Supporters of Baltimore City public schools were no doubt distraught to hear about the $129 million projected budget shortfall the system faces in the next fiscal year — both because of the painful cuts it may portend and because it will provide ammunition to critics who see school leadership on North Avenue as a perennially hapless bunch for whom more financial support amounts to throwing good money after bad.

To her credit, new system CEO Sonja Santelises is being forthcoming about the problem and the factors causing it — and is doing so much earlier than has been the norm, providing stakeholders with plenty of time to devise solutions as the state and city determine how much they can contribute to the system next year. She identified the costs of the system's landmark pay-for-performance contract; required system contributions to the $1 billion plan to modernize city school buildings; and an enrollment decline of about 950 students as the major factors.

Collectively, those three things account for about $90 million of the problem, and they can hardly be described as mismanagement. True, the teacher contract has turned out to be more expensive than originally anticipated, but the policy behind it remains sound. It was designed to ensure that the best teachers have an incentive to come to Baltimore City and stay there. It's no secret that other area superintendents recruit from city schools, and having a contract in place that provides opportunities for teachers to advance here in both pay and responsibility is crucial to retaining the talent necessary to succeed in an often challenging educational environment. Similarly, the district's contribution to the school modernization fund is an investment in creating the kinds of facilities that will keep parents who have a choice from sending their kids to school in the suburbs or to private and parochial schools.

But there's another side of the story altogether, and it relates to changes in state education formulas former Gov. Martin O'Malley and the General Assembly made during the Great Recession. For two years at the beginning of the downturn, the state was able to substitute large infusions of federal funds from the Obama administration's stimulus bill for state contributions to education. That covered almost $300 million in fiscal 2010 and nearly $425 million in fiscal 2011. Thus, Maryland was able to keep up with legally required increases in education spending even as actual state support for schools dropped. But that meant Maryland faced a big problem when the federal money ran out, and in order to compensate, it strictly limited the annual inflation adjustments built into the funding formulas in subsequent years.

That posed a particular problem for Baltimore City and the state's other poor counties. Rather than targeting cuts in education funding to the jurisdictions that could most easily afford to make up the difference, limiting the inflation factor cut everyone across the board — but not equally. Because state spending makes up almost three-quarters of the budget in Baltimore City and some poor, rural counties in Western Maryland and the Eastern Shore, reducing annual inflation adjustments actually hurt them more. In recent years, Gov. Larry Hogan and the General Assembly have removed the caps on annual inflation adjustments, but the city (and other districts) remain far behind where they would have been had the funding formulas never been changed. Consultants hired to examine Maryland's education funding formulas calculated in a November report that Maryland would need to increase its foundation funding by $434 million a year to achieve adequacy in Baltimore City.

Observing that fact doesn't solve Ms. Santelises' problem, but it should be an important part of the discussion as the governor and legislature consider what they can do to help the school system out of its predicament. Absolutely, Ms. Santelises needs to find efficiencies, for example through reduced employee benefits costs, and she should close schools that enroll too few students to operate efficiently. She needs to break an apparent deadlock in negotiations with the teachers union about a new contract and strike a deal that is attractive to teachers and affordable for the district. And the time has likely come for the city government to contribute more to the system. Baltimore's economy has been growing faster than most other parts of the state in recent years, even if its tax base remains low and its ability to realize increased revenues from those gains is diminished by incentive deals for businesses and developers. But so long as Ms. Santelises can present a credible plan for putting the system on sound fiscal footing, the state must be a major part of the solution.