Why and how do we fund public education?
There is no federal constitutional right to an education. Education is a state right.
In March 2016, the Education Commission of the States released a 50 state review of the constitutional obligations for public education. It says, “The authority for public education falls to states because of a 1973 Supreme Court case which determined that the federal government has no responsibility to provide systems of public education.”
Article I, section 15 of the North Carolina State Constitution declares that “the people have a right to the privilege of education, and it is the duty of the State to guard and maintain that right.” To that end, Article IX, section 2 requires the General Assembly to “provide by taxation and otherwise for a general and uniform system of free public schools, which shall be maintained at least nine months in every year, and wherein equal opportunities shall be provided for all students.” The Leandro case held that students across North Carolina have a state constitutional right to a sound, basic education.1
For historical reasons, our state government has chosen to assume the bulk of the financial responsibilities involved in paying for the daily operations of that system of public education, with additional resources provided, as required by state law and constitutional law by local governments, and as available through federal grants. Although the sources of education funding are diverse and their administration is complex, the overwhelming majority of the funds provided each year support one purpose:
The direct instruction of students in local classrooms found in every county across the state.
Education is a vast, complex enterprise.
From early childhood to K-12 to community colleges and the UNC system, we were asked who is in charge, what are the sources of funding, what is the money being spent on, and to identify the pressure points where investments could make a difference. Our research is a work in progress.
State appropriations are a fraction of our state’s total budget.
Often when budget numbers are tossed around, it is not clear which numbers in fact are being discussed. For example, our state appropriation — the most frequently cited number for education funding — is just part of the state’s total education budget which includes federal revenue, local revenue, and all other sources of revenue.
It also can be confusing because different agencies are involved in crafting different budgets including different funding sources for different years. That’s why often the numbers don’t match up and/or are dated.
The North Carolina Office of State Budget and Management (OSBM) is tasked with delivering the highest quality statewide budgetary, management, and information services to advise the Governor, state agencies, and legislature on the most effective use of public resources.
The Fiscal Research Division provides nonpartisan fiscal and policy analysis of budgetary and taxation issues that come before the elected members of the North Carolina General Assembly. The Division is a central staff agency of the General Assembly that serves all elected members.
Financial and Business Services for the N.C. Department of Public Instruction manages the state and federal funds and provide various technical support services to school districts, their schools, their employees, and DPI.
As researchers, we would love to have found numbers in the same fiscal year to compare for early childhood, K-12, community colleges, and the UNC System. That didn’t happen. Instead, we have tried to indicate which fiscal year the numbers are from and the source. These numbers are a starting point.
“Funding public education in North Carolina is a complex and integrated process,” correctly notes off the annual Highlights of the North Carolina Public School Budget.
Our budget process happens in two year cycles.
On March 1, 2017, Governor Roy Cooper released his budget. The N.C. Center for Public Policy Research and EdNC launched an interactive tool called “A Balancing Act” so you can weigh in with your budget priorities.
The big picture on education funding
How much money? Take a guess before you read on…
If it were up to you, how would you allocate dollars among early childhood, K-12, community colleges, and the UNC System?
Early childhood education
Who is in charge?
The Division of Childhood Development and Early Education in the N.C. Department of Health and Human Services was founded in 1993. Funding for early childhood education is found in the DHHS budget line items. The N.C. Partnership for Children along with 74 nonprofit local partnerships across the state administer the Smart Start funds.
According to a report by the N.C. Early Childhood Foundation, “In North Carolina, the Child Care Subsidy Program, Smart Start, and NC Pre-K (formerly More at Four) comprise the majority of North Carolina’s state investments in early child care and learning prior to kindergarten.”
NC Pre-K is a direct provider of high-quality public prekindergarten to income-eligible 4-year-olds across the state.
The Child Care Subsidy Program, financed through a combination of state and federal funds, provides subsidies for children from low-income families to attend licensed child care programs (participating programs must have at least a 3-star rating and must be approved by the local Department of Social Services).
Smart Start, which began in 1993, is a network of local partnerships that serve as the state’s early learning infrastructure. Local Smart Start branches work in their communities to improve the quality of child care programs and to implement evidence-based programs. Smart Start is financed in large part by the state, but each local partner is required to match 15 percent of its state funds with other resources.
