Do we need a new way to fund K-12 education?

Issue Facts

By: Charlie Arlinghaus, President of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord

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.

2008

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.

2011
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 would 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. 

2012
On Feb. 15, 2012, the Senate Internal Affairs Committee passed CACR 12 with an amendment. CACR 12, 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," had passed in the House Special Committee on Education Funding Reform in March 2011.

2013
There will be another attempt -- with a new Legislature and a new governor -- to tackle the school funding dilemma again in 2013.