Study: NC school funding formula lacks transparency, favors wealthier counties
Posted November 16, 2016
Raleigh, N.C. — North Carolina lawmakers are considering changes to the way public schools are funded after a study found that the state's current funding model is too complex, lacks transparency and accountability and at times favors wealthier counties.
The study, compiled by the General Assembly's Program Evaluation Division, was presented to a joint legislative committee Wednesday.
Committee Co-Chairman Sen. Fletcher Hartsell, R-Cabarrus, called the report the "lengthiest and most detailed study" the committee has ever done on K-12 funding in North Carolina. He said it is the first time he is aware of that they "have actually looked at an in-depth review of the specifics" of how school systems and charter schools are funded.
The committee asked staff to draft legislation for its next meeting on Dec. 12 to create a study panel that would recommend scrapping current formulas with one based primarily on per-student spending and that provides extra money for students' specific needs. The legislation would have to be approved by the General Assembly, which reconvenes in January.
The study included 12 findings about the state's current funding formula:
The teacher pay allotment tends to favor wealthier counties, because they typically have more experienced and more qualified teachers.
Students with disabilities are funded at a flat rate that does not take into account the severity of their disability or the setting. Also, there is a funding cap on money given to school systems with students with disabilities. The cap was put in place to prevent over-identifying students with disabilities. However, schools that exceed the cap receive less money for each of their students with disabilities.
In 2014-15, six school systems and 71 charter schools did not receive any funding for a total of 332 students identified as "Limited English Proficient," or LEP, because they did not meet the state's threshold of having enough LEP students to receive funding.
In 2014-15, 27 school systems received a total of $42 million in additional funding because they were deemed "small county" school systems with fewer than 3,200 students. However, the study found that the money they received "is duplicative and is not tied to evidence regarding costs of operating small districts."
School systems in low-wealth counties receive extra money from the state, but the formula used to determine how much money they receive "does not rely on the most precise means of calculating" a school system's ability to generate local funding. For example, 10 percent of the formula is based on the adjusted property tax base per square mile. However, it does not take into account how many students there are per square mile.
In 2004, 16 school systems were selected to take part in a pilot to receive "Disadvantaged Student Supplemental Funding." Those 16 school systems have received nearly five times as much money for disadvantaged students as other school systems.
Funding for central office administration positions used to be based on student membership. Since that has been discontinued, it has created an imbalance in the distribution of funds.
North Carolina's public school funding system is "opaque, overly complex and difficult to comprehend, resulting in limited transparency." It can take school business officers four or more years to fully understand the funding system. About 23 percent of school districts have business officers with less than four years of experience. Many schools have resorted to using consultants to help navigate the system, which the study finds may have cost the state about $1.5 million over five years. A school business officer's ability to navigate the complex system can determine how much money their district receives. Some officers can be strategic and get more money, while others' failure to understand the system can cause their district to miss out on millions of dollars.
Problems with the complexity and transparency of school funding are exacerbated by a patchwork of laws and documented policies and procedures that seek to explain the system.
North Carolina allows school systems to transfer money, which aims to promote flexibility, but hinders accountability for money that's supposed to be used for students who are disadvantaged, at-risk and have limited English proficiency. In 2014-15, school systems made 968 transfers equaling more than $203 million. The study found that $11.3 million that was supposed to be for students in those groups was instead used to pay for non-instructional support, such as clerical assistants, custodians, substitutes and others.
Translating the state's system for funding school districts into a method for providing per-pupil funding for charter schools creates several challenges. For example, providing transportation is optional for charter schools. As a result, 49 percent of charter schools get money for services they don't provide. On the other hand, some charter schools get less money than they should based on how student membership is calculated.
Moving to a new funding model based on the number and types of students who are enrolled "offers some advantages over the present allotment system, but implementation would require time and careful deliberation."
The study recommends either reforming the current funding system or moving to a weighted student funding model, which would give school systems money based on the number and types of students. Lawmakers who attended Wednesday's committee meeting seemed most interested in moving to a new student-based model.
Sen. Tom McInnis, R-Richmond, praised the study as a "fabulous piece of work" and said the findings validate what many rural North Carolinians have believed for years – that school funding is sometimes inequitable.
Committee Co-Chairman Rep. Craig Horn, R-Union, urged lawmakers to move quickly on the issue.
"This is a huge deal. These are people's lives we're dealing with here. It's the future of our state," Horn said. "The decisions we're going to make are hugely important."