North Carolina state government alone spent $10.4 billion in 2022–23 to educate 1.5 million public school students. Public education is of paramount importance to North Carolina, backed by state constitutional imperative.

Nevertheless, the way North Carolina funds public schools is through a top-down, centralized way of distributing resources to public schools called a Resource Allocation Model. North Carolina is one of only a handful of states with such a system. It relies on about 50 different allotments, each with its own funding formula and purpose. There are four different types: dollar allotments, position allotments (such as for funding teachers), categorical allotments, and grants.

Over the last 15 years, several reports have criticized the system for its complexity, lack of transparency, lack of accountability, and unfair treatment of students and school districts. The system is so bewildering that one of those reports found it takes school business officers “two or more years” to figure it out.

K–12 public education is the single largest expenditure in the North Carolina state budget. That item alone underscores the importance of this topic. The growing demand for educational options and the evolving nature of “public education,” however, have elevated the importance of this issue.

Funding public education requires efficiency and effectiveness. How the money is spent on education is just as important as how much money is spent.

Our latest report from John Locke Foundation’s Center for Effective Education asks some key questions:

  • Does our system of financing public schools ensure that students and schools are treated fairly and that schools get the resources they need when they need them?
  • Does the system deliver the necessary resources and services to children in need in a timely and effective manner?
  • Is our system of financing public education transparent, accountable, and respectful of the growing number of public and private educational options?

In answering these questions, we start by examining the state’s obligation under the North Carolina State Constitution to provide education and discussing the ongoing Leandro school funding case. We look at the whole of public education in the state, the different kinds of public schools, federal and local funding as well as state funding, and trends in education funding.

Our report notes that the state is responsible for the bulk of education spending in North Carolina — $10.4 billion out of the total $17.3 billion spent in 2022–23, including federal ($3.0 billion) and local ($3.8 billion) funds. It then assesses whether that system is working effectively and fairly — for schools, students, and staff — and whether it is also meeting public expectations.

Next, the report discusses several allotments, taking an in-depth look at the problems dogging three of them (classroom teachers, children with disabilities, and low wealth supplemental allotments). This report finds systemic problems of complexity, a lack of transparency, unaccountability, a lack of flexibility, and unfair treatment of schools. These problems compromise North Carolina’s ability to provide an effective, fair, and uniform system of public education for children.

North Carolina’s hybrid, resource- and program-based funding formula is unique among the states. Most states use funding formulas based primarily on student needs: 30 states plus the District of Columbia use student-based funding formulas, and 10 others incorporate student-based elements into hybrid formulas.

Given the long-recognized need for school finance reform in North Carolina, this report provides thorough examinations of three successful state reform efforts to bring about student-based funding formulas. These were chosen because they offer particularly useful lessons for policymakers in North Carolina: the Tennessee Investment in Student Achievement formula, California’s Local Control Funding Formula, and Indiana’s State Tuition Support Formula. The report examines the history, key economic and political factors, core elements, strengths, and shortcomings of each.

Student-based funding is the way forward for North Carolina school finance. Unlike the state’s current system, student-based funding ensures student needs are met, is easy to understand, empowers local education leaders, and is fairer to similarly situated students.

For all those reasons, this report explains the steps toward bringing student-based funding to North Carolina: establishing the base funding amount per student, ensuring that local funding is student-based, determining additional funding levels for students with exceptional needs, making sure funding reflects current enrollment, and giving districts enough flexibility in funding decisions to make sure all students benefit.

The report ends by recommending five steps to adopting student-based funding:

  • Learn from those who have gone before
  • Publicize the fact that student-based funding benefits everyone
  • Secure a champion
  • Correct inequities
  • Be transparent