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Education Finance in New Hampshire: Headed to a Rural Crisis?

Executive Summary

Author: Steve Norton and Greg Bird

Date: June 19th, 2017

Over the past two years, the New Hampshire state legislature has continued to rethink how it distributes state resources to fulfill its constitutionally mandated responsibility of providing an adequate education for all students. The most recent policy discussions have been driven by the fact that most communities are seeing a decrease in the number of school-age children.

Most education aid distributed by the state is on a per-pupil basis. If the number of students increases in a community, so does the amount of aid. To limit the state’s financial risk, the legislature capped the growth in education aid that a community could receive from one year to the next. In 2016, the city of Dover brought a lawsuit (and won) against this ceiling on education funding for those communities that were experiencing significant increases in students.

And then came an objection from a coalition of communities—many of whom were in the original Claremont education lawsuit in 1997 that led to the current education funding formula —which are concerned about a 2015 legislative provision that phases out stabilization grants over the next 25 years. Stabilization grants were designed to hold communities experiencing declines in enrollment, or other changes that resulted in declining state aid, financially harmless. These education funding grants represent about $151 million of the approximately $564 million in non-property tax based state aid distributed to schools in fiscal year 2017.

In this paper, we try to answer a few questions. First, have the fundamental goals of the original 1997 Claremont education lawsuit been met? The short answer is, it doesn’t appear so. There is still wide variation in local tax rates as well as per pupil expenditures, a leveling of which was at the heart of the Claremont lawsuit. There is still more than a two-fold variation between those communities that spend the most on educating students and those that spend the least. Variation in rates for local property taxes is even greater.

We also simulated the impact of the current system and current demographic changes on the level of aid provided by the state. By FY 2022, our simulations suggest the state will be paying approximately $16 million less in state aid than in the current year (FY 2017).

Who loses if the state continues with the current system? Rural, property-poor communities, in both demographic and economic transitions, are those that will experience the most significant reductions.

Colebrook, Hinsdale, Greenville, Lancaster, Berlin, Northumberland, and Newport are likely to see a reduction of more than 10% in the aid they receive from the state between 2017 and 2022. Assuming nothing else changes, this means that these communities will have to increase their tax rates by as much as 10%—even before allowing for cost increases in other areas.

Given the challenges rural New Hampshire is facing, these results are not surprising. Yet, it does raise important questions about the state’s role in helping these communities transition to what we might call a new education normal—smaller schools, consolidated districts, new models of learning—and what role the state should play in that transition.

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