Ehrlich budget will use loophole

Gov. Robert L. Ehrlich Jr. is cutting the price of an expensive schools reform program by taking advantage of a loophole that will cost large urban school districts -- including Baltimore's -- millions of dollars in anticipated state assistance.

Relying on an October memorandum from an assistant attorney general, the Ehrlich administration has determined that a major part of the so-called Thornton Plan to spend $1.3 billion more yearly on public education by 2008 is not mandatory.


As he prepares a balanced budget that fills a huge gap between projected program costs and expected revenues, Ehrlich plans to withhold about $45 million from Montgomery County and other larger districts that were anticipating extra money, according to sources familiar with the governor's plans.

Higher housing costs and other factors make recruiting and retaining teachers more difficult in those school systems.


"It's a big deal," said Sen. Nathaniel J. McFadden, a Baltimore Democrat and chairman of the city's Senate delegation. "If you pull out a part of [Thornton], it could make the whole thing collapse. ... They shouldn't be looking for loopholes."

In the Baltimore region, city schools as well as those in Anne Arundel, Carroll, Baltimore and Howard counties all would lose money, although specific amounts were not available yesterday.

Critics say that by relying on the legal advice, the governor is reneging on a commitment to pay the full price of the education plan in the coming year.

"They are lying," said Montgomery County Executive Douglas M. Duncan, a potential challenger to Ehrlich in 2006. "He is not honoring his campaign commitment to fully fund schools, and he is not honoring his campaign commitment to keep gambling and education separate."

Meanwhile, the tight budget is forcing the reconsideration of another Ehrlich commitment. The governor said yesterday that he cannot afford to lower the state portion of property tax bills, which were reluctantly increased by the governor last year as part of a budget-balancing deal with legislators that went awry.

Last spring, Ehrlich promised he would try to eliminate the tax increase, which amounted to $96 a year for an owner of a home assessed at $200,000. But to do that, he would have to detour $187 million in general tax dollars to pay bonds on construction projects, something the governor said yesterday won't happen because of constrained fiscal conditions.

State budget secretary James C. "Chip" DiPaula Jr. would not confirm specific figures in the governor's $22 billion budget, which is expected to be released on Jan. 21.

State aid for kindergarten through 12th grade, which makes up about $3 billion of the state's $10 billion operating fund, would grow by more than $300 million under the rest of the Thornton wealth-equalization formula, DiPaula said.


"The Thornton formula is complicated, by necessity. There are many elements. Some are mandated. Some are not," DiPaula said. "The governor is including an extraordinary increase in K-12 education. It would do no good to quibble over modest elements."

Still, the governor's decision raises questions about whether he is fulfilling a pledge he has repeatedly made to pay the full cost of the latest installment of the education program -- about $353 million -- in the budget that takes effect July 1.

"If he doesn't do it, I don't feel he has fully funded Thornton," said Sen. Patrick J. Hogan, a Montgomery County Democrat.

The governor has also said that without a slots program, the final three years of the education plan won't happen.

Adopted in 2002, but without a way to pay for it, the Thornton schools program included a requirement to develop a new formula to compensate school districts with high costs due to geographic factors. Housing is expensive, for example, in Montgomery County.

For the school year that began in August, the state relied on a less precise model, paying 4 percent more to Montgomery County; 3 percent more to Howard County and Baltimore City and 1 percent more to Anne Arundel County.


The law required the state to hire a consultant to devise a new formula for the budget year that begins July 1, and the National Conference of State Legislatures completed the work last month.

But in an Oct. 16 memorandum, Assistant Attorney General Valerie V. Cloutier, counsel to the state education department, determined that because the Thornton law did not contain specific dollar figures for future years, the governor is not obligated to pay for the geographic formula.

"Again, because there is no particular level of funding prescribed by law, the governor may put in as additional funds an amount for some or all of the counties in light of a recommendation from the study, but the governor is not required to do so," Cloutier wrote.

The new formula ranked Prince George's as the No. 1 recipient of aid, followed by Baltimore City and Montgomery, Frederick, Calvert, Charles and Anne Arundel counties. Howard ranked 8th, followed by Carroll. Baltimore County was 12th.

Former state Sen. Barbara A. Hoffman, a key architect of the schools reform program who is now a lobbyist, said the General Assembly intended that the geographic index be mandatory, not optional.

"If we had had a revised index, it would have been in there from the beginning," Hoffman said.


She said the index was included in part to secure legislative votes from Montgomery County, the state's largest jurisdiction. "That piece was in there to make Montgomery happy," she said.