After a Maryland county board of education's already-adopted budget turns out to have a much bigger surplus than expected from the prior year, can the county commissioners approve a budget amendment to add that extra local surplus money to school spending mid-year?

Plain-English summary

David P. Gray, President of the Frederick Board of County Commissioners, asked the Attorney General whether the Commissioners could approve budget amendments the Frederick County Board of Education had requested to increase its "surplus" revenue line for the current fiscal year. The Board of Education's adopted budget had estimated $1 million in unliquidated surplus from the prior year, but a subsequent audit revealed the actual surplus exceeded $5 million, and the Board of Education wanted to add most of that difference, and offsetting expenditures, to its current budget.

The opinion agreed with an accompanying memorandum from the Frederick County Attorney, which the AG's office attached to and reproduced within the opinion, that the Commissioners could not approve the increase. It found that Frederick County's own public local law generally prohibits the Commissioners from increasing the county's adopted budget after the fact, and that this local law applied here because the requested increase was to the "local" surplus revenue category rather than State or federal money. The opinion added two caveats: if the increased surplus had instead come from unanticipated State or federal revenue, the Education Article separately lets a county governing body approve spending it even after budget adoption; and the opinion specifically declined to adopt the County Attorney's broader reasoning that state law implicitly forbids all counties from ever approving increased local-fund expenditures, since some counties without Frederick's restrictive local law might have discretion the Education Article's silence does not foreclose. The opinion's holding was therefore limited to Frederick County specifically.

Currency note

This opinion was issued in 2002. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific budget rule, procedure, or public local law provision mentioned here, particularly since Frederick County's public local laws and the Education Article's budget provisions may have since been amended, and since Frederick County has since adopted a charter form of government that could affect how its local budget laws operate.

Common questions

If a Maryland school board finds extra unspent money from last year, can it always add that money to this year's budget mid-year?
Not automatically. The opinion concluded that whether a school board's unanticipated prior-year local surplus can be added to the current budget depends on the applicable county's own budget law; in Frederick County specifically, a public local law barring the County Commissioners from increasing an already-adopted budget blocked this from happening.

Would the answer have been different if the extra money had come from the state or federal government instead of local sources?
Yes. The opinion noted that ED §5-105(c) specifically authorizes a county governing body to approve a local school board's expenditure of unanticipated "nonlocal" funds (State or federal money) received after the budget is adopted, a mechanism with no local-fund equivalent in the statute.

Did the opinion agree with everything in the Frederick County Attorney's memo?
No, not entirely. While it agreed with the bottom-line conclusion for Frederick County, the opinion specifically declined to adopt the County Attorney's broader argument that the Education Article's silence about local-fund increases implicitly bars every Maryland county from ever approving one; the opinion suggested that silence might instead simply reflect that a county governing body is already necessarily involved whenever local funds are appropriated, so no special notice provision was needed the way one was for State or federal funds.

Background and statutory framework

Under the Education Article, a local board of education prepares an annual budget in categories set out in ED §5-101(b)(1): revenue from local sources, revenue from State sources, revenue from federal sources, unliquidated surplus (actual from the prior fiscal year and estimated for the current year), and revenue from other sources. That budget is submitted to the county government under ED §5-102, which must fund at least a statutory "maintenance of effort" minimum under ED §§5-103(a) and 5-202, but may deny requests above that minimum under ED §5-103(b). Once adopted, the board of education must spend within its major budget categories under ED §5-105(a), may transfer funds within categories without county approval under ED §5-105(b), but needs county approval to transfer between major categories under ED §5-105(b)(2)-(3). ED §5-105(c) specifically allows a county governing body to approve a board's expenditure of unanticipated "nonlocal" funds received after budget adoption, but the statute contains no parallel provision addressing unanticipated local funds.

