Following the end of the formal COVID public health emergency declaration, federal rules for Medicaid eligibility returned to normal this year. That likely, despite Maryland’s best efforts to maximize applications, means some families will lose their eligibility. An underappreciated element of this administrative change is its effect on school funding through the still-unfolding Blueprint for Maryland’s Future.

Maryland policymakers, and county leaders, are familiar with the moving parts of school funding. And they also are sensitive to their residents who depend on assistance to stay safe and secure. Two seemingly unrelated storylines come together here, with intriguing outcomes for both State and county school funding requirements.

Medicaid Enrollment – During and after the COVID Emergency

Medicaid – health coverage for low-income families – went through a temporary change during the COVID years, but that process has ended with the lapse of the public health emergency. From the federal government’s Administration for Community Living page:

At the beginning of the COVID-19 pandemic, significant changes were made to Medicaid enrollment and eligibility rules to promote continuous health insurance coverage. These changes ended on May 11, 2023. As a result, many older people and people with disabilities are at risk of losing their Medicaid coverage. Disabled people and older adults who are enrolled in Medicaid need to be aware of these changes and how they may be affected, so they can take the actions needed to maintain their health insurance coverage.

Maryland, like every State, collaborates with the federal government to support Medicaid services (typically called Medical Assistance here). Discussions through 2023 have suggested that the return of the formal application process to remain Medicaid eligible will likely deplete the program’s participation – including some families no longer eligible based on income limits, but also likely because of the application process. A June report suggested that as many as 35,000 Marylanders may lose their coverage:

About 35,000 Marylanders lost their Medicaid coverage last month due to reinstated requirements by the federal government to renew basic information of participants each year.

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Medicaid participants who missed their renewal date will have four months to submit the information for reconsideration.

Information about Maryland’s effort to re-enroll eligible Marylanders is detailed on the Maryland Department of Health website. Recent Conduit Street coverage also outlines the numbers problem as the concern has stretched into autumn months: ‘System Glitch’ in Medicaid Renewal Process Has Eligible Children Losing Coverage

School Funding, Compensatory Education, and Medicaid Counts

The Blueprint for Maryland’s Future (“The Blueprint”), the ambitious plan to enhance learning and teaching in our public schools, includes multiple formulas for school funding, effectively being phased in over a multi-year period. The Blueprint’s funding plan – rather oversimplified – is to count the student population in a county-wide system, identify certain categories of students that require added resources to reach and teach, and derive a full funding amount based on those populations to be split between the State and county government based on measurements of local wealth.

Dating back before the Blueprint (including its predecessor the “Thornton” plan, and its predecessor the “APEX” plan), one element of school funding has been support for families in poverty. For years, the central method to count this school population had been the number of students eligible for free or reduced-price meals (aka FPRM, or sometimes nicknamed to sound like “farm”) – pinning to the federal definitions and eligibility for such programs.

The Blueprint legislation, on guidance from the Kirwan Commission that developed its scheme, noted flaws in such a system and guided Maryland to use Medicaid eligibility as a more comprehensive, and perhaps more accurate, basis for identifying low-wealth families whose students would trigger added funding – known under the Maryland formulas for years as Compensatory Education, typically the second-largest component of the multiple school funding formulas after the base Foundation formula funding allocated for each student.

The FY 2024 budget was the first to be developed using Medicaid enrollment as the underlying basis for Compensatory Education, and in late 2022 (leading up to the 2023 session when the FY 24 budget would be debated). The Department of Legislative Services described the effects of these counts, dramatically higher than in prior years in their 90 Day Report:

While there were multiple moving parts to school funding requirements for FY 2024, including an errant data batch used to generate aid funds in the originally proposed budget, the effects of this major spike in FRPM students, and therefore Compensatory Funding, was a major and somewhat unexpected driver of additional costs.