This chart includes much of the funding for these investments in 2016-17:
Fiscal Research provided EdNC with the NC Pre-K certified budget by source between 2001-02 and 2016-17:
TANF is the Temporary Assistance for Needy Family block grant, and CCDF is the Child Care Development Fund block grant.
On February 1, 2017, the N.C. Department of Health and Human Resources released a report on the cost and effectiveness of NC Pre-K. The NC Early Childhood Foundation released this fact sheet about the report:
Who is in charge?
The governance structure just for K-12 includes the Governor, the Governor’s Education Cabinet, the legislature, the chair of the N.C. State Board of Education, the N.C. State Board of Education, the Superintendent of Public Instruction, the Department of Public Instruction, the superintendents in 115 districts, 115 school boards, 100 county commissions that fund the school districts, and a judge presiding over Leandro all serving 1,543,527 students in 2,477 traditional public and 167 charter schools.2
Funding and spending are different.
When the legislature took up the Governor McCrory’s last budget, it ended up appropriating a bit more money than the Governor requested.
Here is where the state appropriations came from and went to for fiscal year 2016-17, according to the N.C. Fiscal Research Division:
The total education line item includes the public education system, the community college system, and the university system.
At 56.8 percent, education is the largest slice of our state’s pie on spending by far.
Here you can see the breakdown of the $12,681,654,413 appropriated by the legislature for 2016-17:
We wanted to dive deeper on funding for K-12, trying to determine as many sources of funding for schools across North Carolina as possible.
Funding for the daily operations of the public schools comes from a mix of federal, state, local, and private sources.
In contrast to most states, in North Carolina the main responsibility for funding school operations rests with the state. The U.S. Census Bureau, in fact, estimates that just 10 state governments provide a greater share of total public education funding than does North Carolina (Alaska, Arkansas, Delaware, Hawaii, Idaho, Indiana, Minnesota, Nevada, New Mexico, and North Dakota).3 Here you can see the states that have more education revenue than North Carolina:
Consistent with the state constitution, local governments also must contribute to public education as required by the General Assembly. Lastly, the federal government provides resources to promote equal educational access and opportunity, primarily for disadvantaged children.4
Federal, state, local, and other sources of funding for public education total more than $14.2 billion. Some $9 billion came from the state — including $8.5 billion in appropriations and $500 million from receipts like lottery proceeds and civil penalties. Of those $500 million in receipts, $300 million came from the proceeds of the state lottery, while $100 million came from civil penalties, fines, and forfeitures, which, under the state constitution, must be spent on public education. Another $3.19 billion is provided by local dollars, and $1.37 billion in federal dollars. Additional funds pay for capital costs. In 2014-15, the capital outlay totaled $647,125,843.
According to a report issued in October 2016 by the Center for Budget and Policy Priorities, funding per K-12 student in North Carolina, when adjusted for inflation, is still below 2008 when the Great Recession began to settle in.
State funding for K-12
Ever since the Great Depression, the general policy of North Carolina has been for the state government “to provide from State revenue sources the instructional expenses for current operations of the public school system,” while mandating that the “facilities requirement for a public education will be met by county governments.”5 This distinction has blurred over time, with the state providing money for local purposes and vice versa, but it remains a useful starting point for understanding North Carolina’s system of public education finance.