Frederick County's own public local law, Frederick County Code §§2-7-5 and 2-7-6, generally prohibits the County Commissioners from increasing the county's adopted budget after the fact, with narrow statutory exceptions for "restricted revenues" tied to state or federal grants and, following a 2001 amendment (Chapter 261, 2001 Laws of Maryland), a limited ability to increase expenditures after January 1 of a fiscal year solely to repay debt. The opinion applied this local law, together with the Education Article's asymmetric treatment of local versus nonlocal unanticipated funds, to conclude the Commissioners lacked authority to approve the requested surplus increase.

Citations and references

Statutes:
- ED §5-101(b) and §5-101(b)(1)(i)-(v), listing the required budget revenue categories for a local board of education, including local, State, federal, unliquidated surplus, and other revenue sources
- ED §5-102 and §5-103, §5-103(a)-(b), governing submission of the board of education's budget to the county government and the maintenance-of-effort funding requirement
- ED §5-105(a), (b), (b)(2)-(4), and (c), governing a board of education's spending within and between major budget categories and its authority to spend unanticipated nonlocal funds after budget adoption
- ED §5-202, the maintenance-of-effort statute cross-referenced from ED §5-103(a)
- COMAR 13A.02.01.02C, adopting the Financial Reporting Manual for Maryland Public Schools governing budget format
- COMAR 13A.02.05.03B(4), the maintenance-of-effort regulation noting a county "may decide to appropriate additional funds to its school operating budget during a fiscal year"
- Public Local Laws for Frederick County, Frederick County Code §§2-7-5 and 2-7-6, generally prohibiting the County Commissioners from increasing the adopted county budget, with exceptions for restricted revenues and debt repayment
- Public Local Laws for Frederick County, Frederick County Code §2-7-6(B), added by Chapter 261, 2001 Laws of Maryland, allowing limited post-January 1 expenditure increases solely to repay debt

Cases:
- Chesapeake Charter, Inc. vs. Anne Arundel County Board of Education, 358 Md. 129, 747 A.2d 625 (2000), describing the county board of education budget process and county governments' ultimate approval authority
- Mossburg v. Montgomery County, 329 Md. 494, 620 A.2d 886 (1993), applying the statutory construction principle that express authorization of an action under certain circumstances implies the action is not allowed under other circumstances

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/2002/87oag66.pdf

Original opinion text

66 [87 Op. Att'y

                          COUNTIES

E DUCATION - P UBLIC S CHOOLS - P UBLIC L OCAL L AW
P RECLUDES F REDERICK C OUNTY C OMMISSIONERS FROM
A MENDING C URRENT B UDGET OF B OARD OF E DUCATION TO
R ECOGNIZE U NANTICIPATED S URPLUS FROM P RIOR F ISCAL
Y EAR

                          May 2, 2002

Mr. David P. Gray, President
Frederick Board of County Commissioners

  You have requested our opinion whether the Board of County

Commissioners for Frederick County may approve certain budget
amendments relating to the County schools. Your inquiry was
prompted by several requests by the local board of education to
amend its budget for the current fiscal year, to increase the amount
listed in the "surplus" line of the revenue portion of the budget and
to add offsetting expenditures. We understand that the approved
budget originally included $1 million in estimated surplus[1] and that
an audit after the close of the prior fiscal year subsequently revealed
an actual surplus exceeding $5 million.

 You included with your request a memorandum by the County

Attorney. A copy of that memorandum is attached to this opinion.
The County Attorney concluded that the County Commissioners may
not amend the budget they had previously adopted in order to
recognize an increase in the amount of "surplus" listed under
revenue from "local" sources.

 We have carefully reviewed the County Attorney's

memorandum and agree with that conclusion. Like the County
Attorney, we reach this conclusion because the General Assembly
has generally prohibited the Frederick County Commissioners from
increasing the local budget after it has been adopted. Public Local
Laws for Frederick County, Frederick County Code, §§2-7-5, 2-7-6.

  We add two caveats. We note, as did the County Attorney, that

the proposed budget amendments list the increase in surplus under
revenues from "local" sources. If the increased surplus were
attributable to unanticipated State or federal revenue - e.g., receipt
of federal funds in excess of estimates - the County Commissioners
would have discretion to approve the expenditure of those funds
even after adoption of the budget. See Annotated Code of Maryland,
Education Article ("ED"), §5-105(c).

