Capital Beat: Court ruling supercharges House, Senate divides on school funding

Monitor staff
Published: 6/8/2019 11:10:32 PM

It’s the ever-elusive remedy.

Town officials have craved it, school administrators have begged for it, and now, another state court has decreed it. But in the face of mounting pressure, finding the ideal legislative fix for New Hampshire’s school funding dilemma is so far proving difficult.

On Thursday, a day after a Cheshire County Superior Court judge found the state’s existing funding formula unconstitutional, the Senate advanced its proposal: $95 million to schools for adequate aid and a $40 million revenue sharing boost to towns with poorer residents.

It would be the largest new infusion of state aid to property-poor school districts in at least 20 years, as Senate Finance Chairman Lou D’Allesandro describes it. But it’s also significantly less than what the House put aside: about $70 million less overall. And some House Democrats are already unsatisfied.

“It really fails to recognize the urgency that towns all across the state, from Berlin, Pittsfield, Claremont, Newport, Derry … that are screaming as loud as the others,” said Rep. David Luneau, a Hopkinton Democrat. “It really fails to address those needs.”

Rep. Mel Meyler, the chairman of the House Education Committee and another Hopkinton Democrat, put it in blunter terms.

“Education is not as great a priority in the Senate as it clearly is in this body,” he said.

Wednesday’s court ruling, by Superior Court Judge David Ruoff, has underscored greater urgency. Throughout a 96-page court ruling, Ruoff pointed to deep-set deficiencies with the state’s present funding model.

The problem? The state’s present base adequacy grant amount for the state – $3,563 per student – doesn’t nearly cover the cost of education, Ruoff wrote, in a decision that captivated the state education world last week. And the solutions mandated by the last round of lawsuits, kicked off in Claremont, are not being met.

“It has been more than twenty-five years since the New Hampshire Supreme Court first instructed the Legislature to comply with its exclusive obligation to define and provide funding for an adequate education,” Ruoff wrote. “... In this Court’s judgment, the Legislature is not there yet.”

It’s unlikely either the Senate or House plans would meet Ruoff’s legal threshold of the state’s role in providing an adequate education. And while neither plan is seen as the ultimate legislative fix, both versions are meant to make significant strides in a defining statewide issue.

With the stakes high, the Senate proposal – and the budget that houses it – heads back to the House. With it comes a likely uphill scramble to cobble together an agreement between the House, Senate and governor’s office by the end of the month.

And if initial conversations are any consideration, education funding could be one of the main points of contention. Here are some of the sticking points:

Stabilization grants

When it comes to bridging the gap between poorer and richer school districts, stabilization grants have long been a favorite tool. Devised by the Legislature to attempt to smooth over cuts to education funding in 2011, the grants purport to make up the difference for towns that lose money.

One snag: A 2016 law set a timetable to reduce the stabilization grants by 4% every year for 25 years until they stopped entirely – school administrators say the 8% cuts so far over two years have already taken its toll. The Senate plan would restore them back to their 2016 levels, reversing that 8% within a year.

House lawmakers, meanwhile, would end stabilization grants entirely and replace them with a juiced-up version of a new formula.

A new formula with a new cap

Both the House and Senate plans include the same approach to target state funding to “property poor” school districts – those whose property values are too low to sufficiently fund their schools through local taxes alone. That approach: the return of “fiscal capacity disparity aid.”

It’s a mouthful, but the concept is simple: Towns are ranked based on “equalized value per pupil,” or how much property tax value the town has per student in the school. Under the plan, those towns that fall below the state average – about $1 million per pupil on average – receive proportionate aid to make up the gap.

The concept has bipartisan support. It’s seen as a new way to address town funding disparities besides relying on tallies of students on free and reduced lunch. But the House and Senate vary widely on how they would limit these new payments. Under the House plan, districts with up to $1 million in valuation could receive grant money, and those with the poorest property values could receive up to $6,000 per pupil.

The Senate version is much skinnier – limited to towns with $900,000 or less in average per pupil valuation and capped at $675 per student, not $6,000. That’s a 90% reduction on its own.

Senators argue that the 90% reduction is offset by continuing stabilization grants, which the House plan doesn’t do.

“While there’s a $70 million difference over the biennium, the Senate proposal touches each of the areas that the House proposal also sought to address,” said Sen. Jay Kahn, a member of the Senate Finance Committee and chairman of the Education Committee.

Nonetheless, the final version that left the Senate floor is $70 million short. And a lot of that gap comes down to the lack of one major item:

A capital gains tax

One of the more ambitious – and controversial – proposals made by House Democrats to help fund their proposal was a simple one: the creation of a capital gains tax. That body sought to extend the existing 5% tax on interest and dividends to capital gains, which are not currently taxed. That tax was estimated to bring in $150 million.

But the political costs were high. In a year of business tax cuts reversals and a mandatory paid family leave program, both of which were being assailed by Sununu and Republicans as tax increases, adding an indisputable new tax on income to certain traders was seen by some as a nonstarter. The Senate stripped it out, with some Democrats even crowing about it. And they managed to find hundreds of millions of dollars in additional revenue through a maneuver of bringing the state and federal tax codes together.

“We negated the capital gains tax. Bang! It’s out,” said Sen. Lou D’Allesandro on the floor Thursday. “But what’s in there? Tax reform. The kind of quality tax reform that makes this state more economically sound.”

But Luneau said despite a resounding Senate rejection, the book hasn’t closed on a capital gains tax.

“I wouldn’t throw it out the window yet,” he said. “I think it’s certainly there for consideration.” But he added that with or without that revenue, the House funding formula could be achieved if there exists a will.

Add it to the pile of unknowns as the budget careens into negotiation season.

For the Legislature, Wednesday’s court ruling, while far from final, came as a warning shot to start looking for a compromise. But Thursday, few said it would change their approach.

And many lawmakers admitted that the funding disparity is unlikely to be resolved this year, with some pointing to the need for a commission to find a final approach.

On one point, Judge Ruoff’s ruling was crystal clear. New Hampshire’s education funding needs a serious fix. But when it came to determining the right approach to do that, he threw the matter back to the Legislature.

“As every court decision on the matter has recognized, school funding is no small task, and the burden on the Legislature is great,” Ruoff wrote. “Yet, as every court decision has similarly recognized, the Legislature is the proper governmental body to complete it.”

Now, as legal counsel for the two parties – the New Hampshire Department of Justice and the ConVal School District in Peterborough – prepare for a likely appeal and eventual hearing at the state Supreme Court, state lawmakers are still looking for that more equitable adjustment.

“The revenue is there in both budgets for education funding,” Luneau said. “The question is, in view of all other priorities that are being funded, what do you do?”

For that answer, we’ll just have to wait.

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