Local funding for K-12
The responsibility for funding public education in North Carolina is, as mentioned earlier, shared between the state government and units of local government, essentially counties. In theory, the state pays for most daily operating costs, while local governments pays for such capital costs as the construction of facilities and the provision of instructional equipment.6 At the same time, units of local governments have the constitutional ability to “use local revenues to add to or supplement any public school or post-secondary school program.”7
This seemingly straightforward division of responsibility actually is not, due in part to the vagueness of relevant state statutes. For instance, several statutes explicitly require local governments to fund certain operational expenses, such as the purchase of instructional supplies and reference books.8 Confusion also can enter the process since local school boards are responsible for developing annual budgets, yet county boards of commissioners ultimately decide on which local revenues — both for capital and operating expenses — will be appropriated to the school system(s) in their jurisdiction as part of the county’s annual budget process.9
Over time, the state has elected to provide some funding for capital costs, while many school districts have chosen to pay for certain operating costs, such as by supplementing the salaries of teachers and other instructional personnel paid for by the state. According to one study of data from fiscal year 2013-14, local governments funded 20 percent of professional instructional and support positions, 18 percent of principal and assistant principal positions, 9 percent of teacher assistant positions, and 7 percent of all classroom teacher positions.10
As does the state, local governments pay for their portion of annual operating expenses through a mix of direct appropriations and receipts, such as the proceeds generated from cafeteria sales, rental income, investment income, and local fines and penalties, not to mention revenues received from private grants and contributions. A detailed breakdown of local revenue sources from fiscal year 2014-15 found that the total amount of local funds generated to support the annual operating expenses of public schools equaled almost $3.2 billion.
Of the $3.194 billion in local funds, $2.7 billion — an amount equal to $83 of every $100 in local dollars — came from the county appropriation. No other item accounted for more than 5 percent of the total. The main source of tax revenue available to local governments is the property tax. Counties with more valuable property tax bases therefore are much able to generate more local revenues with lower rates of taxation than comparatively less resourced counties can do.
EdNC asked DPI to update the breakdown of contributions and donations by school districts to 2015-16. Thirty-four districts do not have revenue from contributions, donations, and trust funds, but four districts bring in more than $1 million, with the Charlotte-Mecklenburg Schools bringing in $6.8 million. We have lots of questions about this data, but it is a starting point in our research on other sources of funding. Some districts have foundations — how much money flows through those foundation? Some schools have 501(c)(3) nonprofit to raise additional funds for the schools — how much money flows through those nonprofits? What about donations to PTAs and PTOs? What about contributions to charter schools?
Offsetting such discrepancies is why the state provides less resourced school districts with supplemental funding through the low-wealth and small county funding allotments. Yet even with that aid, low-wealth counties remain at a disadvantage to their wealthier peers in their capabilities to generate local resources — an outcome that has important implications for educational equity.
Federal funding for K-12
Under the United States’ federal system of government, the funding of public education is a state and local government responsibility. Nevertheless, the federal government has, since the 1960s, provided various types of statutory and discretionary grants for elementary and secondary education. Federal funding generally aims to promote equal educational access and opportunities for all children, chiefly disadvantaged one. Funds extended under Title I of the Every Student Succeeds Act (originally the Elementary and Secondary Education Act of 1965), for instance, flow to local school districts with sizable concentrations of low-income students.11 Similarly, the funds granted under the Individuals with Disabilities Education Act (originally the Education for All Handicapped Children Act of 1975) help children with disabilities realize their right to a free appropriate education in the least restrictive environment.12
Federal funding generally takes the form of grant programs. Some funds, like those awarded under Title I, are statutory grants that flow to school districts and schools that met certain criteria, such as having high concentrations of low-income students. Other funds are discretionary grants awarded on a competitive basis. Many federal grants flow first to the states, which then must pass the dollars to local school districts as required by federal laws and regulations. While many such funds appear in the budget for education, the legislature has no authority to modify the dollar amounts or the associated requirements.13
In fiscal year 2015-16, North Carolina received $534 million through the Every Student Succeeds Act, of which almost $400 million came through the basic grant component of Title 1. The next largest grant was the almost $300 million received under the Individuals with Disabilities Act.
Note that several sources of federal funding, including the National School Lunch Program, which strives to provide nutritious, free or low-cost meals to eligible schoolchildren, do not flow through the state’s General Fund.14 Under North Carolina law, all public school districts must participate in this federal nutrition program, in which the U.S. Department of Agriculture reimburses schools on a sliding scale for each eligible meal served.15 North Carolina schools received an estimated $500 million though this program.
On June 21, 1996, North Carolina began its charter school experiment with the passage of the Charter Schools Act.
