As the state works to balance a $3B general fund structural deficit, $1.8B of which is education funding, cost-containment measures could affect corresponding county funding requirements. 

Part one of this policy deep dive discussed some of the major challenges facing the state for funding education over the next five years, primarily the continued implementation of the Blueprint for Maryland’s Future (Blueprint). In part two, we examine how State-level funding changes could affect counties moving into FY28.

The State Education Funding Challenge

As previously covered in part one, the state needs to balance an anticipated $3B deficit in FY28, $1.8B of which is driven by education funding (both funding increases, and the lack of Education trust Fund reserves to cover the State-side costs). Without significant changes, that deficit will grow by $2B and $3B over the next three years for education alone. This requires the state to use several strategies to reach a balanced budget, as required by state statute.

The mechanisms they use could, at best, cover the full cost of the shortfall, or they could use a combination of program cuts and tweaks that reduce some costs while covering the remainder. The state can cut other, non-education service areas to free up resources to cover the shortfall; adjust program scope and timelines to realize near-term savings; raise revenue through a number of different mechanisms; and dip into reserve funds. A likely scenario under the circumstances is some combination of the above, except potentially tapping reserves, because credit rating agencies have already warned state leadership that those account balances are already considered too low compared with the amounts peer states hold.

Recent comments from state leadership have pointed to what will likely be difficult conversations as the deliberation plays out. State leadership on the budget committees reiterated those concerns in recent Maryland Matters coverage:

From the Budget and Taxation Committee Chair, Senator Guy Guzzone:

We thought we would have been better off. We have to pull back on some of our expectations now because it is clear those aspirations are not going to be able to be met at the levels we had hoped they would be met.

From the Appropriations Committee Chair, Delegate Ben Barnes:

I believe that for the Speaker and for the entire House, all options are on the table. I think that we are committed, and I think our partners in the Senate and the governor’s office are as well, to tackling not just any shortfalls this year, but the out-year shortfall head-on this session.

Preparing data for those discussions has already begun. From that same Maryland Matters article:

Emails to every executive branch agency, as well as state universities, told them to prepare fiscal 2028 budget requests that include reductions of roughly 3%, with two dozen Cabinet-level agencies told to prepare budgets with up to 10% reductions.

It is important to also note, as they take on this challenge, that the second, and most recent, credit rating agency that put Maryland on a negative outlook shared that they will need to see state leadership bring structural balance back to the state general fund for multiple years in order to avoid an eventual downgrade. So, the state has an incentive to make policy adjustments that address the structural deficits that are projected for the next couple of years and not just those for FY28. More on those recent developments regarding the state’s creditworthiness was previously covered on Conduit Street in the Capital Debt Affordability Committee (CDAC) coverage this week.

Why Do State Education Funding Choices Affect the Counties?

School funding is one area where State-level program adjustments can directly affect county funding requirements because they are linked through the Blueprint formulas. The formula wealth-equalizes the shares based on a jurisdiction’s ability to raise revenue locally. The state calculates the local wealth measure for every county and Baltimore City by the jurisdiction’s property assessments and personal income. This equalization measure then carries through many other programs that require funding by splitting the costs.

For example, of the total foundation funding the state and Allegany provide to the Allegany school system, the county government provides about 28 percent. Anne Arundel, considered a wealthier jurisdiction under the wealth equalization formula, provides just shy of 60 percent of total foundation funding. Another example: because the formula weights property tax about 15 percent more than income tax, a jurisdiction like Worcester covers about 85 percent of the foundation total. So, the impact really depends on which jurisdiction is in question.

How Would State Blueprint Changes Affect County Funding Requirements?

The foundation program is one of the largest portions of funding that state and local governments provide to local school systems and is a good example of how a change at the state level affects county government. The foundation program amount is based on a set per-pupil foundation amount (PPFA) that increases gradually as the Blueprint is implemented. The PPFA is intended to include costs associated with implementing the Blueprint that are provided for all students, including salary increases, additional teachers to provide professional learning and collaborative time for teachers, career counseling, behavioral health, instructional opportunities for students to become college and career ready (CCR), and supplies and materials for teachers.

If the state, in addressing the projected funding shortfalls, chooses to fund only the current PPFA and delay the $228 per pupil increase, it could potentially save about $200M. This assumes no significant changes in enrollment from one year to the next. If the State made this change, it would ripple through some counties by changing how much funding they must provide, as discussed above, but this also depends on what type of funding the county is currently providing.

Counties provide one of two types of operations funding for schools: the greater of the local share or maintenance of effort (MOE). The local share is the amount a county must provide under the Blueprint funding formulas, while MOE generally reflects the prior-year local appropriation, adjusted for enrollment. The requirement is essentially whichever number is larger when the calculations are run.

For instance, if a county provided a discretionary amount larger than the calculated local share in the previous year, it would be required to fund at least that amount, adjusted for enrollment changes. This matters in a year like FY28 because if the state chooses to pull back the funding amounts it contributes to balance the budget, a county providing maintenance-of-effort funding would still be required to maintain the higher contribution amount.

So, for a jurisdiction that regularly funds a significant amount over what the state requires as its calculated “local share,” such as Howard, Anne Arundel, and Montgomery, they are not likely to see any reduction in the amount of funding they are required to give, because they cannot provide less than their own prior-year threshold, i.e., “maintenance of effort.” At least half of Maryland counties going into FY28 are likely to be in this position if the state slows spending growth down next year. For any jurisdiction that is regularly funding the local share amount, such as Dorchester, Caroline, Kent, and Prince George’s counties – barring a significant jump in enrollment – their requirement could stay about level with the FY27 contribution or even decrease in accordance with the state shares.

A third scenario is for counties providing the MOE portion of funding, but only by a marginal amount. In this situation, if the local share increase for FY28 is greater than the county’s FY27 contribution, they will need to provide more funding in FY28. But that increase could be adjusted down if the state pulls back funding for a particular program but not another category. For instance, the state could fund the foundation amount and therefore so must the county governments, but if it pulls back on another category, counties in this position would see a corresponding decrease in the requirement.

Cost Containment and the Future of the Blueprint

This same cost-containment strategy could apply to other categories, not just foundation, as the state looks to balance the budget. Special education, concentration of poverty, compensatory education, multilingual learners, and prekindergarten expansion are all programs in the Blueprint that require supplemental funds from the state and county governments to implement and are controlled by a statutory minimum in state law. If those amounts were adjusted, the change would flow through to counties depending on their current funding level, as described above.

A final point is that these program-by-program adjustments from one year to the next effect only about $500M of the state’s FY28 funding requirement. Even if the state kept all Blueprint funding flat to budget, year over year, from FY27 – FY28, there remains the question of if and how they will resolve funding for the remaining $1.3B that would need to be covered by the State general fund (meaning, in effect, from savings elsewhere, or revenue) to avoid the schools taking a significant cut from even the contributions that were provided in FY27. If those funds that school systems have already been relying on are pulled back, it could likely give school systems more flexibility in rolling out the individual programs required under the Blueprint.

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