Rep. David Meuse
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Updates

State House Updates

Understanding NH’s Public School Funding Crisis

If you follow the news—or the New Hampshire state legislature—at some point you’ve probably heard about the state’s public school funding crisis. If you live in a community like Portsmouth, you’re probably asking “What crisis?”. But if you live in a community more dependent on state education funding, like Berlin or Claremont, you live in crisis mode every day.

That’s because in New Hampshire we’ve taken a fairly straightforward responsibility—making sure our kids are educated to a point where they can function and contribute in a changing world—and turned it into a 30-year battle where the majority of our communities and way too many of our kids are suffering.

A Crisis Defined by Zip code

In cities and towns across the state, school boards are firing teachers; slashing art, foreign language, and AP programs; closing schools; and even suing the state in an effort to make due with the money available to them. However, in communities like Portsmouth, Hanover, and Moultonborough, there is no talk of closing schools or making the kind of brutal budget cuts that have become increasingly common in towns like Berlin.

Why the disparity? Put simply, it’s because of the way New Hampshire has chosen to fund its public K-12 schools—largely through local property taxes.

According to the NH Department of Education, 69% of the money used to fund public education across the state is collected through local property taxes. This includes a statewide education property tax, known as “SWEPT”, that gives to appearance of coming in from the state, but which is actually collected locally and is based on local property tax rates. Meanwhile, the state kicks in 17% in “Adequacy Aid”, while the remaining 14% comes from a combination of federal aid, tuition, and bond sales.

While it’s a fact that public education is funded at least in part through local property taxes in nearly every other state, it’s also true that no other state in the country provides less aid to public education than the state of New Hampshire. This puts the pressure squarely on cities and towns—and property taxpayers— to pay the lion’s share of school funding.

Portsmouth and Hopkinton: An Example

So how much pressure are we talking about? That depends on your community’s tax base and local property values.

A city with higher local property values and lots and lots of properties—like Portsmouth—can raise $18,346 per pupil with only a $6.68 school tax per $1,000 of assessed property value. Meanwhile, for a town like Hopkinton to raise $1080 less—that’s $17,266 per pupil—the school tax rate climbs to $21.22, more than three times as high. The tax rate is higher because property valuations in poorer towns are lower, which forces them to squeeze more revenue out of a far more modest tax base.

While in theory, the cost to educate students should be fairly consistent from community to community, in reality it boils down to what taxpayers can afford. Hopkinton raises $1,080 less than Portsmouth even through it has to tax its residents at rate three times higher than Portsmouth. This disparity in revenue translates into a disparity in spending. Assuming 20 students per class and $1,080 less per student to spend, that’s $21,600 less per class. Over 13 years (K-12), that’s more than a $280,800 spending difference on a per class basis, even though Hopkinton taxpayers pay a much higher rate. This translates into higher classroom sizes, cuts to programs that can help kids compete with kids from richer towns, and less opportunity.

If you think this problem is isolated to towns like Berlin, Claremont, and Hopkinton, think again. As of 2017, 77% of New Hampshire public school students attend public school in 133 communities with a below average tax base. Only 23% attend schools in one of the 100 cities or towns with a higher than average tax base.

Higher property tax rates in these communities make them less attractive for young families and for businesses seeking to move into the area. High tax rates combined with less competitive schools depress property values and contribute to a vicious cycle that keeps struggling communities struggling no matter how much state leaders chatter about opportunity zones and workforce development.

Providing an Adequate Education: A Constitutional Responsibility

Ironically in a state that has been battling educational funding disparities for decades, our State Constitution mandates that every child receive the opportunity for an “adequate education”. This makes coming up with a funding solution that works for all of the state’s kids a constitutional obligation—not just something we do out of the goodness of our hearts when the state has a good revenue year.

Over the years, this constitutional obligation has been interpreted by the courts to mean two things:

  • The State has a duty to pay for the cost of a constitutionally adequate education for every K-12 public school student;

  • The taxes that the State uses to pay for this education must have a uniform rate across the state.

