Ehrlich, a Baltimore County Republican, has privately told state and national GOP leaders he will mount a gubernatorial bid rather than seek re-election to a congressional seat sharply altered by redistricting.
Maryland's budget problems hurt the working poor and the need for slot-machine gambling to improve public education.
He said he was steeled for charges from Lt. Gov. Kathleen Kennedy Townsend, the Democrat who leads in early polls, that he is too conservative for Maryland's tastes.
"We've seen what the dominant party has done in this state in the past with the attack ads. That's fine," Ehrlich said. "But somehow, real debate has to break out."
Ehrlich, 44, has long been considered the state Republican Party's best hope to elect a governor for the first time since 1966. He has delayed a decision for months, angering some party regulars who hoped a campaign would be under way already.
But as he waited, his prospects improved slightly: The state's budget mess is providing debate fodder, and Townsend's negative ratings have been on the rise.
"I hope he runs. This party is going to be in big trouble if he's there to announce his re-election to Congress," said Del. Donald E. Murphy, a Catonsville Republican.
"This is a kid from Arbutus who got elected to the House of Delegates and got elected to Congress when no Republican from the area ever could. Maybe him becoming governor is not too far-fetched."
Ehrlich would join perennial candidate Ross Z. Pierpont, 84, who is also vying for the GOP nomination. Townsend has not formally announced her candidacy, and Baltimore Mayor Martin O'Malley, a Democrat, is also pondering a bid.
A poll conducted for The Sun in January showed Townsend leading Ehrlich, 51 percent to 36 percent, in a hypothetical match.
Ehrlich's apparent decision to launch a campaign from the southwestern Baltimore County community where his parents still live will highlight a working-class upbringing and self-made stature that he hopes will appeal to voters.
"The word is out, no doubt about it," said Clemis Kaikis, owner of Paul's Restaurant in Arbutus, who has been enlisted to serve coffee and doughnuts for a crowd of 200 Monday. "Of course his parents are excited. Here's their son, who started at the bottom, running for the highest office in the state."
Arbutus, Ehrlich said, "is not only where I was born, but where I am from."
"This is going to be a race of contrasts," he said. "I'm not talking about class, I'm talking about what you've done, how many elections have you won."
Ehrlich's move would create a vacancy in the 2nd Congressional District, a seat reshaped by Gov. Parris N. Glendening through the once-a-decade redistricting process to favor a Democrat. Baltimore County Executive C.A. Dutch Ruppersberger is considering running, and the district is expected to be one of the 40 or so most competitive House races nationwide in this fall's election.
Ehrlich has said he has been under pressure from national Republicans to either seek re-election or make sure the GOP keeps the seat. Both former gubernatorial candidate Ellen R. Sauerbrey and former Rep. Helen Delich Bentley might seek the Republican nomination, but Ehrlich said he hopes there will be just one candidate.