North Carolina’s Education Funding Debate

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Articles have been flying around about the education spending argument since the legislative session adjourned in late July.  Many of the headlines over the last few weeks have looked like these:

• Competing Claims?  NC Dept. of Public Instruction analyzes state budget’s impact on schools
• Debate on NC School Funding Rises As Classes Near
• State Education Spending: The Facts
• Education Was Cut! No, It’s Increased! Which is Right? Both

The John Locke Foundation has also responded to the questions about North Carolina’s education funding:

• Did NC’s budget make cuts to Education?
• Separating fact from opinion on the education budget
• Education should be an Investment
• How to Read State Budgets

If you take the time to read some of the articles above, you will see they all assume a similar information base on the part of the reader; they all assume some knowledge of how the budget process works and what the different budget figures mean. 

There are separate budgets with differing figures that are released during the budget process.  Some include certain figures, such as pay raises and retirement benefits for state employees, and some do not.  So it is very important to know what is included in each budget figure before a comparison is made.  The budget is created over a lengthy period, beginning months before the legislative session convenes.  Below is a chart that shows the budget development timeline that was actually used to develop the FY 2007-09 budget.

During this budget process, there are multiple budget figures created.  The argument about education funding is centered on baselines, which to use when measuring government spending and which not to use.  Without getting into too much government jargon, the simple answer is to use the same budget in each year that you compare.  So if you are comparing actual spending from one year to the next, compare actual spending from 2012 to actual spending from 2013 — plain and simple.

Figure 1: Budgets Created During Process

The education debates are partly about which budget figures to use and how much change occurred from one year to the next.  Many are using the continuation budget versus the enacted budget; again, these are two different budget figures that should not be compared.  Let me explain.  The continuation budget includes prior year actual spending, recommended changes to the budget by agencies, adjustments for inflation, mandatory rate increases, and operations of new facilities.  The enacted budget does not include any pay increases, retirement benefits, or health benefits for state employees as these budget items are held in a reserve account.  The total spent on each agency each year is computed in the actual spending figure, which is released each July after the fiscal year has ended. 

Why are those differences important to the education-funding question?  The state’s budget law mandates a transfer of funds to pay for salary increases, retirement benefits, etc. to occur after the budget is signed into law.  The enacted budget does not include the amount of money used to pay for all the spending items included in the actual budget.  When the continuation budget is formed at the beginning of the budget process, the previous year’s actual spending is included.  This causes the continuation budget to be inflated by the reserve transfer amount when compared to the enacted budget.  When a multiple year comparison is done of the many budget figures, actual spending has been higher than the enacted budget for the last four years.

So how much did North Carolina’s Education Funding Change?

The John Locke Foundation has made an apple-to-apple comparison.  We compare the same budget from year to year to get an accurate measure of growth or decline.  Knowing the input variables for each budget is a mathematically accurate way to compare the same budget figure from year to year when making statements about any agency’s budget.  It’s not a hard concept, but one that requires an understanding of how the budget is created and what is included along the way.

Here is the John Locke figure on education spending:

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