Legislature must act to hold school budgets harmless for COVID-related enrollment decreases

For the second year running, the General Assembly has left town without fulfilling a basic role of state governance: passing an updated budget bill to meet the needs of North Carolinians. What this means for our public schools is that – at least initially – they will once again be operating under a budget that is essentially unchanged from Fiscal Year 2018-19.

School finances, however, are far from safe. Unless the General Assembly acts within the next few months, COVID-related enrollment decreases could decimate the state budgets for districts and charter schools.

At issue are state laws and State Board of Education policies that mandate the reduction of school district and charter school budgets if enrollment falls short of anticipated levels. There’s substantial evidence that enrollment may drop precipitously this school year. A recent survey from Elon University found that 29% of respondents preferred full-time remote learning over in-person or hybrid models and the state’s nonpublic education system’s website crashed earlier this month, apparently due to a surge of parents applying to home school their children. If enrollments crater, so will school budgets, jeopardizing not just the education, but the safety of our students.

Under normal conditions, there is some logic to adjusting school budgets mid-year based on enrollment data. School budgets are based partially on projected enrollment figures. In a normal year, some of those projections will be high and some will be low. The current laws allow the state to reduce budgets in districts or schools where projections were too high and re-allocate those funds to districts or schools where projections were too low.

That line of logic falls apart, however, in the face of a pandemic when all of our schools are facing substantial enrollment decreases. Current law will create large mid-year cuts to school budgets. Barring additional action, this money won’t be redeployed to meet other vital needs, but instead sit unused in state coffers.

State leaders have been aware of this issue since they returned to Raleigh in late April to appropriate federal funds and make other changes to school laws necessitated by the pandemic. However, they failed to make the changes necessary to hold school budgets harmless for pandemic-related enrollment decreases. They again failed to act when they returned to Raleigh in June.

Luckily, there is still time to act. Enrollment-based budget adjustments are not made until the after the first full month of school. Still, lawmakers should act soon to provide district and charter school leaders – who all find themselves in impossible positions – with one less thing to worry about. A little budget stability will go a long way towards helping school planning through a volatile, uncertain period.

Below is a more detailed description of how enrollment changes impact state funding of our schools.

Traditional public schools

State funding is based on a measure of enrollment called average daily membership (ADM). It tells you the average number of students in membership for a school or district over a given month. It is important to note that ADM is not the same as attendance. A student is still counted towards ADM even if they are absent on a given day. It is also important to note that ADM is calculated over the course of an entire month. When it comes to state funding, there’s no single headcount day.

State funding for a district’s initial budget is based on allotted ADM. Allotted ADM for a given school year is based on the higher of projected ADM for that school year and actual ADM in the prior year. Therefore, FY 20-21 funding is based on higher of actual ADM in the first two months of FY 19-20 versus DPI’s projected ADM for FY 20-21.

State law requires a district’s budget to be reduced if actual ADM is below allotted ADM. If, as we enter FY 20-21, we see that actual ADM in the first two months of the school year come in lower than allotted ADM by at least 2% or 100 students, then DPI must reduce allotments to that Local Educational Agency.

State Board policy says that adjustments occur if actual ADM comes in below allotted ADM. But the subsequent budget adjustment is based on half the difference between actual ADM and projected ADM, not allotted ADM.

The budget adjustment occurs by recalculating certain funding streams based on a lower enrollment figure. In growing LEAs, allotted ADM and projected ADM will be the same. In shrinking LEAs, allotted ADM will be greater than projected ADM.

The table below shows three different scenarios where a district’s actual ADM comes in below allotted ADM.

• The first example shows a growing LEA where actual ADM is 5% below the projected figure.
• The second example is a shrinking LEA where actual ADM is 5% below projected ADM.
• The third example shows a shrinking LEA where actual ADM is 5% below allotted ADM, but above projected ADM.

Charter Schools

Charter schools receive their funding over multiple installments. Charter schools’ initial installment of state funding is provided in July and is based the projected ADM for the upcoming year, as provided to DPI by the charter school. This installment provides the school 34% of annual funding, based on the projected ADM figure.

In November, each charter school’s allotments are adjusted based on actual ADM in the first month of the school year.

Charters with at least three years of good financial standing gain access to 100% of their remaining funds.

Charters on Financial Non-Compliance Disciplinary status receive their remaining, adjusted allotments in monthly installments.

All other charter schools receive 68% of their remaining funds in November. The final 32 percent of funds are provided in a final installment in February.

Additional detail can be found here.