Citing a surplus, House Republicans propose dramatically reducing Education Trust Fund revenues


New Hampshire Bulletin

Published: 03-30-2023 7:21 PM

New Hampshire’s Education Trust Fund has racked up a sizable surplus recently. The fund, which pays out just over a billion dollars a year for the state’s share of public school funding, is expected to end this fiscal year with about $184 million unspent, current estimates state.

The extra money is largely the result of higher-than-expected business tax returns over the last two years, analysts say, as well as declining enrollments in the state’s public schools, which have lowered the amount the state pays out to schools. 

Now, some lawmakers are arguing that extra money should be depleted – and quickly. Republican House budget writers are pushing for a plan to dramatically reduce the amount of money going toward the state’s Education Trust Fund, an approach that would force the fund to use up the existing surplus by spending it down over the next two years. 

This month, House Finance Chairman Ken Weyler, a Kingston Republican, introduced a budget amendment that would restructure the Education Trust Fund by providing it a smaller share of the business tax revenues moving forward. The changes would result in around $250 million less in tax revenue heading into the trust fund per year. 

But because the amendment would also move a number of education expenses from the trust fund into the General Fund, much of that $250 million per year loss would be offset. In total, Weyler’s amendment would lead to an $83.7 million revenue deficit for the Education Trust Fund in the first year of the next two-year budget period, and a $96.6 million deficit for the second year. Both deficits would eat into the current surplus.

The upshot: Nearly all of the current $184 million surplus in the Education Trust Fund would be eliminated in the next two years under the current House draft budget, according to an analysis by the state’s Legislative Budget Assistant. 

That amendment was added to House Bill 2, the budget trailer bill, which was recommended by the House Finance Committee Wednesday as part of the committee’s proposed budget package. 

Weyler and Republicans say the change is a prudent one that adjusts the funding to prevent unnecessary surpluses. And they note that state law prohibits lawmakers from easily accessing monies in the Education Trust Fund for other purposes; barring a change in law, that $184 million can only be used for education-related expenses. 

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“We need to restore the Education Trust Fund to what it was,” Weyler said during remarks before the House Finance Division II subcommittee last week. “So we don’t sit here saying, ‘Oh, we got extra money to spend on education over here but gee, we’re short over there in general funds.’ I don’t want to ever have that happen.”

But the move has raised concerns from some public education advocates, who say the proposed dramatic reduction in revenue to the Education Trust Fund is risky. 

Under state law, if the Education Trust Fund runs out of money to cover the state’s required adequacy payments to school districts, the state may draw the necessary money out of the General Fund, which pays for most other state programs. Weyler argues that mechanism is a fail-safe that guarantees that school districts will receive state funding even if the trust fund runs low.

“This isn’t a big change,” he said. “It’s just saying this is now funded from this rather than that, but it’s still funded to the same amount.” 

But others warn that intentionally reducing the surplus in the trust fund down to nearly zero opens up the risk that the state could face a crunch should education expenses go over what they are expected to do. At that point, school adequacy funds would be reliant on the balance of the General Fund, rather than the trust fund. 

“What I see you doing here is essentially draining the Education Trust Fund, which is not something I can support,” said Rep. Kate Murray, a Newcastle Democrat. 

Critics argued that reducing the amount of funding to the trust fund could tie the hands of the Legislature if they consider passing new targeted funding programs for public schools. And some said that it could hinder the ability for the state to respond to two lawsuits that are seeking to increase the state’s obligation to public schools.

“How will it look to the courts for us to be taking money from the trust instead of putting money into the trust?” said Rep. Mary Heath, a Manchester Democrat, during a committee meeting last week. 

And some have raised concerns that Weyler’s amendment moves too many education programs from the Education Trust Fund to the General Fund.

Among those programs are “catastrophic” special education aid, school building aid, tuition and transportation funding, and career and technical education renovation project funding. The trust fund would continue to fund education freedom accounts, kindergarten aid, charter school funding, and state testing. 

Critics of Weyler’s amendment warn that moving those programs into the General Fund means that they will compete against other spending priorities in the state. Currently, in the Education Trust Fund, they are protected.  

Weyler said that was intentional, and noted that those expenditures had only been added to the Education Trust Fund in recent years. 

“I want to return to the original purpose of the Education Trust Fund, which was just to fund adequacy,” he said. 

The amendment would change exactly how much of the revenues from the Business Profits Tax and the Business Enterprise Tax would go toward the Education Trust Fund as opposed to the General Fund. 

Under current law, 20 percent of all Business Profits Tax receipts and 91 percent of all Business Enterprise Tax receipts go to the trust fund. Weyler’s amendment would change that ratio so that both business taxes would devote 22.5 percent of their revenues to the trust fund. While Business Profits Tax deposits would climb slightly, Business Enterprise Tax deposits would drop.

Gov. Chris Sununu’s proposed budget, released in February, would also have changed that formula. Sununu’s budget would have directed 35 percent of the Business Profits Tax revenues and 35 percent of Business Enterprise Tax revenues to go toward the Education Trust Fund. That change would also result in a drop in revenue to the trust fund, but a less dramatic one – Sununu’s revenue changes would result in about $73 million less per year to the fund, while Weyler’s would result in about $250 million less per year, the Legislative Budget Assistant estimated. 

The Education Trust Fund amendment received little discussion this week as Republican and Democratic members of the House Finance Committee tinkered with the draft budget. 

That budget is expected to come before the full House for a vote on Thursday, April 6.