Maryland policymakers have been hearing a lot about Maryland’s school funding laws recently, with the education community loudly proclaiming that counties have somehow received a green light to make massive cuts in school funding. A “cliff” of some $2.6 billion has been suggested as being in immediate peril.

Are Counties Really Cutting Billions From School Budgets? Of course not.

What actually exists is a complicated crossroads for Maryland – we will try to summarize the current debate around school funding and Maintenance of Effort (MOE) here.

What Are Counties Required To Fund? And What Happens if a County Misses MOE?

The General Assembly’s staff agency, the Department of Legislative Services, prepared an excellent summary of school funding issues (this link is to a July document, a somewhat updated version was used in a briefing before the House during the October special session). From that report, itself definitely worth a full read for those following these topics, the table on page 2 titled “Fiscal 2012 Required Local Education Funding” summarizes two relevant numbers for each county:

• A “Local Share” totaling $2,748 million statewide — or $2.75 billion. This is the amount that each county is required to fund, through local taxes, to support its schools.

• An “Add’l MOE Amount” totaling $2,678 million — or $2.68 billion. This is the additional amount of local funding from the prior year’s county budgets — the Maintenance of Effort target each county must fund in order to be eligible to receive any increase in state education funding. (The fact that this much additional local funding is built into the MOE base is a function of past county decisions to fund far above the state’s required “local share” levels.)

Despite the current claims of the education community, both of these practical definitions are unchanged. This exact understanding of the state’s MOE laws dates back to the last deep fiscal recession in Maryland, in the early 1990s. In 1991, the Attorney General opined on these topics, with conclusions that are unchanged today:

If a county is not able to meet its maintenance of effort requirements, that jurisdiction will not receive any increase in State aid under ED §5-202 — that is, the county forfeits whatever increment would otherwise be due in the current fiscal year above the amount that the county received in the prior fiscal year.

Now, certainly some things have changed since 1991 — a substantial re-writing of the state’s school funding formulas through the “Thornton” legislation, creation of a waiver system for counties facing MOE difficulty, clarifying language necessitated by the presence of temporary federal education support, and a one year delay in the so-called penalty for a jurisdiction missing its MOE target. But dating back at least to 1991 (and the MOE laws were only created a few years before), state law has been clear on the purpose of the MOE target: funding at the MOE level is the requirement to receive the annual increase in state education funds.

So, What’s The Fuss All About?

As FY 2012 was shaping up to be a tough year for county budgets, one school board challenged several of these long-standing laws and interpretations, and sought a declaratory ruling from the State Board of Education. (You can also read MACo’s response here) The State Board of Education responded with a detailed opinion, reaffirming the long-standing interpretation of the MOE requirement as a condition of receiving additional state funds, and that the “local share” of foundation funding represents the true legal required funding level for counties.

Arising from that opinion, the education community has raised the specter of counties suddenly cutting all the way back to the “local share” requirement as a crisis facing Maryland’s public schools, and necessitating urgent action. See the online materials from school boards:

Local Funding Cliff: The Local Share of Foundation = only $2.7Billion!

…and from the state’s largest teachers’ union:

With $2.6 billion—nearly 50 percent of intended local support for students and schools—at risk, the General Assembly has opened a Pandora’s box for future school funding. If counties drop their funding to this new floor, Maryland could face an unprecedented, and dangerous, wave of education cuts that would result in more than $3,000 less per student for the programs, assistance, and services that they need for a high-quality education. The fear that counties will make deep cuts to education through inadequacies in the MOE law is becoming a reality.

And thus, the table is set. Education advocates have created fear that a house-of-cards scenario for school funding, urging tougher standards and penalties on counties unable to reach these aggressive targets.

Was This Because The General Assembly Changed The Laws In A Budgeting Bill?

One message from education advocates was that amendments to last year’s Budget Reconciliation and Financing Act (or BRFA) amounted to a dramatic change in policy, and opened the door to the “cliff” of billions in funding being lost. While an effective lobbying tool, this description of the BRFA amendments is misleading at best. As described above, the current law absolutely requires a county to find its “local share,” and then sets the county MOE target level as a condition of receiving additional state education funding. This framework is unchanged since the inception of the MOE system.

