LADD: A Hidden, Drastic Change in NC School Funding

In a last-minute change that was taken with no hearings and no prior publicity, the Republican-controlled General Assembly has undermined the fundamental building block of school finance in North Carolina.

Ever since the state took over responsibility from the local districts for funding public schools during the Great Depression, state funding in North Carolina has been based on the number of students served. When a local district’s school rolls increased or decreased, the state would adjust the funding up or down accordingly, using a variety of formulas, all of them driven by the number of students.

Under legislation enacted last month, the legislature has scrapped this system. From now on, every spring the state will make an initial commitment of state funds to districts for the following year based on the number of students currently enrolled rather than, as in the past, on their projected enrollments. In other words, districts with growing enrollments will no longer be guaranteed an increase in per pupil funds to cover the costs of educating the additional students.

Any additional funds will have to be negotiated as part of the legislature’s more general budgetary process later in the year.

Local and state school finance officers describe this change, seemingly quite technical in nature, as the most fundamental, even “drastic,” change in school finance in North Carolina in nearly a century. It constitutes a direct attack on the state’s ability to carry out its constitutional obligation to provide a sound basic education to all children in the state.

Here’s how the system has worked since 1933. Every February or March the Department of Public Instruction notifies local districts what their per pupil allotments will be for the coming school year. The calculation is based on the prior year’s statewide per pupil funding levels or a range of expenditures, from teachers to textbooks, multiplied by the number of students projected for the district for the following year. Districts then use this figure as they construct their budgets and make plans for hiring teachers and other spending decisions.

Now that the legislature has struck down this system, districts with growing enrollments will no longer be guaranteed a proportionate increase in funding to cover their additional students.

The legislature will still have the option, through its budgetary process, to provide additional funding, but it will have no obligation to do so. Funding to cover growing enrollments will have to be negotiated and compete with other state priorities.

The practical implications of policy change are huge for two reasons. First, it undercuts the basic pupil-based structure for distributing state funds to local districts that has served the state well for many decades. Second, it undermines the ability of district officials to do responsible financial planning. Whereas districts normally hire teachers for the coming year in the spring, they will now have to wait until the legislature gets around to adopting a new budget, which this year was August, before they can make firm commitments.

Perhaps the most far-reaching aspect of the new policy is that it undermines the state’s constitutionally mandated commitment to provide sound basic education to all young people in North Carolina. While politicians in the past have debated about what constitutes adequate per pupil funding, now, for the first time, they will also be debating whether to appropriate any additional funding simply to cover the costs of additional students. Such funding will now be a matter of political give and take.

The new policy will clearly have the most obvious effect on districts with growing student populations. Although a majority of North Carolina school districts, especially those in rural areas, are currently experiencing population declines, the overall number of students in the state continues to increase, and six of the eight largest districts are dealing with a growing number of students. Wake County schools are projected to see an increase of more than 8,000 students over the next three years, while Charlotte-Mecklenburg is facing growth of more than 9,000 during the same period. Even districts with declining school populations will be hurt because available state funds will have to be spread among a larger total student population.

The change could have dramatic consequences for individual charter schools, especially new ones that are still in their initial growth periods. How will they go about responsible planning?

Or will the legislature, as it has done in the past, find a way of exempting charters from the rules that apply to regular public schools? Charters do have one option not available to traditional public schools: They can turn away students for whom no funding is assured.

The change is particularly distressing because of the secretive way it was carried out. It first appeared in the Senate version of the budget in the final days of the budget-writing process.

No hearings were held and no debate took place on what constituted a major shift in education policy. Republican leaders, many of whom clearly did not understand its implications, were at a loss to explain the change to the public.

So why would Republican leaders adopt a policy that weakens the state’s ability to provide quality education for all students and makes it more difficult for district officials to engage in responsible planning? Perhaps one answer is that, since the large tax cuts Republicans implemented last year have reduced the revenue available for major state expenditure items such as education, they are now scrambling to find new ways of reducing support for education without seeming to be doing so. A related answer lies in the overall thrust of their education policies.

Since taking power in 2012 Gov. Pat McCrory and the Republican leaders have enacted a series of efforts aimed at weakening the state’s commitment to public education. They have, among other things, reduced the number of classroom teachers, teacher assistants, assistant principals, guidance counselors and nurses in North Carolina schools They have cut funding for textbooks and other learning materials and eviscerated teacher professional development – all the while giving favored treatment to charters and adopting a voucher program that diverts funds from public schools and puts them in the hands of religious and other private schools immune from public accountability.

There is, of course, one juicy political possibility for Republicans once they set an artificially low base for state education funding and then make adjustments to accommodate student growth part of the political process. This change would allow them to claim credit for increasing education funding, when in fact they are simply meeting the constitutional requirement to provide a sound basic education to a rising number of students.

The sleight of hand continues.

Helen F. Ladd is professor of public policy and economics at the Sanford School of Public Policy at Duke University. Edward B. Fiske, formerly Education Editor of The New York Times, edits the Fiske Guide to Colleges. This commentary was originally published on September 18, 2014, in The News & Observer.