  Second, we do not adopt the County Attorney's analysis of the

Education Article with respect to unanticipated local funds. The
County Attorney observed that ED §5-105(c) authorizes a local
governing body to approve a local board of education's expenditure
of unanticipated "nonlocal" funds. He reasoned that the absence of
a parallel provision in ED §5-105 or elsewhere in the Education
Article concerning the expenditure of unanticipated "local" funds
implicitly forbids a local governing body from approving increased
expenditures from local funds. However, the absence of such a
provision may not signify a legislative intent to prohibit an increase
in a local appropriation in all jurisdictions. Rather, the explicit
requirement in ED §5-105(c) that a local governing body approve
the expenditure of new "nonlocal" funds may be designed to ensure
that the local governing body has notice of, and exercises some
control over, the use of such funds. Because the local governing
body would necessarily be involved in an appropriation increasing
local funds available for expenditure, the General Assembly may
have seen no need to provide in the Education Article for special
notice and authorization.[2] In any event, we need not resolve that
question for, in Frederick County, the public local law governing the
county budget constrains the Commissioners' discretion over the use
of local funds. Thus, our conclusion relates solely to Frederick
County.

                                           J. Joseph Curran, Jr.
                                           Attorney General

                                           Robert N. McDonald
                                           Chief Counsel
                                            Opinions and Advice




  OFFICE OF THE COUNTY ATTORNEY
   FREDERICK COUNTY, MARYLAND
  Winchester Hall, 12 East Church Street, Frederick, Maryland 21701
      301-694-1030 - FAX 301-694-1161 - TTD 301-694-1672



                      MEMORANDUM

TO: Board of County Commissioners

FROM: John S. Mathias, County Attorney

DATE: April 10, 2002

RE: Increase in Surplus Revenue Category in Board of
Education FY 2002 Budget

 The Frederick County Board of Education has recently

requested a Budget Amendment that would increase the "surplus"
revenue category (identified as "local source") for the FY 2002
Board of Education budget. The question has been raised as to
whether such an increase is permissible under State law.

 As explained more fully below, nowhere in State law is there

an authorization for such an increase. Given that other, similar
increases are specifically authorized, the absence of such
authorization means that this increase is not permissible under State
law.

                    BACKGROUND

  The Board of County Commissioners approved the FY 2002

Budget for the Frederick County Board of Education. The Board of
Education has recently made several "Current Expense Fund
Requests for Budget Amendment." See attached Requests No. 20-
02, 21-02, 22-02 and 23-02. In each of these requests, the Board of
Education is asking to increase the "major category revenues"
identified as "surplus" under the "source" "local."

 The requested increases represent money from the FY '01

budget which the Board of Education did not spend. The approved
FY '02 budget included an estimate of $1 million in unliquidated
surplus. An audit completed after the end of the fiscal year in
November of 2001 certifies that the actual unliquidated surplus
which existed on June 30, 2001 was $5,140,094. According to the
Board of Education, this is a result of under expenditure of funds
within the 15 designated categories and revenue receipts in excess
of budget estimates in the FY '01 budget year.

  The Board of County Commissioners considered these requests

at the April 2, 2002 worksession and voted to deny these requests.
This denial was based, at least in part, on an electronic mail message
sent by me to the County Manager and to the County Finance
Director indicating that I could find no legal authority authorizing
this increase in "surplus." At this worksession, the County
Commissioners also requested that an Opinion from the Attorney
General be sought on this issue.