In the 1990’s, the city of Claremont sued the state twice. After the second lawsuit in 1996, the state was ordered to raise taxes and distribute state aid to address the disparities. To increase state aid to communities while avoiding a sales or income tax, the state embarked on a complicated hodgepodge of revenue-raising gymnastics that involved increasing business, real estate, and car rental taxes. (Wondering about the impact of the state lottery and its much-heralded contribution to public education costs? Today it pays for only 2.5% of public school spending.)

To decide how to distribute the new state funding, lawmakers came up with a formula to define the cost of an adequate education and, along with it, the base aid that communities would receive. The initial number, they came up with was $3,400/student/year. That number (frequently referred to as “base adequacy”) has since been raised to $3,707. While the state also provides “differentiated aid” to help communities pay the cost of students with special needs, it doesn’t even come close to the $18,000+ annual average cost of educating a public school student in New Hampshire.

So who makes up the difference? Local property taxpayers, many of whom are already paying high taxes on low value properties.

Since 2012, the hardest-hit communities have also received “stabilization grants” from the state. But starting in 2017, the legislature counterintuitively chose to decrease rather than to increase the amounts of these grants 4% each year. Declining stabilization funds have been devastating to communities like Berlin, which recently was forced to close an elementary school.

Over the years, solutions have been proposed that would have resulted in communities with higher property values and a higher tax base, like Portsmouth, becoming so-called “donor towns” that would pay out more in taxes than the amount of aid they receive back. But these communities, who also have their share of low-to-moderate income taxpayers who would be hurt by higher taxes, have banded together to fight changes in the distribution of the statewide education property tax (SWEPT). As a result, ALL of the money raised in a community via SWEPT is collected along with other property taxes, sent to Concord, and then sent back. While this is an interesting exercise in money laundering that gives the state the appearance of funding public education more than it actually does, it does nothing to address the disparities.

Getting Unstuck

Combine a constitutional obligation, increasing disparity and desperation, a reluctance to pay more in taxes and/or to become a donor town, along with the state legislature’s inclination to kick our biggest problems down the road and you have the perfect recipe for a third major lawsuit.

That’s why this year, members of both parties have made passing legislation that addresses the public school funding crisis a top priority.

  • HB-177 stops the bleeding. It benefits communities starved for adequate state aid in the short term by restoring Stabilization Aid to 2016 levels for FY2020 and FY2021.

  • HB-709 provides a bridge to the future by replacing Stabilization Aid with Fiscal Capacity Disparity Aid based on district poverty and property valuations beginning in FY2022.

  • HB-551 takes a long-range approach by establishing an independent commission to review, and make recommendations to improve all aspects of education funding.

Because the governor did not include money to address the school funding crisis in his budget—and the legislature is required to submit a balanced budget—the House also approved a bill to raise the money needed to address school funding, provide relief to local property taxpayers, and to reduce the risk of a recession blowing a hole into public education funding and critical state services.

HB-686 extends the existing 5% tax on interest to capital gains, triples the exemption for seniors over age 65, and doubles the dollar amount of all other personal exemptions for people paying the Interest and Dividends tax. It would raise over $150 million each year. While it’s uncertain whether or not the capital gains tax will survive in the state Senate, it seems unlikely that the Senate would choose to kick this issue down the road in a year when there finally seems to be the need—and the will—to solve it.

For more information on public school funding see:

Also consider attending a School Funding 101 Forum in one of the following towns:

  • Plaistow:  April 22 at 6:00 p.m. at Timberlane Performing Arts Center, 36 Greenough Rd (between the High School and the Middle School), Plaistow

  • Plymouth:  May 1 at 6:00 p.m. in room 220, Hyde Hall, Plymouth State University

  • Wolfeboro:  May 8 at 7:00 p.m at Wolfeboro Town Hall, 84 South Main Street, Wolfeboro

  • North Conway:  May 15 at 6:00 p.m. at Kennett High School, Loynd Auditorium, 409 Eagle’s Way, North Conway

I attended the one in Portsmouth last week and it was extremely compelling and informative.

David Meuse