Why Do Five Jurisdictions Lose $45M In Education Funds?

Governor Larry Hogan last week released his fiscal 2018 budget and accompanying Budget Reconciliation and Financing Act of 2017, boasting that it “responsibly holds the line on spending without raising taxes, cutting services, or raiding special funds.” For education, Hogan said, his plan would fully fund the state’s spending formulas for K-12 and community colleges.

It’s true, the budget fully funds K-12 education according to law, at $6.4 billion. Community colleges are also fully funded at $256 million.

However, direct education aid for Baltimore City, Calvert, Carroll, Garrett, and Talbot counties declines by a combined $45 million. Baltimore City is the most deeply affected, with a $38m loss in year-to-year total state education funds.

So, if the Governor has fully funded K-12 education according to law, why are five jurisdictions losing $45 million in educations funds?

Declining Student Enrollments

In Maryland, nearly all state education funding is distributed on a per-pupil basis, meaning that the more students a school system serves, the more funding it receives.

By contrast, when the number of students declines, schools can experience a sudden drop in funding. School systems often strive to offer equivalent courses and programs, even with fewer students. This dynamic can strain local budgets – reflecting the reality that not every dollar spent in a school system is truly a “variable cost.” A 1% drop in students across a county school system may mean some cost savings in bus transportation and meals service – but may not have any effect on the majority of system-wide costs for education and administration.

Wealth Calculations

That strain is compounded when a decline in enrollment flows through wealth formulas, as most state education aid does. As a county’s overall tax base is divided by fewer students (for a per-pupil wealth calculation), the jurisdiction appears more wealthy under state wealth formulas, and its aid amounts are adjusted downward. Thus, not only does the system receive funding for fewer students, it also receives fewer dollars per student – a troubling compounding effect.

One of the factors in calculating the per pupil foundation amount is each county’s wealth, which is calculated using net taxable income and property values. In 2013, determination of NTI was changed to account for taxpayers who file later in the year, and in turn, cause the calculation to increase for certain counties and therefore reduce their per pupil foundation amount.

Looking Ahead

The Kirwan Commission, whose work has already commenced, has been charged with evaluating a wide range of issues with school funding — with a close look at the wealth calculation and annual funding changes among their topics.

However, with the abrupt drop in funding, it seems likely that the General Assembly may, working with the Governor, seek to find a temporary remedy to address these “cliff effect” funding decreases.

Previous Conduit Street Coverage

DLS Budget Briefing

Kirwan Commission Recommendations