In 2022, North Carolina spent $16.7 billion in state, federal, and local funds on its public schools. Those funds were distributed to local schools using 50 different funding formulas.
People frequently focus on how much money was distributed, which is important. Equally important, however, is to evaluate how that money is distributed.
In recent years, reports on how North Carolina funds public schools documented the ways our system of funding schools falls woefully short of incorporating key values, such as accountability, transparency, equity, and efficiency.
In 2009, the North Carolina General Assembly commissioned an evaluation of the state’s school finance system. The report found a funding system in need of modernization. Specifically, it “could be modified in a number of ways to improve the equity and efficiency with which state aid is distributed.” Solutions ranged from modifications to the allotment system to adoption of a foundation-type formula that would provide floor funding per student with adjustments for student and district characteristics.
While the report received bipartisan support, the recession at the time tabled any hopes that substantive legislation would be adopted.
A 2016 state report assessing the distribution of state funds to North Carolina public schools concluded that the state’s allotment system was “hampered by its complexity; it consists of numerous individual allotments that are redundant, counterintuitive, and in some cases lack a clear rationale. … Furthermore, allotment policies result in maldistribution of resources across LEAs and charter schools and allotment system features and controls obfuscate transparency and accountability.”
In 2017 the General Assembly approved the Joint Legislative Task Force on Education Finance Reform. The task force was charged to “develop a new funding model for the elementary and secondary public schools of North Carolina based on a weighted student formula.” It reviewed the state’s current allotment system, reviewed other funding models, and concluded that the state’s evaluation of the current funding systems was basically accurate. But it never delivered on its charge.
Those reports didn’t paint a pretty picture. They merely confirmed what many educators and policymakers already knew: the system had many problems.
For example, one of the biggest is that the funding system treats school districts inequitably. About two-thirds of all state funding is used to pay personnel. Teacher and staff positions are allocated by student-to-staff ratios, but that’s where the similarity ends. Districts are provided money to pay teacher salaries based on the district’s average monthly salary plus benefits. But not all teachers are paid the same. Salaries in more affluent areas like Chapel Hill or Wake County will be higher than those in poor areas, often due to differences in longevity, local salary supplements, and local resources.
Differences in pay levels for thousands of staff contribute to funding disparities of millions of dollars between districts, disparities that remain even after adding in supplemental funding to correct the problem. Critics say that such pay disparities ensures that students in poorer districts will get worse or less experienced teachers.
But there are other problems. The system is hyper-focused on inputs, not outputs; it is very complex; and it is expensive to administer. The 2016 report famously said it takes the average school business officer two to three years to understand how schools are financed.
It’s a system that lacks transparency. You can readily find school district expenditure data for many categories. However, despite recent changes in federal law, it’s nearly impossible to find expenditure data at the school level.
Yes, our current system of financing schools has problems, but they are not insurmountable. We’ve known what to do for some time.
In July 2019 my former colleague at the John Locke Foundation, Terry Stoops; and Aaron Smith of the Reason Foundation proposed that North Carolina adopt a common-sense, student-centered funding model based on the principles of fairness, transparency, portability, and autonomy. Under the plan, dollars would be allocated based on a weighted student funding formula and directed to those in need, ensuring that dollars would get to where they were most needed. By equipping principals and local education officials with discretion to align resources with goals, the plan would allow those closest to students to make locally responsible decisions.
Fast forward to April 2023. Responding to previous calls to tie dollars to students, not systems, Sens. Mike Lee, R-New Hanover; Amy Galey, R-Alamance; and Lisa Barnes, R-Nash, introduced legislation to create a new, weighted student funding model and repeal all current funds, grants, and allotments. The scope of the legislation caught many in the education community off guard; however, and the bill never reached the floor for a vote.
For the past two decades researchers have laid out what’s wrong with how we finance public schools in North Carolina. While policymakers and the public have quietly ignored it, student-centered funding continues to emerge as the most efficient way to finance our public schools. Such models can address funding disparities by directing more funding to higher-need students, rather than offering more money to districts with more experienced staff. They are also more transparent because they link funding to the needs of students. In addition, student-centered funding serves to strengthen accountability by ensuring that funding gets to where it needs to go.
Rising costs and growing dissatisfaction over educational outcomes make it necessary to improve how we fund public schools in North Carolina. There are better ways to distribute funds efficiently in a system that affirms the values of accountability, efficiency, equity, and transparency. We know student-centered funding addresses many of these concerns. We know how to solve the problem. Having the courage to do so would be a good first step in the right direction.