This is the fifth part of a series on local health departments.  The previous four blogs have provided an introductory overview of local health departments; specifics on services provided, organizational structure, and funding; the history of local health departments and the core funding formula; and an overview of the current formula and recent challenges with respect to budget and legal interpretation.

This piece will discuss the shortcomings of the core funding formula with respect to compensation related adjustments. As discussed in Part 2 of this blog series, with the exception of  Baltimore City and Baltimore, Montgomery and Prince George’s counties, health department employees are State employees whose salaries are paid through a combination of State, local and grant funds.  Whereas, the Core Funding Formula provides for inflationary adjustments, COLA adjustments and other compensation related adjustments are not mandated through the formula.   This has resulted in local governments covering a greater proportion of increases in personnel costs as adjustments have been made to State employee salaries and benefits.

The remaining text for this blog has been taken from a document titled “Core Funding for Local Health Departments: An Analysis of the Maryland Funding Formula and its Impact on Local Health Services.”  This document was prepared by Christine O’Malley, a student of the Johns Hopkins School of Public Health, for the Maryland Association of County Health Officers (MACHO).

Core Funding Formula and Cost of Living Adjustments

Cost of Living Allowances (COLAs) are a method of adjusting worker salaries to account for changes in the cost of living. LHDs must provide COLA adjustments for their workers, which results in increases to LHD budgets. Currently, the Core Funding Formula is adjusted for inflation and population growth, but does not include provisions for COLAs and other compensation-related adjustments. Traditionally, the state has provided some funding to LHDs through General Funds for this purpose. However, actual increases in personnel costs in recent years have not been supported by corresponding increases in state funding. Because these compensation-related adjustments are not legislatively mandated, these funds are vulnerable to budget cuts. LHDs, however, are required to fund these adjustments regardless of whether the state provides funding for this purpose. A lack of state funding for these adjustments means LHDs must rely on support from local governments to cover a greater proportion of the actual increases in personnel costs. In addition, state funding given to counties for COLAs do not cover employees funded by categorical or other grant funds but as State employees, COLAs must be funded for all eligible employees and the burden is placed on LHDs to pay for these increases.[i] By contrast, the General Assembly does include funding to cover the cost of provide COLAs for state employees not located at LHDs. This creates an inequity among the same group of employees and places an unfair burden on LHDs who have to use a greater proportion of the funding to cover these costs than for direct services.

In 2007, in response to concerns about the effect of the Core Funding Formula on state employees in LHDs, the General Assembly requested the Community Health Administration in consultation with the Maryland Association of County Health Officers to examine certain issues regarding core funding and personnel costs. Specifically, they were asked to discuss: 1) how increases in Core funding are provided and how compensation adjustments could be more equitably distributed; 2) to what extent Core funding supports LHD programs and how that funding impacts increases in compensation; 3) the impact of rising personnel costs on LHD programs; and 4) the implications of changing the Core funding formula on State oversight.[ii]

The Community Health Administration and MACHO submitted their response to the General Assembly in January 2008. Their assessment included the following key recommendations: 1) to amend the statute to base part of the annual change in the State share of Core funds on the percentage change in State salaries and fringe benefits, and 2) to amend the statute to require Cost of Living Allowances (COLAs) to be equitably distributed to all LHDs by treating state and local government positions supported by Core funds in the same way whenever adjustments are made for State employees.[iii] This response became known for MACHO’s purposes as the Joint Chairman’s Report.

Reductions in state funding for compensation-related adjustments have the potential to influence local support for health departments. State contributions through Core Funds may be used to leverage matching funds from local governments. The level of state funding may also influence overmatch funds. In light of the recent cuts in state funding, LHDs have increasingly relied upon these discretionary overmatch funds to cover necessary compensation adjustments. In addition, approximately 75-80% of local health department budgets go to personnel costs, with the remaining 20-25% allocated to general operating costs.[iv] Consequently, if LHDs fail to identify funding sources that allow them to keep pace with required compensation-related adjustments, the departments will be forced to lay off workers and accordingly reduce service delivery hours to the public as a result.

Previous blogs in the series are listed below.

Blog Series: Local Health Departments – Part 1
Blog Series: Local Health Departments – Part 2: Services, Structure and Staffing, and Funding
Blog Series: Local Health Departments – Part 3: History of Local Health Services and Core Funding
Blog Series: Local Health Departments Part 4 – Core Funding Formula and Recent Challenges