Enrollment changes by school district have been uneven across the state, and the effects are substantial – particularly as state funding does not truly reflect any differential between fixed costs and variable costs. These are among the findings of a key report released this month and discussed by school funding stakeholders this week in Annapolis.

The ongoing Study of Adequacy of Funding for Education in the State Of Maryland, and a stakeholder group comprising representatives from numerous interested parties, recently yielded several reports. The “Final Report of the Study of Increasing and Declining Enrollment in Maryland Public Schools” reviewed recent trends in school populations, and discussed the effects of cost-drivers in school systems both large and small.

From page 54, the consultant report offers this recommendation:

Given this study’s findings regarding the future outlook for declining enrollment, and the possibility that the number of districts facing the fiscal challenges presented by declining enrollment will increase over the next decade, Maryland should consider adopting a more permanent, and automatic, mechanism for giving districts temporary relief from revenue reductions driven by falling enrollment.

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The approach suggested here is to change the student count used in the foundation formula calculations to a multi-year rolling average of the full-time equivalent enrollment count currently used. This rolling average, which would average a district’s full-time equivalent enrollment count over several years (the most common periods used in other states’ funding formulas range from two to four years), would work to temporarily reduce the funding impact of declining enrollment to give districts the time needed to make necessary changes to their operating costs (e.g. reducing staff, closing school buildings, or adopting other cost saving or efficiency strategies).

The report’s most pointed recommendations target school transportation funding:

Serious consideration should be given to modernizing the State’s transportation funding formula. The current formula does not appear to account for many of the major factors that drive transportation costs in districts. It also only adjusts funding amounts when district enrollment is increasing, but provides no adjustment when enrollment declines.

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Implementing a more sophisticated funding formula will require timely submission of extensive data on transportation cost factors. In addition, the model may result in a significant redistribution of funding. For both of these reasons, a transition period will be required.

Another engaging section of the report (pages 48-49) is the assessment of school operating costs as fixed versus variable. That analysis is included below in its entirety, for clearest context. (cite as Hartman, W. & Schoch, R. (2015). Final Report of the Study of Increasing and Declining Enrollment in Maryland Public Schools. Denver, CO: APA Consulting.)

Numerous factors affect a district’s ability to adjust to either increasing or decreasing enrollment. School expenditures include both fixed and variable costs. Little adjustment is possible if costs are fixed. Some costs vary directly with enrollment changes. Other costs are subject to increments reflecting capacities such as school enrollment capacity, class size capacity, bus seat capacity, caseload limits, and other factors.

The following sections define fixed and variable costs and how each is impacted differently by enrollment changes and describe the options and limitations districts face when experiencing enrollment changes.

Fixed and Variable Costs

Fixed costs in schools are independent of enrollment or the level of educational services provided. Fixed costs include buildings, equipment, most utilities, grounds keeping, and many service contracts. Variable costs are costs that vary with the number of students served or programs provided. The operating costs of districts include a mix of both fixed and variable costs.

Examples of fixed costs in education include:
-one-of-a-kind positions (principal, school building secretary, school custodian, school nurse, librarian, etc.);
-school building construction debt service;
-school building utilities (heating/cooling fuels, electricity, water/sewer, etc.);
-contracted maintenance services (HVAC maintenance, fire and security alarm maintenance, etc.);
-grounds keeping costs (mowing, landscaping maintenance, snow removal, etc.);
-bus transportation costs when ride times would be excessive if all seats were filled to capacity;
-textbook series purchased for maximum enrollment;
-library books; and
-computer lab equipment.

Examples of typical variable costs in education, that is, those that can be adjusted with enrollment changes include:
-teaching staff for both regular and special education students;
-instructional aides/assistants/paraprofessionals; and
-consumable instructional supplies.

However, even some variable costs are difficult to adjust over short periods of time. These costs include changes that occur in one-unit increments, such as personnel changes based on caseload regulations or class size limits. Bus capacities are another example of a hard-to-adjust-for variable cost.

These may include:
-guidance counselors;
-specialist teachers (these are teachers, such as art, music, and physical education teachers, who provide classroom coverage according to the instructional schedule for regular teachers during planning and lunch periods); and
-central administrative positions (payroll, human resources, curriculum, administration).

The separation of fixed and variable costs is intriguing in part because it challenges underlying notions of state funding requirements. County “maintenance of effort” funding requirements arise from an implication that each cost of education is a purely variable costs, and must be maintained on a rigid per-student basis.

An overview document of the several reports and presentations made at the July 22 meeting is available online.