North Carolina

Priorities or Trends for P–12 or Higher Education Funding

For the first time in more than 100 years, the governor and the majority in both houses of the legislature are Republican. The 2013–2015 budget signed by the governor in July 2013 implements several changes that are poised to have longterm impacts on the quality and stability of the teaching force and the delivery of public education in North Carolina.

The budget incorporates major personal and corporate tax cuts from the Tax Simplification and Reduction Act, which will cost the state $86.6 million in tax revenue in FY 2013–2014 and $437.8 million in FY 2014–2015. This tax plan eliminated the current three-tiered individual income tax structure and sets a flat rate of 5.8% in 2014 and 5.75% in 2015. The act eliminated the personal exemption, but it increases the standard deduction. The corporate income tax will be lowered from 6.9% to 6% in 2014 and to 5% in 2015.

The decrease in state revenue brought by the tax rate decrease is balanced by cuts to many programs, including public P–12 and higher education, and a slight broadening of the sales tax base. Higher education will see a 4.7% decrease in state funding and the P–12 public schools, a 1.2% decrease. The budget for the North Carolina Department of Public Instruction, the K–12 administrative agency, will be cut by $780,000. Similarly, the budget for the University of North Carolina (UNC) system, composed of 17 four-year institutions, will be cut by $66 million. The UNC Chapel Hill’s medical school budget will be cut by $15 million.

State Issues Affecting P–12 Funding

Personnel Compensation and Benefits

For each year in the biennial budget for 2013–2015, public school teachers and higher education faculty will receive no increase in salary. In the past five years, public school teachers have received only a 1.2% raise (2012), which has contributed to the steep decline in North Carolina's average teacher salary, from 28th to 48th in the nation. The state’s average teacher salary last year was $45,933—a 15.7% decrease since 2001–2002 and $10,000 less than the national average.

Although not directly a cost driver, the elimination of teacher tenure (called “career status” in North Carolina) at the K–12 level is replaced by a tiered contract system to be phased in by 2018. Previously, all North Carolina teachers with four consecutive years of experience were eligible for tenure, which granted them a right to due process prior to dismissal. Now, contracts will be limited to periods from one to four years, with the longer-term contracts of four years limited to the 25% of teachers who are ranked most effective, based on yet-to-be-determined criteria. Starting in fall 2014, tenured teachers may opt out of their tenure status in exchange for a four-year contract and a $500 bonus. The budget allocates $10.2 million in 2014–2015 to start implementing pilot programs for merit pay.

The state will no longer pay for salary supplements for master’s or doctoral degrees unless the degree is required for licensure and the supplement has been in force prior to the implementation year of 2014–2015.

Finally, although North Carolina has been touted as having one of the top five most solvent pension systems for teachers and state employees in the United States, an appropriation of $36 million was made to fully fund the State Employees and Teachers Retirement System, which temporarily shores up the declining unfunded liabilities ratio to maintain this ranking.

K–12 Instructional Program

Limits on class sizes and daily teaching loads were eliminated in all grades henceforth. The act formalized the changes made in 2009 that dropped class size limits in grades 4 through 12. New restrictions were dropped that limit class sizes in kindergarten through third grade to 24 students in individual classes.

Funding for more than 4,500 teaching assistant positions was eliminated through decreases of $26 million in FY 2014 and $246 million...