School Funding: Constitutional Amendment

Charlie Arlinghaus, President of the Josiah Bartlett Center for Public Policy. 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

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 2005 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 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 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 $3,450 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 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. 

2012

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.

PROS & CONS

"For" Position

By LFDA Editor

The Legislature is better suited to deal with education funding than the courts:

  • New Hampshire citizens are better off with legislative involvement in education funding, since judges and courts are not elected, and hence are nonresponsive to the citizens of the state.

State funding of education will result in less funding for education:

  • A study by Brian Gottlob, prepared for The Committee for Sensible School Funding, compared the state and local fiscal trends across the United States relating to education funding. The result was that increasing a state's share of education funding results in larger per-capita tax increases on the state and local level. In addition, over the long term, per-pupil expenditures grow more slowly in states that provide a larger share of education funding. The result can be fewer dollars available for popular expenditures that increase classroom resources, reduce class sizes or increase teacher salaries, and this result occurs in states of all sizes, regardless of the source of state revenue.

Funding education at the state level results in poor performance:
 

  • The court is insisting on centralizing school funding at the state level. There is very little debate about the effect on school performance in states that have gone this route: it is almost all negative. See Prof. William Fischel of Dartmouth.

Education funding is best left at the local level:
 

  • The strength of local property taxes is that they are a local investment and relate directly to the increase or decrease in the value of homes in the community. Not only do citizens see clearly where the money ends up, but improvements to the schools or the town are reflected in the value of the asset being taxed. Increasing or decreasing taxes. Good schools, roads, and economic development all have an impact on the value of the taxpayer's home. This argument is based on research by Prof. William Fischel of Dartmouth. 

Targeted aid to needy communities is what is necessary:

  • The court's actions effectively prohibit targeting state education aid to the neediest communities. The Legislature will always have limited resources and they should be sent first where they are needed most. Not considering a town's relative wealth is as irrational as requiring the government to send welfare payment to millionaires.

The court's action is not legal:

  • The court overstepped its authority and is legislating. Because the constitution merely says that the Legislature has a duty to cherish "all seminaries and public schools," their interpretation is way over the top.

"Against" Position

By LFDA Editor

The Legislature cannot be relied upon:

  • The New Hampshire Supreme Court has ordered the Legislature to define the cost of an adequate education and reduce town-by-town funding differences in schools. Prior to the Court's involvement this never happened.

Targeted aid is not reliable and creates problems:

  • Targeted aid depends upon state revenues that will change with economic times. Without judicial oversight the state government will reduce targeted aid during difficult financial times.The towns receiving targeted aid will become differentiated from other New Hampshire towns, making residents feel stigmatized. 

Something must change:

  • The current method of funding education is not fair. It places a much greater burden on poorer communities and on poorer families than it should, and only the state can rectify this problem. Without the court involvement, the Legislature will revert to "targeted aid", which has failed to correct the in balance in the past.

LEGISLATIVE HISTORY

Killed in the House

Increases per pupil school funding from the state, adds per pupil funding for exceptional student programs, establishes fiscal disparity aid, and repeals stabilization grants (which keep funding level for schools that are losing students).

Killed in the House

Requires all moneys from the state lottery to be distributed to all K-12 schools on a per pupil basis to pay for teachers' salaries.

Tabled in the Senate

Repeals the cap on state funding for education in fast growing towns.

Killed in the Senate

Constitutional amendment giving the legislature more power over state education funding.  States: "In fulfillment of the provisions with respect to education set forth in Part II, Article 83, the Legislature shall have the responsibility to maintain a system of public elementary and secondary education and to mitigate local disparities in educational opportunity and fiscal capacity. In furtherance thereof, the Legislature shall have the full power and authority to make reasonable standards for elementary and secondary public education and standards of accountability and to determine the amount of, and the methods of raising and distributing, state funding for public education."

Killed in the House

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 would increase state costs next year by roughly $250,000.

Killed in the House

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.

Tabled in the Senate

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.

Killed in the House

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.

Signed by Governor

Makes various changes to the method of calculating, distributing, and reporting education grants to municipalities, and repeals the provisions relating to differentiated aid.

Killed in the House

Uses tobacco tax and tobacco settlement funds to reduce the education property tax.

Killed in the House

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.

Signed by Governor

Establishes a committee to study fiscal disparities between school districts.

Killed in the House

Requires use of the most recent equalized property valuation when property value is used to apportion expenses in cooperative and multi-town school districts.

Killed in the House

Requires the state to increase aid for school construction and renovations to at least $50,000,000 per year, and moves the authority to grant that aid from the Department of Education to the Board of Education (an unpaid board of appointees).