                  LEGAL DISCUSSION

A.     BOARD OF EDUCATION BUDGET PROCESS

 The Maryland Court of Appeals has recently described the

budgetary process involving the County Government and the County
Boards of Education as follows:

           The county boards (of Education) prepare
           and submit their annual budgets to the
           respective county governments which,
           subject to certain limitations and
           requirements, have ultimate approval
           authority over them. See ED §§5-102 and
           5-103; 76 Op. Atty. Gen 181, 184 (1991).
           The State Department of Education, the
           Governor, and the General Assembly are
           not directly involved in the budget process
           for the county boards .... They are subject
           to the county, not the State, budget process
           .... Chesapeake Charter, Inc. vs. Anne
           Arundel County Board of Education, 358
           Md. 129, 747 A.2d 625, 630-31 (2000).

  State law closely regulates the budget process for the Board of

Education. Maryland Annotated Code Education Article §5-101
et seq. Each County Board of Education is required to prepare an
annual budget according to the major categories listed in §5-101.
This budget is then submitted to the County Government. Section
5-102.

  The County Government is required to provide the minimum

amount established in 5-202 (commonly referred to as the
"maintenance of effort.") Section 5-103(a). A failure to fund the
maintenance of effort could result in the loss of State financial
assistance for County schools. Section 5-202. The County
Government may provide more than the maintenance of effort
amount, §5-103(b), but may also deny budget requests from the
Board of education in excess of the maintenance of effort amount.
For a similar discussion of these State law budget provisions, see 85
Opinions of the Attorney General 167 (2000). For a discussion of
the maintenance of efforts requirements, see 76 Opinions of the
Attorney General 153 (1991); and 81 Opinions of the Attorney
General 26 (1996) (Characterizing the maintenance of effort
requirements as "extremely complicated").

 The Board of Education must spend all revenues received in

accordance with the major categories of its annual budget. Section
5-105(a). The Board of Education may make transfers within the
major categories without recourse to the County Government but
must timely report such transfers. Section 5-105(b). Transfers
between major categories require County Government approval.
Section 5-105(b)(2). A written request for a transfer between major
categories is approved if the County Government fails to act within
30 days of receiving it. Section 5-105(b)(3).

 If the Board of Education commits to spend more than the

budgeted amount in any major category, the Board of Education
must provide a timely report to the County Government. Section 5-
105(b)(4).

  The Maryland Attorney General, in reviewing these statutes,

has observed: "Moreover, it is implicit in this scheme that a board
(of education) is to follow county budget procedures not inconsistent
with State law." 85 Opinions of the Attorney General 132 (2000)
citing 68 Opinions of the Attorney General 236, 239 (1983).

  The State law specifically allows "nonlocal funds received by

a county board after the adoption of the annual budget by the
countyfiscal authority" to be spent so long as the County
Government approves. Section 5-105(c). "Nonlocal funds" is not
a term defined in the Education Article. (In fact, a Lexis Nexis
search reveals that the only use of the word "nonlocal" in the
Annotated Code is in §5-105.) Reference to the 5 categories of
"Current expense funds, estimated receipts" may provide guidance
as to what constitutes "nonlocal funds." Section 5-101(b)(1) lists the
following categories:

       (1) Current expense fund, estimated receipts:

           (i) Revenue from local sources;

           (ii) Revenue from State sources;

           (iii) Revenue from federal sources;

            (iv) Unliquidated surplus, the actual from
       the previous fiscal year and the estimated from
       the current fiscal year, whether accrued from
       revenues or expenditures; and

           (v) Revenue from all other sources with
       identification of the source.

  The regulations of the State Board of Education provide only

limited guidance. The annual school budget is to be in accord with
the "Financial Reporting Manual for Maryland Public Schools
Revised 1996 and Supplement 1." COMAR 13A.02.01.02C. This
manual does not define "nonlocal funds." "Local Appropriations"
is defined as "Money received out of funds set aside periodically by
the appropriating body (city council, county commissioners, or
county council) for school purposes." Financial Reporting Manual
for Maryland public Schools at 28.

  Which of these 5 categories qualify as "nonlocal funds" for

purposes of Section 5-105(c)? Category "(i) Revenues from local
sources" is not "nonlocal." Category "(ii) Revenue from State
sources" and category "(iii) Revenue from federal sources" would
be "nonlocal." The characterization of category "(iv) Unliquidated
surplus" and category "(v) Revenue from all other sources with
identification of the source" would appear to require further
investigation.

