Education advocates should be on alert for school funding overhaul

RALEIGH (March 10, 2025) – The biggest issue facing public schools this year will be a proposal to completely overhaul how North Carolina funds its schools. Legislators, led by Senator Michael Lee, want to ditch North Carolina’s existing allotment system, currently used by a handful of states. Instead, these legislators want North Carolina to adopt a “weighted student formula” system like most other states use.

This is a big deal. Funding for public schools comprises about 40 percent of the state budget. The state is the primary funding source for schools. Actual percentages vary across districts, but the average North Carolina school district receives about 65 percent of its funding from the state. Local and federal funding provide just 25 percent and 10 percent, respectively.

But what’s dangerous for North Carolina isn’t simply deciding between a weighted or allotment funding system. It’s that lawmakers could use this opportunity to shift funding out of economically disadvantaged school districts and elide their constitutional responsibility to adequately fund our schools. Any overhaul of funding must be carried out thoughtfully to ensure schools have the resources necessary to meet their students’ needs.

Allotment systems versus weighted student systems: what’s the difference?

So, what’s the difference between an allotment system, like North Carolina currently has, and a weighted student system? In theory, there’s little difference at all. A simple math quiz should help clarify.

Would you rather have A) 10 percent of $10,000 dollars or B) $1,000?

Obviously, both options net you $1,000. The difference is simply how the amounts are described.

Option A is like a weighted student formula. Under a weighted student system, every student generates a certain “base amount” that is provided to school districts for every student they enroll. Students with additional needs—such as students with disabilities, students from families with low incomes, and English language learners—generate additional “weights” expressed as a percentage of the base amount.

Option B is like North Carolina’s existing allotment system. Instead of a single base allotment, there are multiple allotments for teachers, principals, instructional support personnel, teacher assistants, supplies, and textbooks. Instead of providing differentiated funding based on the percentage of a base amount, allotment systems provide dollar amounts. For example, North Carolina’s allotment for students with disabilities is $1.1 billion. It’s pretty easy to express this same amount as a weight by comparing this allotment to the “base allotments” that are provided on behalf of every student. The “weight” for students with disabilities is approximately 0.85.

Despite these similarities, proponents of weighted student funding point to three advantages of weighted student systems:

1. Spending flexibility allowing districts to better target resources to local needs
2. Increased simplicity and transparency that helps stakeholders better understand funding decisions
3. “Automatic” increases to categorical funding streams that help maintain differentiated spending for higher-cost students

What the proponents fail to realize or admit is that each of these features can just as easily be incorporated into allotment systems.

You can have full flexibility under allotment systems. We’ve even done it here in North Carolina. School districts had absolute flexibility to move state funding between allotments during the Great Recession. It has been the current legislative majority – led frequently by Sen. Lee, ironically – which has added arbitrary spending rules limiting school districts’ ability to direct resources in accordance with local needs.

Similarly, legislative leaders – again, often led by Sen. Lee – have made our system more complex over the past decade. School finance professionals and the courts have offered this General Assembly several ideas for simplifying our funding system. Instead, legislators have made things more complex by introducing a series of new funding allotments.

Weighted student proponents overstate the extent to which their preferred approach makes things simpler and easier to understand. California’s funding system is much lauded, yet their system still includes 18 allotments for categorical programs that are layered on top of their weighted funding formula. Weighted student systems also have complicated wealth equalization mechanisms that adjust district funding levels and/or redistribute their local taxes based on the relative wealth of districts. Such complexities undermine the supposed transparency advantages of weighted student systems.

Finally, weighted student proponents claim that such formulas “allow legislatures to focus on the state investment in the base amount, and then the formula drives the total state appropriation.” This essentially already takes place in North Carolina’s system. When North Carolina legislators increase pay for “base funding allotments” like teachers, support staff, or principals, supplemental funding streams are increased proportionally. Our formulas could readily be amended so that other additions to base funding (e.g., increased spending on supplies or materials) would also trigger increases in supplemental funding streams. The limiting factor here isn’t our funding system; it’s the will and competence of lawmakers.

What matters most in school finance systems

The supposed advantages to weighted student systems elide the aspects of school finance that matter most for students: adequacy and equity.

At the end of the day, it doesn’t really matter if district funding is calculated using allotments or student weights. We are trying to create a system that provides sufficient resources so that all children can meet state standards, regardless of their race, family income, or where they live. Achieving that goal rests almost entirely on two aspects of a finance system:

1. Is the funding sufficient to ensure that all students are “prepared to pursue their chosen path after graduating high school”? In other words, is funding adequate?
2. Is funding distributed in such a way so that all students—no matter their zip code, skin color, or family income—have the same likelihood of meeting our goals? In other words, is funding equitable?

