RALEIGH - In the face of continuing budget cuts, North Carolina's public schools showed mixed results this year, with more students graduating from high school but fewer schools meeting state and federal targets for academic achievement.

The graduation rate hit an all-time high in North Carolina - 77.7 percent of students graduated in four years, up from 74.2 percent last year.

The results added ammunition to the fight over funding for public schools. State education leaders warned Thursday that further budget cuts could jeopardize graduation gains while causing even more schools to fall short of academic expectations. But Republican lawmakers and conservative analysts said that kind of talk was alarmist and speculative.

State education funding had been cut the past few years, though the rhetoric intensified this year when Republican legislators overrode Democratic Gov. Bev Perdue's veto of a $19.7 billion state budget that cut K-12 funding by 6 percent.

"In the coming school year, we're going to have 1.5 million schoolchildren returning to schools which have much less resources than in the past," said Jo Ann Norris, president of the Public School Forum of North Carolina, a think tank in Raleigh. "This is not going to be a good year."

State Senate leader Phil Berger, an Eden Republican, said lawmakers tried to focus spending this year on areas that will improve performance, such as lowering class size in early grades and launching performance pay for teachers.

"We have not seen an education program that's consistently been moving in the right direction," Berger said. "Unfortunately, the only response we hear from people who run the schools in North Carolina is we need more money. We want to make sure they're spending the money in the right way."

Berger said that while the rising graduation rate is positive, there are still questions about the quality of education being provided to public school students.

Some groups continued to lag their peers in graduating. But State Schools Superintendent June Atkinson pointed out that black students and low-income students have seen sharp gains in the graduation rates during the past five years.

Educators shouldn't take too much credit for the higher graduation rate, said Terry Stoops, director of education studies for the Raleigh-based John Locke Foundation.

"Students are smart enough to know that in this economy dropping out to search for a job isn't a good idea," Stoops said.

Despite the better graduation rate, the percentage of schools in which academic growth met or exceeded expectations on state exams dropped to 81.4 percent, compared to 88 percent last year.

"I do believe that these drops reflect the continued education cuts we've had to make the past few years," said Atkinson, pointing to larger class sizes and less individual attention for students.

Stoops noted that this year's results came from budget cuts made when Democrats controlled the legislature.

In other discouraging news, the percentage of schools meeting a federal standard called adequate yearly progress fell to 27.7 from 58 percent last year.

Under the federal law called No Child Left Behind, student subgroups, including American Indian, white, black, economically disadvantaged and others, must hit or pass targets for reading and math scores. If just one of the subgroups doesn't make it, the school doesn't make adequate yearly progress.

The drop was expected because the reading and math targets were set much higher this year. The goal of No Child Left Behind is to have 100 percent of students passing by 2014.

During the summer budget battle, Democratic leaders had cited the state's rising graduation rates to argue that the education system was working. They were countering criticism from Republicans, who have pushed for alternatives, including more charter schools, merit pay for teachers and limited vouchers for private schools.

"There are people who are beating up our schools," said Bill Harrison, chairman of the State Board of Education. "We need to celebrate the great things that are happening."

Staff writers Sarah Nagem and Katelyn Ferral contributed to this report.