ledger continues to absorb the aftershocks. The projected dip in fiscal 2027 revenue shows Maryland's budget writers still have work to do before the state's finances fully stabilize.
