Key Bridge Collapse Adds Pressure to a Strained Maryland Budget

At the beginning of 2024, Maryland policymakers already knew they were facing difficult fiscal headwinds. The state’s Department of Legislative Services had projected a deficit of $1 billion in fiscal year 2025 that would triple in size by 2028 if left unaddressed. In response, Governor Wes Moore (D) proposed pausing a planned $500 million deposit to the state’s rainy day fund which then sat at twice the state’s required level.

But just a few months later, Maryland’s problems escalated dramatically and the state is now turning back to its rainy day fund for a reason no one expected.

On March 26, the Francis Scott Key Bridge collapsed when a massive container ship struck a bridge support pillar. In addition to the horrific loss of life and impact on the Baltimore community, the collapse raised immediate funding and disaster response concerns in both the state and federal spheres.

Maryland transportation officials in May said the bridge could reopen as early as fall of 2028, with an estimated price tag between $1.7 billion and $1.9 billion. The federal government has pledged to cover most or all of the replacement cost—with the hope of being reimbursed by the eventual insurance settlement. However, rebuilding the bridge could deplete the entire federal emergency highway fund, which currently has only $890 million on hand, leaving other states on the emergency fund waiting list high and dry.

The rebuilding timeline is quicker than most anticipated, with original estimates citing up to 15 years. But four years is still a long time for Maryland and the region surrounding the port to bear the incidental economic ripples. The Port of Baltimore plays a central role in East Coast shipping. Access to the Key Bridge is critical for cargo transportation, especially given that two other major harbor crossings are tunnels and therefore cannot be used to move hazardous materials.

President Joe Biden has emphasized the role that the port plays as one of the nation’s largest shipping hubs. Until officials were able to separate the container ship from bridge debris and clear the main channel for movement, the port had been blocked for almost three months, resulting in substantial revenue losses for Maryland. The state estimates that the port generates almost $3.3 billion in total personal income annually, as well as more than $2.6 billion in business income and $395 million in taxes. The Maryland Transportation Authority released projections at the end of June estimating that the bridge collapse will mean $141 million in lost toll revenue over six years and may lead to increased toll fees a year earlier than planned.

Maryland’s response

In addition to the direct loss of revenue, Maryland is still dealing with the policy response to the port’s closure. Shortly after the bridge collapse, lawmakers passed a bill authorizing use of the state’s rainy day fund to help out-of-work port employees and authorizing the governor to use reserves to support small businesses that have been harmed and to reinvigorate port usage upon reopening.

As of June, Gov. Moore had allocated $72 million from the rainy day fund to support businesses and workers affected by the disaster, with legislative authority granted to allocate more if need be. Robust rainy day funds can offer states flexibility in responding to disasters—otherwise funding may take even longer to appropriate, or may not be available if a crisis occurs at the end of a fiscal year.

Maryland reported an estimated $2.5 billion set aside in rainy day funds at the end of fiscal 2024, enough to withstand much more than a $72 million withdrawal. However, with states’ revenue on the decline nationwide and Maryland’s already looming structural deficit, leaning too heavily on rainy day funds might leave the state with little wiggle room down the road.

Other fiscal ripple effects

Another side effect of the collapse is the effect on traffic and work patterns. Until the bridge is restored, 30,000 drivers need a new route to work and other daily destinations, leading to a substantial increase in traffic on other roadways and longer commutes. The state has encouraged employers to allow telework when possible or support employee carpooling to mitigate the increase in traffic. However, this could also lead to an additional hit to the state’s Transportation Trust Fund, which is already facing dramatic cuts because of declining gas tax revenue. Nationwide, gas tax revenue is suffering as consumers shift to hybrid and electric vehicles, but the rise of remote work may also be driving the squeeze as workers forgo their daily commutes.

The fiscal ramifications aren’t limited to Maryland—businesses across the country also rely on the bridge and the port. The Port of Baltimore is the number one handler in the country for cars and light trucks, and serves as the site where vehicles are processed and labeled for domestic sale. John Lawlor, Ford Motor Company’s chief financial officer, noted at the time of the accident that the port closure would force the company to explore workarounds and divert to other ports up and down the East Coast.

More regionally, hundreds of small businesses rely on the Port of Baltimore. For example, Washington, D.C.-based Compass Coffee, a roaster and storefront, typically imports most of its beans through Baltimore. After the collapse, the beans had to be rerouted through New Jersey, creating a longer and more expensive journey, which Compass Coffee co-founder Michael Haft told The Washington Post could lead to increased prices for customers. Compass is far from the only local business taking a financial hit; the U.S. Small Business Administration has reported receiving more than 1,000 loan applications in the region since March 26.

In addition, some rating agencies are raising concerns about Maryland’s long-term fiscal stability. In May, Moody’s changed its official outlook on the state’s credit rating from stable to negative, citing the long-term deficit, planned depletion of reserves, and the collapse of the Key Bridge. However, S&P Global Ratings kept its outlook for Maryland as stable, noting the state’s emphasis on proactive budget management.

Final thoughts

Although Maryland can draw upon its robust rainy day fund and federal reserves to help address the immediate fiscal strain caused by the Key Bridge collapse, the state will face years of economic ramifications from the disaster. Policymakers also still must manage a burgeoning structural deficit—the largest the state has forecasted since 2009, during the Great Recession—that was sounding alarm bells for state officials even prior to the collapse.

“Generally, we haven’t seen that kind of gap except for during periods of recession or shortly after a recession,” David Romans, an analyst with the Legislative Services Department, told Maryland Matters, a nonprofit state news website. “So, it’s a particularly large challenge given that we are not coming out of recession or in the midst of one right now.”

With the port now reopened, Maryland’s path forward is a little less murky. Navigating both the looming deficit and the bridge collapse will still pose long-term complications for the state, but the short-term responses from both the state and federal governments provide a solid foundation for Maryland to steer clear of further financial disaster.

Page Forrest works on The Pew Charitable Trusts’ Fiscal 50 project.