  The State law is silent as to any expenditure of local funds

allocated or received after the adoption of the budget.

 B.   BOARD OF COUNTY COMMISSIONERS
      SUPPLEMENTAL APPROPRIATIONS

 The Board of County Commissioners is generally prohibited

from increasing its budget after the budget has been adopted. Public
Local Laws for Frederick County, Section 2-7-6 Frederick County
Code (1979). State law specifically authorizes the County
Commissioners to expend "restricted revenues" received after the
adoption of the fiscal year budget:

           (A) The board of county commissioners
      may expend restricted revenues even though
      these revenues are received subsequent to the
      adoption of the fiscal year budget. Restricted
      revenues include funds received as a result of
      state or federal legislation or grants issued by
      state or federal agencies or other sources that
      are provided to accomplish specific goals,
      objectives, or services through the
      expenditures of the restricted revenue funds.
      Public Local Laws for Frederick County,
      Section 2-7-6 Frederick County Code (1979).


  During the 2000 General Assembly Session, the Board of

County Commissioner was specifically granted the limited ability to
increase expenditures during the fiscal year to repay debt only:

          (B)(1) After January 1 of any fiscal year,
      if the Board of County Commissioners
       reasonably anticipates that revenues for a
       fiscal year will be sufficient to fund increased
       expenditures, the Board of County
       Commissioners may increase expenditures
       adopted in the budget for the fiscal year by an
       amount not to exceed the increased fiscal year
       revenues.

              (2) These increased expenditures may
       only be used to repay debt.

           Public Local Laws for Frederick County,
       Section 2-7-6(B), Frederick County Code
       (1979); Chapter 261, 2001 Laws of Maryland.

 C.    APPLICATION OF STATE LAW TO SPECIFIC
       BOARD OF EDUCATION REQUESTS

   The specific requests from the Board of Education at issue here

would increase "surplus." Each request for budget amendment adds
an "amount to be added" to "major category revenue" with a "local"
"source" identified as "surplus." See Budget Amendments No. 20-
02, 21-02, 22-02 and 23-02. Under the language of §5-101(b)(1)(iv)
this is a request to increase the "(1) Current expense fund, estimated
receipts .... (iv) Unliquidated surplus, the actual from the previous
fiscal year and the estimated from the current fiscal year, whether
accrued from revenues or expenditures" (As this is a figure which
was prepared during FY 2001, the previous fiscal year in this context
would be FY 2000 and the current fiscal year would be FY 2001.)

  From the footnote on each budget amendment, it appears that

this "surplus" in the amount of $1 million was originally included in
the approved FY '02 budget as a §5-101(b)(1)(i) "revenue from local
sources." This amount was then broken out by the Board of
Education under the "surplus" category in the proposed budget
amendments.

  State law does not explicitly address whether or not the Board

of Education or the Board of County Commissioners may increase
this "surplus" category after the budget year has begun. The State
law does specify how to expend "nonlocal funds received by a
County board after the adoption of the annual budget by the County
fiscal authority." Section 5-105(c). The County fiscal authority
must be notified and must approve of the source and amount of
funds and manner of spending. Section 5-105(c). This is the
mechanism typically used to expend federal and state grant funds
received during a fiscal year. This appears to correspond to the
categories in §5-101(b)(1)(ii), and (iii), "(ii) Revenue from State
sources", and "(iii) Revenue from federal sources."

  In a different factual setting the question of whether "surplus"

constitutes "nonlocal funds" might be problematic. In this particular
case, the surplus is clearly "local". The Board of Education FY '02
Annual Budget included this "surplus" under the "local" category
and has only extracted it from the "other local" category for purposes
of the Budget Amendments. See footnotes to Budget Amendments

20-02, 21-02 and 22-03.

