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Program Evaluation Committee Discusses Proposed Changes To Dispute Resolution Process, School District Fund Balance Limits

On Monday, the Joint Legislative Program Evaluation Oversight Committee met to discuss the current process for resolving funding disputes between counties and local boards of education and some proposed changes, including one that could lead to limitations on school districts’ allowable fund balance holdings, that the committee may send forward for General Assembly consideration in May.

The committee reviewed a report from Seam Hamel, Principal Evaluator of the Program Evaluation Division at the General Assembly, which was completed last May and is just now being brought before this reorganized committee for discussion on next steps. Mr. Hamel presented the committee with information on the dispute resolution process, saying that it is effective and economical, although it is infrequently used, time-consuming, and produces outcomes that do not favor either party. He also stated that “North Carolina and Tennessee are the only states with elected school boards that are fiscally dependent on county commissioners,” and NC’s process allows for litigation, while Tennessee relies on a default funding mechanism to end disputes not settled through mediation.

The findings led the Program Evaluation Division to recommend the following for the committee’s consideration in a proposed bill that has been drafted for introduction in the 2018 short session that starts May 16:

  1. Revise state law on the local funding dispute resolution process to replace the litigation component with a default funding mechanism that would determine the amount of funds to be appropriated if a dispute is not resolved through mediation.
  2. Establish a working group to develop and recommend statutory parameters for fund balances maintained by local boards of education; the group would be convened by the Local Government Commission and the School of Government and include representatives from the NC Association of County Commissioners, the NC School Boards Association and the NC Association of School Business Officials.

Following the rollout of these proposed legislative actions, the committee then heard from the two organizations representing the entities that would be impacted by them.

Johanna Reese from the NC Association of County Commissioners (NCACC) expressed her organization’s strong support for the recommendations as outlined.

Leanne Winner of the NC School Boards Association (NCSBA) then told the committee that while the proposed change in the dispute resolution process is “probably the best recommendation at this time,” it does raise some issues that need to be handled with caution. Ms. Winner said that school districts with a shrinking average daily membership (ADM) might end up with fewer funds under the new process, and NCSBA also does not believe that the default funding formula accurately reflects what may be needed in terms of capital for school facilities.

Ms. Winner also raised concerns about the potential for a new minimum and maximum fund balance that could be held by a school district, which would decrease the district’s flexibility to address not only unplanned emergency expenses but also could cause cash flow problems for school operations. She stressed that the district fund balance allows the LEA to cover expenses for federally paid employees early in the school year before federal funds flow to the LEA in October or November, as well as assists the district with covering state-funded expenses when adoption of the annual state budget does not occur before July 1.

The NC Association of School Administrators (NCASA) agrees with NCSBA that these proposed changes, particularly the potential limits on school district fund balance holdings, could hold negative consequences for LEAs statewide and their ability to serve their students.  

Committee members held an in-depth conversation following the presentations, which included questions to the presenters and speculation on what to do moving forward. The Committee Co-Chairman, Sen. Brent Jackson (R-Sampson), said the proposed legislation will be voted on at the committee’s next meeting April 9, and members may send forward amendments to the bill before it goes forward for full General Assembly consideration.

To view Mr. Hamel’s presentation, including an in-depth breakdown of the dispute resolution process, click here. To view media coverage on the meeting, click here.

Jacqueline Wyatt for NCASA