Q&A: Maryland’s Education Funding Escalator

Counties are the principal unit of local government in Maryland, and, unlike in many states, counties in Maryland are responsible for funding public schools, libraries, and local community colleges. While local boards of education develop local school budgets and oversee education-related spending, they are dependent on financing from county governments. In fiscal 2014, local governments provided 46% of total revenues for local school systems, according to the Maryland Department of Legislative Services.

A recent memo from the Maryland State Department of Education cited nine counties as below the statewide 5-year moving average of education effort. This Q&A gives some background to that memo.

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Courtesy of the Department of Legislative Services, 2014 Legislative Handbook Series: Volume 9 Education

Q: What is Maintenance of Effort?

A: County contributions towards K-12 education are currently tied to certain mandatory minimums under the State’s maintenance of effort law.  The maintenance of effort law requires individual counties to provide the same amount of funding, on a per pupil basis, as they did the prior year.  Last year, every county in the state met its maintenance of effort requirement, nine exceeded the required amount by $1.0 million or more: Calvert, Carroll, Cecil, Charles, Harford, Howard, Queen Anne’s, St. Mary’s, and Worcester counties.

Courtesy of the Department of Legislative Services.

Q: What is the Maintenance of Effort Escalator?

A: In 2012, the General Assembly approved a law that creates the potential for automatic increases in  maintenance of effort amounts. The increases are not based on how much funding is needed for students in a certain school district, but rather they are based on how wealthy a county is, according to the State’s calculations. “Effort” is defined as funding as a percentage of wealth, calculated by the Maryland State Department of Education. The escalator clause provides that if the County’s “effort” in the given year is less than the statewide average for the previous 5-year period, the County may have to provide additional funding. The additional amount is equal to the lesser of the County increase in per pupil wealth, the State average increase in per pupil wealth, or 2.5%.

Courtesy of the Maryland State Department of Education.

Q: How can a county determine if it is below the statewide 5-year moving average of education effort?

A: The chart above highlights in yellow counties that are below the 5-year moving average of education effort this year.  Education effort is defined as a county’s appropriation for education as a percentage of its wealth.  The wealth data used for effort calculations is based in part on net taxable income.  Until FY 2018, the State will use net taxable income data from September.  After that time, net taxable income will be based on income tax returns filed before November.

You may notice that St. Mary’s, Queen Anne’s, and Somerset counties are not highlighted.  While their 5-year average effort is below the statewide rate, their FY15 education effort is slightly above the statewide rate, and therefore the escalator clause is not triggered for those counties this year.

Q: What happens if a county is below the statewide 5-year moving average of education effort?

A: Last year, three counties were below the 5-year moving average of education effort, however, there was no effect on their maintenance of effort funding.  This is because the escalator law states that a county must increase its maintenance of effort amount by the lesser of either their increase in wealth per pupil wealth, the statewide increase in local wealth per pupil, or 2.5%, and last year, statewide local wealth per pupil was declining.

The same may be true this year.  Or, even if the statewide wealth per pupil increases this year, local wealth per pupil may be in decline in the nine counties below the average, also resulting in no increase in their maintenance of effort amount.  Finally, either of the rates may increase very slightly, creating an increase in the maintenance of effort amount of much less than the 2.5% cap. Unfortunately, preliminary data on full time student enrollments is not available until mid-December or January. Once that data is reviewed, the Maryland State Department of Education will make calculations and determine the amounts, if any, by which the nine counties must increase their maintenance of effort payments for the coming year.