NH education funding panel begins to fine-tune state property tax proposal

Two different plans each call for distributing ‘donor town’ revenue excess

School FundingThe Commission to Study School Funding’s Fiscal Policy Work Group has begun drafting a report that will propose a statewide property tax to fund New Hampshire’s share of the cost of giving all children the opportunity to get an adequate education.

The proposal is sure to rekindle the controversial issue of so-called “donor towns,” which has dogged the school-funding debate from the start. In municipalities with relative high property values, a statewide property tax levied at a uniform rate would raise more money than they require to provide an adequate education. The excess would flow to the state and be redistributed through a weighted distribution formula to municipalities with relatively lower property values and relatively higher education costs. Thus the notion of “donor towns.”

The current school-funding system includes a “statewide education property tax,” or SWEPT, with a set rate $1.92 per $1,000 of assessed value. It raises $363 million. However, in deference to donor towns, the tax is collected and retained locally rather than distributed among other municipalities. Any funds in excess of those applied to the schools are retained by the municipality that collects them.

Already several of those donor towns, including Newington and Waterville Valley, as well as the city of Portsmouth, have raised the issue with the commission. And Jane Ferrini, Portsmouth’s assistant city attorney, advised the commission that prospective “donor towns” are following the issue closely.

The commission has yet to set the cost of providing an adequate education. But, if the a statewide property tax is levied to meet the state’s obligation prescribed by the New Hampshire Supreme Court the number and contribution of donor towns will increase and increase significantly. How much will be determined by how much state funding is applied to the cost of public education. 

Goal: $2.9 billion

When the issue arose at this week’s work group meeting, both attorney Bill Ardinger, the governor’s appointee to the commission, and John Beardmore, the former commissioner of Revenue Administration, insisted that all taxpayers in all municipalities should be required to pay the statewide property without deductions, exemptions or rebates. Nor should municipalities be allowed to retain any revenue in excess of the cost of providing an adequate education.

The commission has yet to set the cost of providing an adequate education. Instead it has drawn on the work of the American Institute for Research, which mined data on school populations and property values to build a simulated model for funding public education.

The simulation calculated the total cost of providing an adequate education in every district at $2.9 billion, which approximates what is currently spent for public schools. In other words, AIR did not find that New Hampshire spends too little, but instead found that funding is not distributed equitably and efficiently among its school districts.

AIR presented a weighted formula for distributing funds among school districts designed to raise the level of educational achievement in all districts to the state average as measured by assessment scores, graduation rates and attendance rates.

The cost of an adequate education varies from district to district, according to the characteristics of their school populations and their fiscal capacity. Under the AIR formula, those districts with the greatest needs, measured by the number of students with meager means, special needs, English language learning and other factors and least fiscal capacity would receive more state funding. Towns with fewer needs and greater capacity would receive less or even nothing at all.

‘Mandatory minimum’

AIR offered two scenarios for raising the $2.9 billion to fund the formula.

One would draw solely on a statewide property tax, which at a rate of $12.05 per $1,000 of assessed value would raise $2.3 billion. Some $600 million in the Education Trust Fund, an existing potpourri of state tax revenue, would provide the balance.

The second scenario would include a “mandatory minimum local contribution” funded by a flat property tax of $5 per $1,000 of assessed value. amounting to $937 million –

which, with the $600 million from the trust fund, would leave a balance of $1.4 billion to be raised by a statewide property tax of $7.24 per $1,000. Altogether, the total property tax rate would be $12.24.

Ardinger calculated that under the first scenario 70 municipalities would become “donor towns” and altogether generate some $365 million in revenue in excess of their costs to provide an adequate education. Under the second scenario, 72 municipalities would generate an excess of $342 million.

Ardinger stressed that he derived these numbers from AIR’s simulation, which the commission has studied but not adopted. Ultimately, the rate of a statewide property tax and its impact on specific municipalities will depend on amount the Legislature chooses to spend.

The work group also agreed that the statewide property tax should be accompanied by two programs to provide tax relief. One would lighten the tax burden for low- and moderate-income homeowners and renters. The other would address the situation faced by owner-occupiers of valuable property with low incomes by entitling them to defer tax payments and then pay the outstanding balance when they sell the property.

The full commission continues to wrestle with the question of whether the state must pay the entire cost of an adequate education — from first to last dollar — or whether municipalities can be required to contribute a share of the cost without running afoul of rulings by the New Hampshire Supreme Court.

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