Neither weighted student systems nor allotment systems offer any inherent advantage in meeting these vital goals. Either system can deliver—or fail to deliver—adequacy and equity.

North Carolina’s school funding adequacy ranked 47th in the 2020–21 school year. Two of the states with worse rankings (Utah and Arizona) use weighted student formulas. Five of the top 10 states use allotment or hybrid models. There’s nothing inherent about the choice of funding model that drives adequacy.

North Carolina’s school funding equity ranked 15th that same year. Once again, both models appear in the most progressively funded states and the most regressively funded states, reiterating that the choice of funding model does not drive equity.

What’s needed are lawmakers willing to provide students with a system that’s both adequate and equitable. The choice of model doesn’t matter. What matters is political will.

Are lawmakers in your state willing to commit sufficient tax revenue to public schools? Great! Then you can have adequately funded schools like in New York (with its weighted student formula) or Wyoming (with its allotment system).

Are lawmakers willing to provide more resources to low-wealth communities and to schools serving greater proportions of English learners, students with disabilities, and students of color? Great! Then you can have a relatively progressive funding system like Utah (weighted student) or Delaware (allotments).

What’s holding North Carolina back isn’t our funding system. It’s that we lack lawmakers willing to provide students with the adequate and equitable funding that they deserve.

Senator Lee’s checkered history of school finance reform

Of course, things can get worse if unserious lawmakers attempt to overhaul our system. Unfortunately, the lawmaker pushing this weighted student effort is Senator Michael Lee (District 7, New Hanover), who has been trying to overhaul our school funding system for nearly a decade.

In 2016, the General Assembly’s Program Evaluation Division (PED) published a report critiquing North Carolina’s funding system. That report convinced Senator Lee that our funding system needs a complete overhaul and spurred the creation of the Joint Legislative Task Force on Education Finance Reform, which Lee chaired.

However, the PED report suffers from several flaws, all of which should have caused the report to have been dismissed:

It fails to examine the extent to which the system achieves its primary goals of being adequate and equitable.
It provides a series of recommendations, the net effect of which would shift funding from poor districts to rich districts, making our funding equity worse.
Its primary criticism is that North Carolina’s use of position allotments causes “teacher sorting,” whereby teachers in wealthier districts tend to have more credentials and years of experience than teachers in economically distressed districts. However, the report fails to examine whether such patterns are also found in states using weighted student formulas. Spoiler alert: they do. Subsequent studies have suggested that teacher sorting actually tends to be worse in states with weighted student formulas.

In one of the task force’s meetings, Senator Lee admitted that he hadn’t actually read the PED report. Without having read the report, it is unclear how Lee concluded that our school funding system requires a complete overhaul.

Regardless, the task force failed, as members were unable to offer a coherent critique of the existing system or develop recommendations for a new weighted student system.

Lee’s efforts seemed to have hit a dead end until he authored a 2023 bill to implement a weighted student funding system. That plan, offered without any hearings or public input, would have been a disaster for public school students. The proposed plan would have shifted funding out of small, rural districts and worsened funding levels for Black students, economically disadvantaged students, and students with disabilities. The plan would have cut Hyde County’s state funding by a whopping 50 percent.

Lee further demonstrated a fundamental misunderstanding of school finance issues by arguing that a school district’s overall amount of funding is less important than the share of school funding coming from state versus local revenue sources. Of course, there’s no virtue to shifting a school district’s finances between state and local revenue sources. The state/local funding mix simply reflects the unique legal framework and history of each state. In some states, responsibility for funding is placed largely on school districts or counties. In other states, like North Carolina, it’s the state’s responsibility to provide school funding.

If you’re trying to run a school district, it doesn’t matter if your budget is funded from state-level income taxes or local property taxes. What matters is the size of your budget and whether you are permitted to direct resources where they’re most needed. Despite a decade at the General Assembly, such lessons continue to elude Senator Lee.

A reasonable path forward

North Carolina’s students could greatly benefit from school funding reform. Our school funding is inequitable and wildly inadequate. The system is also needlessly complicated and overly restrictive, preventing local leaders from best targeting limited resources toward local needs. Addressing these issues would greatly benefit North Carolina’s students, our democracy, and our economy.

But bringing about school funding reform requires a serious effort that:

Is conducted transparently, not behind closed doors;
Draws upon the substantial body of academic research on how to create effective school finance systems;
Seeks and incorporates feedback from school district finance officers, educators, and families;
Develops consensus goals for North Carolina’s school finance system against which policymakers and the public can assess policy proposals; and
Includes a deliberate transition to allow time for rulemaking, updates to data reporting systems, and time for professional development for school finance professionals.

Time will tell whether legislators will commit to such a path. The fear, however, is that we’ll see a repeat of 2023, whereby a new, deeply flawed plan is developed behind closed doors and sprung on the public with little warning.