A 2016 report published by the General Assembly’s nonpartisan Program Evaluation Division detailed the distribution of state funds to public schools and concluded that the system’s “features and controls are redundant, counterintuitive, lack rationale, and obscure transparency and accountability.” They recommended either addressing the systemic defects identified in the report or initiating a complete overhaul of the system. Since the publication of the report, however, the way the state delivers funding to public schools is mostly unchanged.
After lawmakers pass a budget establishing public education funding levels for the following school year, the N.C. Department of Public Instruction distributes state dollars to school districts using a so-called resource allocation model. State funds are dispersed to districts using dozens of allotments or funding categories for components considered necessary for the operation of public schools, such as textbooks and teachers. A series of formulas, published in a lengthy policy manual, determines the amount of money that each district receives for each allotment. If it sounds complicated, that’s because it is.
School district officials may also transfer taxpayer funds between categories, so long as they comply with state regulations and statutes. One of the more surprising findings in the Program Evaluation Division report was that districts had conducted nearly 1,000 allotment transfers, moving over $200 million across categories in 2015. Even funds set aside for our most vulnerable populations— low-income, at-risk, and Limited English Proficiency students — were the subject of allotment transfers during that school year. While transfers are not inherently harmful, it makes it difficult to track the movement of state dollars at the district level. A provision in the 2017 state budget provided a short-term fix by requiring districts to publish allotment transfer data on their websites.
Another provision in the 2017 state budget created the Joint Legislative Task Force on Education Finance Reform. Lawmakers created the task force to receive input on North Carolina’s school finance system from district, state, and national school finance experts. After seven meetings of the task force, the consensus was that the Program Evaluation Division report accurately described the defects of North Carolina’s obsolete school finance system.
Michael Griffith, school finance strategist at the Education Commission of the States, testified that North Carolina’s funding system falls far short of giving school districts the flexibility to meet the demands of non-traditional education programs. He pointed out that North Carolina’s system was designed at a time when “almost all students attended brick and mortar schools.” Today, students attend a variety of schools due to the increasing availability of charter schools, career and technical schools, dual enrollment opportunities, and alternative programs. North Carolina’s current funding model is ill-suited for schools that increasingly move further away from traditional models of instruction.
Georgetown University professor and school finance expert Marguerite Roza explained that North Carolina’s school funding system is the exception rather than the rule. In a presentation to the task force, Roza testified that most states now allocate dollars using a student-based model. She pointed out that the type of system used by North Carolina and a handful of other states may lead to the inequitable distribution of funds and limit the ability of districts to use state funds in innovative ways. Roza recommended North Carolina follow the lead of states such as California and adopt a student-based formula that allocates a base funding level for each student with funding supplements based on students’ grade-level, income, disability, and instructional needs.
Legislators convened the final meeting of the Joint Legislative Task Force on Education Finance Reform in April 2018, but despite counsel from these school finance experts they failed to advance legislation that would make substantive changes to North Carolina’s school funding model. It remains to be seen whether the Republican majority will choose to make school finance reform a centerpiece of their legislative agenda. Like every legislative session, the 2019 session will include fights about the amount of money we spend on public education. The added complication of fighting about the way that money is distributed may be a battle they will choose to avoid.
I hope lawmakers have the political will to address the issue during the 2019 session and begin the multi-year process of implementing a student-based funding model. This would be the crowning achievement for a legislative body that has done so much to focus our public schools on the unique needs of children, rather than the demands of the institutions designed to serve them.
Dr. Terry Stoops is vice president for research and director of education studies at the John Locke Foundation.