A recent Department of Legislative Services (DLS) report on the Cade Funding Formula outlines various considerations for the Maryland General Assembly regarding how the State allocates funding to its community colleges.

These considerations are drafted to potentially modernize the current funding system, which ties community college funding to a percentage of the support given to four-year public institutions. However, the proposed changes could negatively impact smaller colleges and those serving more vulnerable student populations.

Senator John R. Cade Funding Formula

The Senator John R. Cade funding formula – which bases community college funding on a percentage of the appropriation per full-time enrollment student (FTES) at four-year public higher education institutions − aims to provide community colleges with predictable operations support and help maintain affordable tuition rates. As with many aspirational policy recommendations, the Cade Formula was adopted with a predictable phase-in to eventually pin per-pupil community college support as a percentage of the State support for four-year college students, with affordable increases toward the end goal.

However, for 25 years, when the State faced various fiscal challenges, it employed extensions and formula-rebasing techniques to decrease community college funding or delay fully funding the formula, resulting in a lengthy history of imbalance in state support of its community colleges compared to public four-year colleges. From 2009 to 2022, the State missed its promised community college funding targets by over $140 million, further harming Maryland’s most vulnerable student population.

For the past two years – for the first time – the State fulfilled its obligation to fully fund Maryland’s community colleges. Achieving this goal is more than just receiving an increase − it is a recognition that students enrolled in community colleges deserve the same level of support as public university students.

However, during the 2024 General Assembly session, lawmakers permanently cut community college funding with a major adjustment to the Cade Funding Formula. Through Chapter 717 of 2024, the Budget Reconciliation and Financing Act (legislation usually accompanying the budget bill to effect statutory components of that year’s fiscal plan), the formula was modified to allocate community colleges just 27.2 percent (down from 29 percent) of the Full-Time Equivalent Student (FTES) appropriation given to Maryland’s four-year public institutions. Meanwhile, while Maryland’s community colleges faced a $12 million cut in fiscal 2025, private colleges and universities — often catering to more affluent students — received $72.6 million in State funding.

DLS Considerations to Modernize the Cade Funding Formula

Here’s a deeper dive into the various considerations developed by staff for consideration by the General Assembly and their potential effects:

Shift to Performance-Based Funding

One option presented in the report is moving toward a performance-based funding (PBF) model. This approach ties funding to outcomes like graduation rates, job placement, and transfer success. While this may seem like an incentive for student success, there are several potential downsides:

• Disproportionate Impact on Vulnerable Students: Community colleges serve a diverse population, including part-time, older, and lower-income students. These groups often take longer to complete their degrees or face more barriers to success. A PBF model could penalize colleges serving these populations, as their outcomes may not align with institutions with more traditional student bodies.
• Increased Administrative Burden: Performance-based models require more detailed data collection and reporting, increasing administrative costs. This could divert resources away from student services and instruction.
• Risk of Lowering Academic Standards: In states where performance-based funding has been implemented, there has been pressure to lower academic standards to ensure higher completion rates and secure more funding.

Decoupling from Four-Year Institutions

Another option discussed is decoupling community college funding from the percentage of per-student financing allocated to four-year public institutions. Currently, the Cade formula ties community college funding to this percentage, ensuring that community colleges benefit when four-year institutions receive increases (as a general indicator of the State’s ability to fund its priorities).

Decoupling could have several potential consequences:

• Reduced Stability: The current linkage provides predictable and stable funding for community colleges. Decoupling could make these institutions more vulnerable to fluctuations in state budgets and economic conditions.
• Fewer Resources: Without the connection to four-year institutions, community colleges might receive a smaller share of overall higher education funding, especially since four-year institutions have historically been prioritized in state budgets.

Elimination of Fixed Costs Component

The report discusses eliminating the fixed-cost component of the Cade formula, which has traditionally helped smaller community colleges manage operational expenses regardless of enrollment fluctuations.

