Improving NC’s public school funding: 5 takeaways from a new report

North Carolina’s system of funding public schools is in “disarray” and needs a student-centered overhaul, according to a new report from the John Locke Foundation’s Center for Effective Education.

The report, written by Dr. Robert Luebke and Kaitlyn Shepherd, suggests that a student-based funding model similar to those already adopted by 30 states and the District of Columbia would offer more effectiveness, transparency, and fairness.

The question of how to fund the state’s public schools is one with a significant price tag. For the 2022-2023 school year, NC public schools spent $17.3 billion in state, federal, and local funds to educate 1.5 million students and to employ almost 101,800 teachers. K-12 public school funding remains the largest share of the general budget, amounting to 39% for the 2023-2025 biennium budget.

“North Carolina needs a new funding model that aligns funding not to the needs of districts, but to the needs of students,” write Luebke and Shepherd. “It is time to imagine a school funding system that affirms the values of fairness, transparency, efficiency, innovation, and accountability. It is time to conceive of a system where dollars are linked to the student, where educators have the flexibility to address the needs of students who need additional attention and resources, and where policymakers and the public can understand how schools are funded and the outcomes they generate.”

“Most people’s eyes roll to their back of their heads when they talk about finance. I get it. But we also need to remember North Carolina spends more money on education than another area,” Luebke added. “We should know how school dollars are distributed, if they are producing desired outcomes and if it is be done in a system that is effective, efficient and accountable. That we can’t answer those question with certainty, tells us all we need to know.

Here are some key takeaways from the report:

1. Spending on public education is at an all-time high

As you can see, total spending over the period increased from $12.1 billion (2012–13) to $17.3 billion (2022–23). Also, total support per student during the period increased from $8,515 to $12,637.25

Since 1970, real per-student financial support for K–12 public schools has increased from $4,434 per student in 1969–70 to $12,345 in 2022 (current dollars), an increase of 178 percent. The chart shows the steady increases in support through about 2007, the declines in real support until about 2011–12, and the slow but consistent climb since then. Real per-student spending in North Carolina is now the highest it has ever been.

2. Most public school spending goes to salaries and benefits

The attached charts provide spending by category and per-student spending using average daily membership. The most recent data are for FY 2022–23. As you can see, salaries (57 percent) and benefits (24 percent) comprise almost 81 percent of all expenditures. The combined total percentage of the four other categories — purchased services, supplies and materials, instructional equipment, and other objects — equals about 19 percent. These figures underscore just how labor-intensive the business of education is.

3. The federal government is contributing a larger piece of the pie

The composition of support remained largely the same, with the major change being that federal support increased relative to state and local support (going from 12 to 17 percent of total funding), largely due to the influx of over $6.2 billion in federal funding for COVID relief to North Carolina K–12 public schools from 2021 to 2024.

4. NC’s current system of allocating funds to public schools is outdated

Currently, North Carolina uses a complex, top-down Resource Allocation Model (RAM) to fund its public schools, which the Locke report criticizes for being opaque, inflexible, and unfair. This system involves roughly 50 different allotments with distinct funding formulas, leading to inefficiencies and difficulties for school administrators. 

The current system of financing schools in North Carolina is tied to legislation passed in the 1930s. In order to rescue poor school districts during the Great Depression, the General Assembly passed the School Machinery Act of 1933.

The Classroom Teacher Allotment is particularly unfair, the report argues. This is the largest funding source but distributes resources unevenly among school districts, favoring wealthier districts. This disparity arises because experienced and credentialed teachers earn higher salaries, resulting in more funds for districts with veteran educators. Consequently, low-income areas suffer from less experienced teachers and higher turnover rates, exacerbated by “teacher sorting,” where qualified teachers prefer affluent schools.

The funding distribution system for students with special needs and for low-wealth districts is also problematic, the report argues. For low-wealth districts, for example, the funding formula makes for volatility in funding, making it difficult for schools to predict their financial support. For instance, Harnett County’s allotment dropped significantly from $13.8 million in 2023–24 to an expected $8.1 million in 2024–25. Many school districts face similar unpredictability, complicating budget planning and educational program support.

5. Student-centered reforms are needed

The report examines successful student-based funding reforms in Tennessee, California, and Indiana, highlighting the benefits of such approaches. It concludes by recommending steps for North Carolina to transition to a student-based funding system, which includes setting a base funding amount per student, ensuring local funding aligns with student needs, and providing districts with the flexibility needed to benefit all students.

The recommendations:

• Establish a base funding amount per student to ensure equitable allotment of resources.
• Ensure that local funding contributions are adjusted to meet the drivers of student needs, particularly those from underserved communities or with special requirements.
• Grant districts the flexibility to allocate funds as needed, enabling them to address specific local challenges and opportunities, fostering an environment where all students can thrive.
• Introduce robust accountability measures to monitor the effectiveness of the new funding system and make adjustments as necessary to achieve desired educational outcomes.
• Involve educators, parents, and community leaders in the planning and implementation process to ensure transparency and buy-in from all parties involved.

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