Different Formula Effects on the State and Counties

Under the Blueprint, school funding is a shared responsibility, even as the program ramps up toward its full implementation. The State share of the various programs, including Compensatory Education, transmits directly to mandated funding in the State budget, as discussed above. The State, however, has substantial resources available in its Education trust Fund to support educational enhancements (created through a voter-approved constitutional amendment) and these costs did not immediately translate to a “bottom line” change on the State’s general fund budget (that must be balanced each year).

Counties, however, effectively have a two-pronged test for their required funding each year, including through the phase-in Blueprint years. Each county must fund the greater of these two calculations:

• Maintenance of Effort (MOE): The same per-pupil amount the county funded in the prior year, applied to the updated school enrollment figure (this is the familiar “Maintenance of Effort” law that has been in place since the 1980s, though refined variously through the years)
• Local Share of the Blueprint: The county’s local share of the several components of the Blueprint plan (noteworthy here that this includes Compensatory Education), as calculated through the State-created wealth formula to split costs between the State and counties

For counties where the Local Share exceeds their own MOE value – this spike in FPRM student count immediately translated to a higher funding requirement than had been anticipated in earlier forecasts, and created substantial strain on local budgets. Several were compelled to draw down fiscal reserves and take comparable measures to enact a balanced FY 2024 budget without eclipsing other essential services.

What Happens if the Compensatory Education County Drops?

Again, there are multiple answers to this question.

For the State, a drop in the student count driving Compensatory Education could calm the rising costs of the Blueprint, at least on a year-to-year basis following the unusual spike last year. That would translate to lower overall Blueprint costs, and the State share of them. Since the Blueprint costs are being borne principally by the Education Trust Fund with a substantial balance, this means no direct effect on the FY 2025 general fund, but potentially a somewhat more robust balance in that targeted fund available for future spending.

For counties whose costs were driven by the Maintenance of Effort law last year, and have not yet seen the Local Share reach or exceed that amount – there would be no practical effect on mandated funding for the year ahead.

However, for counties who were mandated to provide the Local Share calculated costs for FY 2024 (in excess of their own prior spending), a drop in the Compensatory Education count could lead to a peculiar result. Data is not yet available to calculate this effect on any county, but the arithmetic works as follows:

• Spring 2023 – FY 2024 budget passed in Spring of 2023 required an increase over the county’s Maintenance of Effort, to meet their Local Share of phased-in costs, which includes the unusual increase in the Compensatory Education student count.
• Summer 2023 – Federal rule changes bring about a reduction in Medicaid enrollment, and therefore the number of students driving the Compensatory Education formula, part of the county’s Local Share
• Winter 2023 – Schools develop their budget proposal to the county, based on best projections for Blueprint costs and student enrollments – if a major downswing in Compensatory Education students are reflected in that, then some State formula costs would decline from the prior year
• Session 2023 – The Governor and General Assembly work through their budget process, potentially facing some fiscal relief from the decline in Compensatory Education count (that would preserve funding levels in the Education Trust Fund)
• Spring 2024 – The county faces its two-pronged calculation for required school funding again, but this time the drop in Compensatory Education students has softened the required funds for the Local Share. However, the mandated FY 2024 funding level on a per-pupil basis was exaggerated due to the spike in Compensatory Education funding enrollment. The “Maintenance of Effort” law does not rely on any category weightings (like FRPM students), and so the county is bound to meet “Maintenance of Effort” despite the targeted populations being served in the prior year no longer being counted.

The Blueprint and its multiple funding formulas have always been complex, causing a re-assessment of both State and county costs as the implementation (and legislative refinement) has continued since its adoption. Potentially, the FY 2025 calculations may pose one more “ripple effect” arising from the COVID epidemic and the related shocks to school enrollment and public service provisions.

Once again, State policymakers may need to consider one-time adjustments if these ripples prove to be overwhelming to either the State or its counties. With enrollment data from the September 30 student count just coming into form – the magnitude of these ripples should be cleared in the weeks ahead.

This article is part of MACo’s Deep Dive series, where expert analysts explore and explain the top county issues of the day. A new article is added each week – read all of MACo’s Deep Dives.