Do we need a new way to fund K-12 education?
By: Charlie Arlinghaus, President of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord
This issue has been updated by LFDA editors.
The recent history of education funding in New Hampshire is a history of court cases. For more than thirty years, states across the country have faced lawsuits intended to force additional state spending in particular school districts. The 1971 Serrano case in California led to waves of lawsuits across the country after the California Supreme Court ruled that the level of financial disparity between districts was unacceptable.
New Hampshire saw its own series of lawsuits but the current debate began after the 1993 Claremont lawsuit decided that the New Hampshire Constitution established a State duty to provide an adequate education and to guarantee funding. It was followed by the landmark December 1997 Claremont II ruling. http://www.courts.state.nh.us/supreme/opinions/1997/school.htm
The precise meaning of the second Claremont ruling and what it allows the legislature to do or prohibits it from doing has been at the heart of the recent debate over education funding.
In essence, the ruling seems to require that the state define some level of education called adequate and pay for that level with state raised tax dollars. To the extent that it delegates responsibility, those responsibilities must still be paid for with state tax dollars not local tax dollars.
For many years, state aid to education has not been one program but a series of programs including special education aid, aid for building construction, partial aid for the town’s share of the retirement contribution for teachers, and a general category of aid based to some extent on the financial need of each town.
The legislature’s initial response to the 1997 lawsuit was legislation that changed the financial need category also known as “foundation aid” to a new formula commonly known as “adequacy aid.” It increased the total state aid for schools from about $150 million to $875 million.
Half of this state aid came from the controversial new statewide property tax. Under this mechanism, a portion of local property taxes are renamed state taxes but spent locally and counted as state aid.
The new law also increased taxes on businesses, tobacco, rental cars, and real estate sales by a total of $195 million, the largest tax increase in NH history up until that time.
It was hoped the new spending would allow poorer communities to spend more on their education needs and also to reduce the property tax burden on poorer communities. The study “Dollars Diverted: Taking a Hard Look at Education Finance Reform in New Hampshire,” found that the increased aid was being spent on non-educational functions or being spent by the richest towns that least needed help.
In terms of property relief, the NH Center for Public Policy Studies found (http://www.nhpolicy.org/report.php?report=67) that total property taxes decreased statewide by about $150 million the first year of the new funding, the only decrease in the recent history of the state. However, after the initial decrease, taxes continued to rise by more than $600 million over the next four years – a greater increase in four years than in the nine years prior to the reform.
The initial plan and all subsequent revisions created a formula which identified an amount of state obligation for each town. Most of the formulas have included cost factors and also the relative fiscal capacity of a town. The more recent Londonderry case http://www.courts.state.nh.us/supreme/opinions/2006/londo103.pdf clarified the series of “Claremont” rulings to forbid the legislature from considering a town’s relative wealth in the initial part of state aid.
The current financing mechanism for state aid includes the statewide property tax mentioned above. It is implemented as follows: the state calculates the amount that would be raised in a town if a tax were assessed at a rate that would raise $363 million statewide and then deducts that amount from the amount of aid a town would otherwise receive. In the first years of the new system, a small number of towns had a high enough property value that it exceeded their aid level. Known as “donor towns,” they received no state aid and were required to send a check to the state. Rising property values allowed the law to be adjusted so a lower property tax rate left no donor towns for the time being.
These mechanisms have moved the state’s funding from under $100 million to around $1 billion per year. In 2007-2008, school districts raised about $2.5 billion with about 40% coming from the state and 54% from local taxation.
Another proposed solution is a Constitutional Amendment that will take the school funding matter out of the hands of the courts and into the legislature. Every governor holding office after the Claremont II decisions recommended such an amendment, yet no amendment has made it out of the legislature and onto the ballot for citizens to decide.
In 2008, the legislature passed an education funding bill designed to comply with the recent Supreme Court decisions. The bill provided $3450 for every student in the state and provided additional aid for students that receive free lunch and those in special education programs. The bill was criticized on the grounds that it reduced state aid to the poorest communities and increased it to the richer ones. Supporters argued that the change was required to comply with the court. That reality led the legislature to consider, but ultimately reject, a more limited amendment to the constitution.
On July 13, 2011, Gov. John Lynch signed legislation that resets the formula for school aid funding. HB 337 is described as "an act amending the calculation and distribution of adequate education grants, repealing fiscal capacity disparity aid, and providing stabilization grants to certain municipalities."
Starting in 2014 no community will get a school aid increase of more than 5.5 percent a year. The bill also eliminates a requirement for property-rich communities to help poorer communities with their education costs.