Thirty-four charter schools opened in the fall of 1997. The number of charter schools increased in subsequent years until the cap of 100 schools was reached. In 2011, the cap was lifted, and since then, 338 applicants have submitted complete applications for charters and the N.C. State Board of Education has approved 95. In 2016-17, there are 167 charter schools operating statewide serving 81,968 students.
Charter schools are deregulated schools under public control.
Authorized by the N.C. State Board of Education and operated by independent boards of directors, state and local tax dollars are the primary funding sources for charter schools, which have open enrollment and cannot discriminate in admissions or charge tuition. They are not required to provide food or transportation, though many do.
There is a Charter School Advisory Board that makes recommendations to the State Board of Education. The advisory board vets applications and provide ongoing oversight to established charter schools. DPI has an office of charter schools.
Growing enrollments in charter schools means an increase in dollars allotted to them. State funding for charter schools has increased from just over $16 million in 1997 to more than $444 million in 2015-16.
In 2017-18, the state appropriation for opportunity scholarships will total $44,840,000. It will increase each year by $10 million in funding until it reaches $144,840,000 in 2027-28. This line item is found in the UNC System budget.
How spending impacts the look and feel of classrooms
In North Carolina, 84 percent of all education dollars from all sources are spent on salaries and employee benefits. The rest of the dollars impact the look and feel of our classrooms and whether they feel resource rich or poor, which varies across the state dramatically.
How the dollars are distributed
This session, the legislature will debate not just how much money is invested in public education, but how those funds are distributed. The state is considering moving away from a funding system based on allotments to one that uses a weighted student formula.
On February 20, 2017, the North Carolina Justice Center released a report, “Financing Education in North Carolina: A Budget and Tax Guide.”
Who is in charge?
Between 1963 and 1981, the 58 community colleges across North Carolina operated as a federation of quasi-independent colleges. On January 1, 1981, the State Board of Community Colleges assumed full responsibility for the system but continues to focus on systemwide oversight. Each college still has a local Board of Trustees charged with “internal administration, regulation, and governance.”
In October 2016, the Program Evaluation Division of the N.C. General Assembly released a report, “Funding for North Carolina’s Community Colleges.” Funding for community colleges is generated from state, local, student, and other sources. In 2015-16, of $1.9 billion in total revenue, 57 percent of total revenue came from the State General Fund, whereas 13 percent came from counties, 19 percent from student tuition and fees, and 11 percent from other sources including the federal government.
Appendix B of the report includes total operating budgets for each community college.
Who is in charge?
Since 1971, the UNC Board of Governors has governed the UNC System, including all17 campuses. Each campus has a chancellor and a board of trustees. The boards of trustees have duties as delegated by the Board of Governors, and they serve as boards of advisors to the UNC Board of Governors on matters pertaining to the constituent campus.
The annual 2015-16 UNC Consolidated Financial Report provides in-depth information about revenue and expenses for the UNC System. We were curious about the distinction between operating and nonoperatin — : “State appropriations, non-capital gifts and grants, and investment income are considered nonoperating revenue because they were not generated by the University’s principal, ongoing operations. Instead they were provided to help fund operating expenses.”
Identifying the pressure points where investment in K-12 can make a difference
School and district transformation is underfunded across North Carolina.
Philanthropy can turnaround schools.
Philanthropy can invest in underfunded districts.
Philanthropy can fund charter schools as laboratories and the expansion of choice.
If you support school choice, several districts do not offer choice other than home schools within their county lines. You can click on the column for charter schools to sort the counties with little to no choice.
Philanthropy can fund research and pilot projects that help us imagine the future of schools and education across our state.
Philanthropy can help us move beyond the rural/urban divide, exploring investment strategies for urban areas, suburban areas, rural counties with a metro hub, clusters of similarly-situated rural counties, and rural counties with no urban cluster.
Philanthropy can invest in leaders.
Philanthropy can invest in levers in the cradle to career experience of education, like literacy, access to STEM, paid internships, work force development, strengthening the teacher pipeline, local funding for pre-K etc.
This article discusses efforts to fund pre-K locally:
Here is an infographic summarizing our research to date. Our research is a work in progress. What do think? What questions do you have?
This article is based on a policy brief prepared for EdNC by John Quinterno with South by North Strategies, Ltd.