  No provision similar to §5-105(c) exists for the expenditure of

"local" funds. (Categories i and iv from §5-101(b)(1)). The Board
of Education has listed this "surplus" under the "local source".
Because the State law specifically allows for the expenditure of
"nonlocal funds" after the budget has been adopted, the absence of
a similar provision for spending "local" funds strongly suggests that
"local" funds may not be increased after the budget has been
approved. If the General Assembly had intended to authorize the
expenditure of "local" funds after the budget was adopted, it clearly
knew how to express this. E.g. Mossburg v. Montgomery County,
329 Md. 494, 505, 620 A.2d 886, 892 (1993) ("This court has
regularly held that where the Legislature in a statute expressly
authorizes a particular action under certain circumstances, the statute
ordinarily should be construed as not allowing the action under other
circumstances.") The Latin maxim is "inclusio unius est exclusio
alterius."

  The wording of §5-101(b)(1)(iv) supports this conclusion. The

full wording identifying this category is: "(iv) Unliquidated surplus,
the actual from the previous fiscal year and the estimated from the
current fiscal year, whether accrued from revenues or expenditures."
This wording recognizes the timing of the budget process. The
annual budget must be prepared before the start of the fiscal year.
The actual surplus for a fiscal year cannot be calculated until several
months after the fiscal year ends. The wording of §5-101(b)(1)(iv)
recognizes this by specifying an estimate for the current fiscal year
while specifying the actual for the prior fiscal year. If the budget
estimate for the current fiscal year could later be increased during
the budget year the inclusion of the actual surplus from the previous
fiscal year would appear unnecessary. Any difference between the
estimated surplus and actual surplus could be addressed by Budget
Amendment. Had the General Assembly desired this result separate
mention of the actual surplus from the previous fiscal year would not
have been necessary in §5-105(b)(1)(iv).

  In this instance, the Board of Education submitted its FY '02

budget to the County Commissioners during FY '01. The FY '02
budget, under §5-101(b)(1)(iv), could have included the actual
surplus from the previous fiscal year, FY '00, and an estimate of the
current year, FY '01. The actual surplus from FY '00 would be
based on the audited figures determined in the fall of 2000 after the
close of FY '00.

  The regulations of the State Board of Education do not address

this specific situation. COMAR 13A.02.01.02C. The regulations of
the State Board of Education dealing with maintenance of effort do
contain a sentence which states: "The county may decide to
appropriate additional funds to its school operating budget during a
fiscal year." COMAR 13A.02.05.03B(4). In context, this sentence
should not be read as granting authority to each County to
appropriate additional funds. If that were the intent, it would not be
located within the maintenance of effort regulations. Instead, the
quoted sentence seems more appropriately to be interpreted as
recognition that some counties (not Frederick County) may have
authority to appropriate additional local funds during a budget year.
This regulation would then address how this situation would be
treated for maintenance of effort purposes. Interpreting the quoted
regulation as granting County authority for additional appropriations
would also be beyond the scope of the State law authority granted to
the State Board.

                      CONCLUSION

 No provision of State law authorizes an increase in the Board

of Education's budget under the categories of "Revenue from local
sources" or "surplus." Section 5-101(b)(1). State law does specify
how to spend "Nonlocal funds" received by a county board after the
adoption of the annual budget by the County fiscal authority."
Section 5-105(c). This different treatment of the two categories is
important. Therefore, neither the Board of Education nor the Board
of County Commissioners is authorized to increase the Board of
Education budget categories of "Revenue from local sources" or
"surplus" during the fiscal year.

[1] A local board of education's operating budget must include,
among estimated receipts, "unliquidated surplus, the actual from the
previous fiscal year and the estimated from the current fiscal year, whether
accrued from revenues or expenditures." Annotated Code of Maryland,
Education Article, §5-101(b).

[2] Notably, regulations of the State Board of Education governing
the "maintenance of effort" computations that relate to local funding
recognize that a county "may decide to appropriate additional funds to its
school operating budget during a fiscal year." COMAR
13A.02.05.03B(4).