Killed in the House

Applies to communities that lack their own public school but pay tuition to a public school in another town. If such a community has a charter school, this bill requires that community to pay the charter school tuition for every student that attends the charter school.

Killed in the House

Dedicates $600,000 to charter school maintenance and repair.

Killed in the House

Allows schools to advertise.

Tabled in the Senate

Repeals the education tax credit program, in which businesses receive tax breaks for contributing to a scholarship fund for low income students that wish to attend private school.

Conference Committee

Constitutional amendment giving the legislature "the full power and authority and the responsibility" to define public education standards, improve local disparities in education, and allocate funding for public education.

Veto Overridden

Establishes a tax credit for businesses that contribute to a scholarship fund for students who wish to attend private, parochial, or home schools.

Signed by Governor

Amends 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% per year. This bill also eliminates a requirement for property-rich communities to help poorer communities with their education costs.

Killed in the House

Exempts parents from the education property tax if their children are not enrolled in public school.

Should NH pass a constitutional amendment giving the legislature more control over the distribution of school funding?

FOR
REPRESENTATIVES

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AGAINST
REPRESENTATIVES

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Comments

taylorr's picture
Taylor Reidy
- Concord

Tue, 06/05/2012 - 12:00am

As a lifetime resident of New Hampshire and a student who has matriculated through the NH public school system, the renewed debate about publicly funded education caught my eye. Tomorrow (Wednesday 6/6), CACR 12, amendment to the NH Constitution, will be up for a vote.  While this may not be as widely discussed as the recall of a Governor in the Midwest, after more than a decade of debates over the adequacy of education funding and two NH Supreme Court cases on the disparity of schools systems because of the revenue differences between rich and poor communities, this proposed Constitutional amendment represents a significant shift on this issue.
The proposed amendment provides that:

“… the legislature shall have 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 have full power and authority to determine the amount of state funding for public education.”

The amendment touches upon a number of issues, such as home rule, the legitimacy of activist courts and the disparity or inequality of funding for local school systems (the full text can be found here).
The debate on the amendment will likely continue along party lines with Republicans looking to move the issue away from the State Supreme Court and Democrats wanted to guarantee equity in education standards and funding.

 

Interestingly, CACR 12 is being marketed as a compromise between Speaker Bill O’Brien (R-Mont Vernon) and Governor John Lynch (D-Hopkinton). According to the Union Leader, CACR 12 states that the legislature alone will have full “power and authority” to set the guidelines and standards for public education, while emphasizing the “responsibility” of the state to maintain a public education system.

And with a vote coming up, two of the main arguments stem from opposite sides of the matter. The Republican Liberty Caucus of New Hampshire (RLCNH) took issue with the word “responsibility”. As a primarily libertarian organization, they are worried that this amendment would be the source of higher taxation in order to keep schools from falling below the current level of funding (press release here). Further, they argue that the language is much too vague, allowing plenty of room for interpretation and potential intervention again by the NH Supreme Court.

According to Seacoast Online, members of the NH Democratic Party, who are generally against the amendment, simply state that this is not a solution to the problem, but rather a stalling measure with flowery language.

It seems to me that while the language of CACR 12 reflects a compromise, it is a heavy-handed one, in favor of those who want State control over education funding and centralized decisions over the adequacy of education in communities throughout the state. Clearly, Republican leaders are most concerned with taking this issue away from what they view as activist courts, ones that created or exacerbated the debacle with the Claremont I and II cases and later kept this issue before the Court.  Republican supporters of the amendment believe that this will finally move the control of education funding away from the courts and back to the legislature.

 

While that may be true, I would argue that giving the power of educational funding to the state moves away from the objectives of those who support Home Rule initiatives and seek to return educational decisions, such as curriculum design or funding, back to local school boards. This amendment is a step in the right direction, but stopping in Concord makes it clear that a return of these decisions to local control is unlikely.

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Issue Status

In the 2016 legislative session, one measure - HB 1630 - deals with state funding of public education. The measure increases per pupil school funding from the state, adds per pupil funding for exceptional student programs, establishes fiscal disparity aid, and repeals stabilization grants (which keep funding level for schools that are losing students).One legislative services request for the 2016 session having to do with school funding deals with the allocation of lottery funds to schools, but it was deemed inexpedient to legislate in the House.

In 2015, Sen. Jeb Bradley (R-Wolfeboro) sponsored CACR 3, a 2015 constitutional amendment to give the Legislature more power over school funding. It was ruled inexpedient to legislate. Many other legislators sponsored 2015 bills to adjust the state funding formula for schools. See the "Legislation History" section of this page for more details.
 

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