The Department of Legislative Services agrees with this view, according to its own summary. There, the Department lays out the language from the BRFA bill, and explains that its practical effect is the same as that in place before its passage. As has always been the case, meeting the MOE target is a requirement of receiving that year’s increment in state school funding.  The relevant section is on page 6, including discussion of the MOE target under a major heading of “not changed.”

The Office of the Attorney General also upheld this view, both when formally advising the General Assembly during the legislative session, and in reviewing the matter as part of MACo’s summer conference in August.

The further proof that the 2011 session was not a revolutionary change to the MOE targets or their implementation was in the effort made by counties to reach the target if at all possible.  No county, upon passage of the state’s BRFA bill, revisited its school budget and scaled it back to the hypothetical new floor.  Indeed, a sizable majority of counties again made the MOE target, and others facing great budget strains made efforts to retain as high a priority for education funding as possible, given the economic climate and county cutbacks.

So Where Does This Leave Us?

The state laws still have the same effect that they always have, but that does not mean that FY 2013 budgets are going to look the same as they did in FY 2008, or at any past time of generally good fiscal health. The state created the MOE waiver system — for a county facing difficulty reaching that target — in 1996, but it went completely unused until the recent economic recession. For FY 2012, multiple counties missed the MOE target.

What is new here is not the state law, it is the weak economy. MOE was originally created coincident with a new state funding program, and during many years of increased state commitment to schools, counties willingly met (and usually exceeded generously) the MOE funding amounts. State funding, during times of formula increases, was a substantial incentive for county commitment — but a healthy economy and robust revenues made education spending a priority for elected officials at all levels.

The current economic climate undermines the entire funding system, no surprise. State formula funding has been relatively stagnant (especially following the “ramp-up” years of Thornton funding increases), and the school funding increment for many counties is minimal or zero. Further, counties face yet another year of decline in real estate assessments, meaning that the property tax will yield for most counties fewer tax dollars than in the prior year – an unprecedented decline in the #1 county revenue source. Recent years’ deep county budget cutbacks have left many counties out of options – having mae year after year of cutbacks to the non-education portions of their own budgets, fueled by a weak economy and collapsing by state funding cutbacks. County policies to rein in county-side spending while maintaining school-side funding has created two very different realities of each county’s workforce and workplace.

Understandably, in this environment counties that have cut to the bone within their own budget are seeking to find school funding efficiencies to recognize the troubled economy. These are the “moving parts” that drive the tough times for county and school board funding issues today. A weakened economy and tougher budget limitations are at work, not newly loosened state laws.

What Do Counties Seek?

As the General Assembly prepares to convene its 2012 session, there will be enormous pressure to change school funding and MOE laws. The education advocates linked above will seek tougher funding standards and harsher penalties on counties — seeking to isolate school funding as remaining outside the consideration of overall county budget cutbacks. Counties will note that isolation and protection of school funding — larger than the entire rest of the county budget put together — places undue burdens on other local services and employees. A wide range of substantive and technical school funding issues are likely to arise before the General Assembly.

MACo has adopted its own legislative initiative on the matter:

School Board Fiscal Accountability and Process Reforms – Recent years’ struggles over school funding have highlighted county difficulties in managing public school expenses. These difficulties have resulted in differences over budget submissions, employee actions, and Maintenance of Effort (MOE). Counties do not seek any governance over curriculum or programmatic functions of delivering education, but do seek a stronger partnership in guiding these investments of public funds. The range of approaches includes the equitable treatment of school/county personnel, improvements to the maintenance of effort calculation and waiver process, governance and disclosure of outside reserve funds, reasonable refinements to the school budget process, clearer categorical budget classifications, and determination of non-recurring costs. Enhancing these laws and relationships could leverage more accountability and responsiveness within the largest element of every county’s budget.

MACo has been advocating for a more sensible MOE waiver process for the last two sessions, and will now expend this effort to address the wider range of accountability and management concerns raised by these increasingly difficult budget times. Counties fear that without meaningful reform to both MOE and these budget accountability matters, the years ahead will see a damaging “chilling effect” as counties become reluctant to fund in excess of the MOE target, for fear of creating unsustainable future requirements. If the General Assembly chooses to create tougher standards and harsher penalties on counties, this may be a very negative (though unintended) result affecting future school funding decisions.