On Feb. 15, 2012, the Senate Internal Affairs Committee passed CACR 12 with an amendment. CACR 12 was designed to give the Legislature "the full power and authority and the responsibility to define standards for public education, establish standards of accountability, mitigate local disparities in educational opportunity and fiscal capacity, (and the) full power and authority to determine the amount of state funding for public education." The proposal had passed in the House Special Committee on Education Funding Reform in March 2011. CACR 12 ultimately did not get the 3/5ths majority needed to get the amendment on the ballot.
Many legislators sponsored 2014 bills related to school funding.
Rep. Gary Richardson (D-Hopkinton) sponsored HB 1534, a 2014 bill which establishes a committee to study fiscal disparities between school districts, and recommend any legislative changes. Slightly different versions were considered and passed by the House and Senate. A joint conference report was adopted by the two bodies on June 5. Gov. Hassan signed the bill in November 2014.
Rep. James Grenier (R-Goshen) sponsored HB 1472, a 2014 bill that "requires use of the most recent equalized property valuation when property value is used to apportion expenses in cooperative and multi-town school districts." It was ruled inexpedient to legislate in the House.
Rep. Rick Ladd (R-Haverhill) was the primary sponsor of HB 1114, a bill requiring the state to increase aid for school construction and renovations to at least $50,000,000 per year, and moving the authority to grant that aid from the Department of Education to the Board of Education (an unpaid board of appointees). It was ruled inexpedient to legislate in the House.
Rep. Kenneth Weyler (R-Kingston) sponsored HB 1393 and HB 1394, both 2014 bills directed towards charter school funding. HB 1393 applies to communities that do not have their own public schools and have tuition agreements with outside schools. If a community lacks a public school but has a charter school, the community must pay the charter school tuition for every student that attends the charter school instead of the outside school with a tuition agreement. It was ruled inexpedient to legislate in the House. HB 1394 dedicates $600,000 to charter schools for maintenance and repair. It was also ruled inexpedient to legislate in the House.
Rep. Mel Myler (D-Contoocook) and Rep. Gary Richardson (D-Hopkinton) sponsored HB 1147, a 2014 bill that would allow schools to advertise. It was ruled inexpedient to legislate in the House.
Many legislators are sponsoring 2015 bills to adjust state funding for schools.
Sen. Jeb Bradley is sponsoring CACR 3, a 2015 constitutional amendment to give the legislature more power over school funding.
Rep. Rick Ladd is the primary sponsor of HB 218, a 2015 bill that provides an additional $675 in state education funding per pupil who does not test at the proficient level or above in the math portion of the state assessment. Right now the additional $675 goes to students who are not proficient in reading. The Department of Education says this bill would increase state costs next year by roughly $250,000.
Rep. Peter Hansen is the primary sponsor of HB 444, a 2015 bill that exempts from the assessment of school district taxes any person who has paid school taxes and resided in New Hampshire for at least 36 consecutive years.
Rep. David Bates is the primary sponsor of HB 562, a 2015 that makes several changes to the law governing the distribution of state funds to schools. For example, this bill eliminates stabilization grants for municipalities whose Statewide Education Property Tax (SWEPT) exceeds the total calculated cost of an adequate education.
Rep. Kenneth Weyler is the primary sponsor of HB 563, a 2015 bill that provides that funding for chartered public school pupils shall be based on 50% of the most recently available statewide average cost per pupil for public school pupils. Based on the current average cost per pupil, this would roughly double funding for charter school students.
Rep. Michael Brewster is the primary sponsor of HB 623, which uses tobacco tax and tobacco settlement funds to reduce the education property tax.
Rep. Dan McGuire is the primary sponsor of HB 630, which allows video lottery machines in establishments with a liquor license, and uses funds from the video lottery machines to offset the education property tax.
Rep. Gilman Shattuck is the primary sponsor of HB 680, which makes various changes to the laws governing the statewide education property tax. In particular, this bill establishes the rate of the statewide education tax at $8 per 1,000 of the value of taxable property and transfers the authority to collect the education property tax from the municipalities to the Department of Revenue Administration. This bill establishes a homestead exemption from the education property tax for the first $250,000 of assessed value of homestead property. The bill also requires an annual transfer of $150,000,000 from the education trust fund to the general fund.
Sen. Nancy Stiles is the primary sponsor of SB 227, a 2015 bill that makes various changes to the method of calculating, distributing, and reporting education grants to municipalities, and repeals the provisions relating to differentiated aid.
Sen. David Watters is the primary sponsor of SB 228, a 2015 bill that increases education grants for municipalities, increases funding for pupils attending full-day kindergarten programs, and decreases stabilization grants to municipalities which have less than the state average number of pupils receiving a free or reduced price lunch. The Department of Education estimates this bill will increase state education trust fund expenditures and local revenues by $2,105,715 in 2016.