Who pays for NC schools? State underfunding could shift the burden to homeowners
It’s budget season in Wake County. The local county commissioners will soon decide how much of the county’s taxes will go to public services, parks and schools.
There can be a lot of competing interests, so the commission is holding public hearings to get input. Imagine a long line of people who get three minutes to tell commissioners what they should spend the public’s money on.
On the lawn outside one of those meetings in Raleigh last week, members of the Wake County affiliate of the North Carolina Association of Educators rallied.
“Fund our schools! Fund our schools!” educators chanted.
Wake County Public Schools are facing a major staffing shortage. This spring, nearly 300 teaching positions and a third of bus driver positions in the district were vacant.
The school board hopes to raise pay for school employees to attract and retain them. But the school board can’t levy local taxes and has no say in the state budget, so it has to ask the county commission for help.
“Y'all know what happened about 10 years ago, right?” Wake NCAE’s past president Kristin Beller asked a crowd of educators. “The General Assembly made it clear they were not willing to fully fund our public schools, and we had to start looking to our counties to bring in more revenue, because we were not willing to let our students suffer.”
After the rally, educators lined up at the podium to describe endless substitute teachers, long lunch lines due to understaffed cafeterias and kids missing class because of the lack of bus drivers. School employees spoke of working several jobs to pay for rent and groceries.
At a public hearing in Zebulon, N.C., a student stepped up to the podium. Thirteen-year-old Alex Scott is the son of a former school board member, but he prepared his own speech.
“I’m currently on my second science teacher and counting, which makes it difficult to keep track of what we’re learning,” Scott said. “On several occasions throughout this school year, I’ve not been able to receive a ride home or to school. This happens to many other students as well, much more than it happens to me.”
Scott and educators then asked county commissioners to fully fund the school board’s proposed budget. It would raise pay for schools’ support staff, like bus drivers, to $17 an hour and increase local supplements for salaried employees.
The school board’s proposed budget requests an increase of $55.8 million in county funding for schools, or 9% more than the previous budget, with about half of the increase going to employee retention measures. The county manager’s proposed budget that the Wake County Commission will vote on in June is about $16 million short of the school board’s ask for schools.
The county’s smaller proposed budget for schools still raises the property tax rate, on top of an increase for a school bond that voters approved last fall. That’s an issue for some homeowners who spoke at the hearings.
“I beg of you to consider the fact that a lot of us are struggling,” said Leslie Fox, who told county commissioners she recently sold her home in Raleigh because she couldn't afford the taxes on it.
Property taxes make up nearly three-quarters of the county’s revenue, and they’re skyrocketing in Wake County, not only because of tax rate hikes, but even more so from rising home values.
Property taxes are squeezing retirees and displacing longtime residents
Retired homeowner Faye Chaplin has been feeling the burden every time she gets a new tax bill in her mailbox. Based on Chaplin’s tax assessment, her home’s value nearly tripled from $97,000 in 2019 to $285,000 in 2020.
“Here we go again, you know, another increase,” Chaplin said. “In addition to your property taxes going up, everything else is going up.”
At 70-years-old, she’s lived in her neighborhood near downtown Raleigh her whole life, but now she’s facing both inflation and gentrification.
“To me, gentrification has come in, and they have built what I call plantation homes. They are skyscrapers, they do not fit the character of the neighborhood,” Chaplin said. “I've been in my home for 40 years, and I'm proud of it. I think I have done a great job keeping it up, but I just can't continue.”
Chaplin’s family has roots in this neighborhood for generations. One of her grandfathers owned a grocery store and barbershop. Another grandmother moved to Raleigh to escape racial tensions in Wilmington that culminated in the Wilmington Massacre of 1898. Chaplin’s great-grandfather was a prominent businessman and landowner, and white supremacist insurrectionists exiled him from the city.
Chaplin tried to keep her parents’ home on Boyer Street in the family, but her combined tax bill for that house plus her own was around $5,000 a year, which she paid from her retirement savings. So she made a difficult decision to sell the family home.
“They have built two skyscrapers on that property since I’ve sold it,” Chaplin said.
By skyscrapers, she means a pair of 2,000-square-foot homes on what used to be a single lot. Each brand new house sold last year for about $600,000.
But before we over-simplify this to a two-sided fight between homeowners and educators, consider that many teachers own homes and many homeowners have kids or grandkids in school. Chaplin’s own daughter used to be an elementary teacher.
“That's not my objective to down the teachers' pay, because I feel like they deserve it,” Chaplin said. “But I also feel like it needs to come out of another pot. Don't say increase our taxes again.”
State lawmakers are gambling on state tax cuts that could shrink funding for schools
There are many other sources of tax revenue for schools, but most of them aren’t controlled at the local level. Eric Houck is a professor at UNC-Chapel Hill who studies school finance at the UNC School of Education.
“School finance research for a long time has shown that the fairest, best and easiest way to provide high quality schools for everybody is for the state to assume most of the burden,” Houck said.
In North Carolina, unlike a lot of other states, well over half of funding for schools does come from the state. But lately, even though state lawmakers have been putting more total funding into teacher salaries, the pace hasn’t kept up with the cost of living.
“Then that would kind of push local districts to increase, even only slightly, the amount of money that they're putting into the education system,” Houck said.
County funding for Wake County Schools hasn’t kept up with inflation either. Now, in a race to keep schools staffed, the Wake County School Board plans to reinstate extra pay for teachers with master’s degrees and raise wages for its lowest paid employees.
That puts more pressure on county commissions who draw their funding from homeowners like Faye Chaplin, and a little less weight on state taxes on income, corporations and retail sales.
“It's really a shift to a particular community of people, rather than sort of a broader slice of the population,” Houck explained. “If you think about a sales tax or an income tax, for example, that’s spread out over a lot more folks than if you're just looking at homeowners.”
At the same time, Republicans in the statehouse have been cutting personal income taxes and corporate taxes. In 2014, state lawmakers changed the tax code in a way that benefits the wealthy.
North Carolina went from a progressive tax structure that taxes people with higher incomes at a higher rate, to a flat tax rate that’s the same for everyone. The state also started on a trajectory to reduce and eventually end corporate taxes by 2030.
“The state wants to play a game where it believes its low tax rates are going to entice more residents and more corporations to come in. In some ways, that's a gamble,” Houck said.
North Carolina appears to be winning that game in one respect. Businesses and people keep moving here, growing the tax base and the state’s budget reserves. According to a report by the Kenan Institute, Raleigh/Durham was the 4th fastest growing extended metro area in the nation in 2022. At the same time, that growth is driving up housing costs.
Meanwhile, state lawmakers plan to keep cutting taxes on personal income and corporations over the next eight years. Current law will lower that flat tax rate to less than 4% in 2027, and last week, the Senate proposed lowering it to less than 2.5% by 2030.
“And if the bet doesn't pay off, then we're looking at a lot of underfunded public services,” Houck says.
The kids in school who are missing teachers and bus drivers today are already feeling the effects of underfunding now.