• Strain on Smaller Colleges: Smaller institutions, particularly rural ones, rely on this component to cover essential operational expenses, such as faculty salaries and infrastructure maintenance. Without it, these colleges may struggle, especially during declining enrollment.
• Increased Funding Volatility: Moving to a purely enrollment-based funding system introduces more volatility. Since enrollment can fluctuate based on local economic conditions, community colleges could experience sharp decreases in funding, making it harder to plan for long-term needs.

Equity-Focused Funding Components

The report also discusses introducing equity-focused funding elements, which would allocate additional resources to colleges serving higher numbers of low-income or first-generation students. While this approach seems optimistic, the actual benefits may be limited.

• Insufficient Compensation for Broader Cuts: Although equity funding could help institutions serving disadvantaged students, it may not offset the losses from other cuts, such as eliminating fixed costs or shifting to performance-based metrics.
• Potential for Uneven Implementation: In other states, determining what constitutes “equity” has been challenging, leading to disparities in how funds are distributed. Wealthier areas may still end up receiving a disproportionate share of resources.

Changes to Full-Time Equivalent (FTE) Student Definitions

Another option is to broaden the definition of full-time equivalent students (FTES) to include more nontraditional students, such as those in continuing education or workforce training programs. This could have both positive and negative effects.

• Better Reflects the Student Body: Expanding the definition of FTES could help community colleges receive more accurate funding for the diverse range of students they serve. Many community college students are not traditional full-time students, so this adjustment could provide a fuller picture of institutional needs.
• Potential for Manipulation: The expanded definition could also complicate measuring enrollment and determining funding. This creates a potential incentive to inflate FTES numbers without necessarily improving educational outcomes.

Potential Fallout From a Formula Rewrite

• Increase Tuition and Fees: If state funding is reduced, primarily by eliminating the fixed-cost component (designed to recognize that numerous central functions are essential, regardless of the campus size or enrollment), community colleges may need to increase tuition and fees to fill the gap. This would place a more significant financial burden on students, many of whom are already lower-income.
• Harm Vulnerable Student Populations: Performance-based funding models often harm institutions serving the most vulnerable populations, as they face more barriers to success. Colleges serving first-generation, lower-income, or part-time students may receive reduced funding if they can’t meet the same outcome metrics as wealthier or more traditional institutions.
• Reduce Operational Stability for Smaller Community Colleges: Smaller community colleges could face severe budget shortfalls without fixed-cost funding. In rural areas, these institutions may be the only accessible form of higher education, making their stability crucial for local communities.
• Shift More Burden onto Counties/Student Tuition: When State funding lags, additional pressure builds on county budgets and student tuition. County governments are similarly facing budget constraints, including mandated funding for pre-kindergarten-12 education via the Blueprint. These State cuts will, in many cases, effectively result in tuition increases at a time when training and education opportunities are most needed.
• Jeopardize Workforce Development Efforts: Community colleges play a critical role in workforce training, especially in partnerships with local businesses. Reductions in state funding could force colleges to scale back these programs, weakening Maryland’s economic competitiveness.

Conclusion and Look Ahead

All potential adjustments speculated in the staff report would require legislation to take effect. So, a full public process would allow the colleges and other stakeholders to address specific concerns once these items become actual fiscal proposals. The partial exception could be if a formula change is again introduced as a part of the Administration’s Budget Reconciliation and Financing Act, an omnibus bill “required to balance the budget.” The mere practicality of its usual breadth lessens the ability to speak in depth on any one facet of that bill. When the BRFA contains dozens of budget-balancing components, it becomes difficult in practice for policymakers to focus intensely on any one among them, and rejecting an item that creates State cost saving triggers a “where would the money come from?” retort.

The potential changes presented in the DLS report could shift the Cade formula away from a stable and somewhat equitable system toward one that prioritizes outcomes over access. While performance and equity considerations are essential, implementing these changes could lead to more profound disparities, particularly for institutions and students who are already disadvantaged.

MACo and the Maryland Association of Community Colleges (MACC) have expressed concerns and are advocating for the General Assembly to fully fund the Cade formula. The proposed options could exacerbate funding inequities and harm the long-term stability of Maryland’s community colleges.

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.