School Funding, Part 3: She Works Hard For The Money (Cost of Education)

Funding schools may not work as one-size-fits all. Maryland currently uses separate, targeted funding to recognize the “cost of education” for different regions. Consultants recommended broad changes to this approach. Maryland’s next steps are not very clear.

This article is number three in a series on Conduit Street, featuring elements of Maryland’s current school funding debate. For more general information on school funding formulas today, see “School Funding: This is How We Do It” from 22 May 2019, and for more information on the county wealth formula, see “Money Changes Everything (The Wealth Formula)” from May 30.

Maryland school funding rests on a foundation funding formula – a certain amount of per-pupil funds needed for successful schools, with a modifier for special classes of students.

However – this model, as far as it goes, implicitly suggests that the cost of delivering a quality of education is a constant in all parts of the state. Economic data, however, contradicts this – most obviously in labor markets. If the required wage to hire a quality, experienced classroom teacher varies from place to place within the state, how should school funding address this?

Maryland’s Current System – the GCEI

Since 2002 and the passage of legislation formulated by the Thornton Commission, Maryland has used a system known locally as the Geographic Cost of Education Index (or GCEI) as a tool to recognize disparate costs of providing educational services. This simple summary from the Maryland State Education Association offers the basics:

Geographic Cost of Education Index (GCEI): Since the cost of education is different across the state, the state provides additional funding through the GCEI to make up the difference for counties where delivering education is more expensive. Using an index that values each jurisdiction’s cost of education, the GCEI formula multiplies the per pupil foundation amount for each county by the county’s predetermined adjustment factor. Thanks to the work of the General Assembly in the 2015 legislative session, GCEI is now mandatory funding.

In short, the GCEI uses multiple factors to determine not only the cost of living, but also the cost of education, in each county. Here’s a more thorough summary from the APA consultants hired by the State of Maryland for its Adequacy Study.

The essential defining element of Maryland’s GCEI is that it is a one-direction add-on funding grant. In essence, this means:

  • High cost counties receive a calculated amount of extra state-only funding to help account for the cost differential;
  • Low or average cost counties receive no adjustment (i.e. no reduction in funds);
  • These costs are treated separately, and funded as a separate category, rather then embedded into the main formulas.

In the FY 2020 budget, the GCEI was funded (by formula) at $145 million – representing only about 2.3% of state direct education support. It’s meaningful funding to the affected jurisdictions, but it’s a relatively small share of overall school funding.

Proposals To Change, Take 1

The Adequacy Study included an evaluation of each component of the current Maryland funding model, with consultant recommendations issued after their assessments. APA offered their view on how the localized cost of education should be better incorporated into the county-by-county funding models. From a component report (in advance of the final recommendations) comes this discussion:


Given the discussion and analysis outlined in previous sections, the study team has three specific recommendations for modifying and updating the GCEI.

1.The current wage indices within the GCEI should be replaced with indices estimated using comparable wage methodology.

2.The ECI and the other expenditures (which do not vary significantly) should be removed so that the GCEI cleanly isolates the wage costs associated with geographic location. The wage costs could still consist of a combination of professional and non-professional wages, weighted for budget shares.

3.The GCEI should not be truncated, and should also be integrated into the base foundation formula rather than treated as a separate add-on program.

In short, APA’s view was: Maryland is thinking too small. An extra, relatively small, layer of funding to select jurisdictions is an insufficient way to reflect true cost variability. Rather, they preferred an approach that would use and adjustment factor (based on local wages – a topic discussed very thoroughly in that linked document) to multiply through every component of the entire funding scheme.

In the final December 2016 consultant report (incorporating the many facets of school funding together, and detailing only the collective effect of them when taken as a bundled package), here’s what APA shared about regional cost adjustments:

Note: the term CWI is a comparable wage index, a measure of employee wages from non-education jobs in each area of the state

As a result, the study team is recommending using the CWI figure to adjust for regional cost differences. The study team recommends all formula funds be adjusted by the CWI, which is a further change from the current funding system. Currently, only foundation funding is adjusted by the GCEI. However, regional differences in costs impact all program areas, not only programs supported by foundation funding. Additionally, the study team also recommends that adjustments be made for districts with CWI figures above and below the statewide average. Currently, adjustments are made only for those districts with GCEI figures above the state average, providing for additional funding for districts in regions with higher than average costs. By not applying GCEI figures below the state average, funding for districts in lower cost regions is not reduced, resulting in a financial advantage for these districts in the competition for attracting and retaining qualify staff. Finally, the study team recommends that the CWI adjustment be applied prior to determining the state and local shares. Currently, the GCEI adjustment is made after the local share has been calculated and the entire cost of the GCEI adjustment is included in state foundation aid. However, under this recommendation the full range of the CWI will be applied (both above and below the state average), therefore local jurisdictions should share in any savings as well as extra costs resulting from the application of the CWI.

APA suggested a far, far broader incorporation of local costs (especially labor costs) in determining target funding levels for each jurisdiction.

The Kirwan Commission – No Signs

We owe our article title to Donna Summer, she worked hard for the money, and so do Maryland’s educators – but reflecting that in funding formulas is tricky

During its extended time spent evaluating educational funding and programs, the Kirwan Commission has not delved into the regional cost of education. Not even any staff reports have presented this topic in sufficient detail to glean a potential direction or preferene from the group. Unlike the wealth formula, the latest thinking on this remains a nearly complete unknown as formula work has been relegated to a special working group.

Multiple Goals, Conflicting Outcomes

Among the criticisms inherent in a very broad use of any education cost index i that it may serve to frustrate the policy goals of funding equity. See our last article, “Money Changes Everything (The Wealth Formula)” for more context on funding equity goals.

Overall, Maryland strives to promote equitable and adequate funding in each school system. If there is a correlation between the costs of education (as discussed in this section, or as measured by area wage levels) and the tax base (measured by some combination of property assessments and residents’ taxable income) — then using a multiplier will necessarily counteract some, or much, of the wealth-equalization efforts sought by the state’s workhorse formula approach.

While the consultant report does not isolate these effects in any digestible presentation (and did not provide any such detailed information to stakeholders even upon request), the aggregate effects of their recommendations were startling in many ways. Their total effect is shown here:

The overall effect of these cost estimates (admittedly incorporating far more than just the cost of education changes were dramatic. Proposals of massive swings in funding to various school districts… some massive winners, some massive losers. The shift between state and county responsibility in many cases dramatic and transformational.

Projecting Next Steps

The funding work group has several months ahead to develop its recommendations on funding formulas. Presumably, the current GCEI, potential changes to the way local employee costs or other components will be considered in that debate.

But counties and other stakeholders have little certainty where this debate might land. The Kirwan Commission’s scant attention to the matter, and the limited (at best) response to the consultant recommendations from 2016 have left this element highly undefined.

Michael Sanderson

Executive Director Maryland Association of Counties