Opinion: Help New Hampshire’s poorest schools by bringing back state’s local pension contribution

Andy Volinsky 2020 1200

Andru Volinsky

The NH Legislature should vote to restore the state’s decades-long practice of defraying the cost of pensions for local municipal workers and teachers, but it should do so in a fashion that helps the state’s poorest communities and focuses on schools.

The NH House has taken the first step to restore the state’s pension contributions on a 7.5 percent across-the-board basis in preliminarily passing House Bill 1417. Additional House and Senate votes will follow and present opportunities to amend the bill to address the historic financial inequalities in our state.

These inequalities affect most of the communities in our state because, in a property tax-based system, taxes are higher in the poorest communities, but residents get far less for their higher taxes. School budgets take up most of our local tax dollars. Communities with limited tax bases suffered most when the state downshifted pension costs and now deserve higher levels of reimbursement.

Communities with high property values can raise money more easily than poorer communities. By considering the ability of municipalities and school districts to raise money, the state may begin to reduce the inequities inherent in our state’s worst-in-the-nation overreliance on property taxes to fund important services.

In other words, the state can begin to address multiple problems by tilting its pension contributions towards our poorest communities.

First, the state must restore its contributions to local pensions. The state’s retirement system was formed, in part, based on the state’s promise to defray 35 percent of the cost of local pensions if communities agreed to join the state system. This promise was made in 1967 and was continued for four decades. In 2010, with short notice, the state reneged on its promise by discontinuing its contribution, and this has been the case for the last decade. Note, the retirement system did not become 35 percent cheaper. The state just downshifted $50 million in funding responsibilities to the only local source of revenue, the property tax. Now, the Legislature is considering restoring a 7.5 percent contribution. It’s better than nothing.

A community’s ability to raise revenues through property taxes is a simple math problem: the value of the property in the community times the tax rate equals the revenue raised. The value of property within a town’s or school district’s boundaries determines that community’s financial strength.

The New Hampshire Department of Education maintains a report on its website called “Equalized Valuation per Pupil” that allows for an apples-to-apples comparison of the financial strength of school districts across the state. Using 2020 numbers, the Claremont School District has an equalized valuation of $469,000 per child. This means that Claremont has $469,000 worth of property against which it can levy its school taxes for each child in the district. Newington’s equalized valuation is $15 million per child. The gross disparity has obvious consequences. Newington has 30 times more property value to tax than Claremont for every child in the school district and is 30 times stronger financially.

Even though Newington spends much more on each of its school children than Claremont, Newington’s school tax rate in 2020 was only $2.53. Claremont’s was $20.37. A $200,000 home in Newington pays $506 in school taxes each year. A $200,000 home in Claremont pays $4,074. Businesses in Claremont are similarly taxed at much higher rates than other communities.

It is obvious what these tax rates do to economic development in our poorest communities. Just think of Somersworth competing for a business when its school taxes are two and a half times more than the school taxes in Portsmouth.

Another way to look at financial strength is to ask how much of a hit school tax take to generate $1 million in income for a school district.

In property-poor Winchester, where pensions costs are in the hundreds of thousands of dollars, school taxes must go up by $2.88 to raise $1 million in revenue. In Berlin, where pension costs are more than $1 million each year, it’s $1.80. By contrast, to raise $1 million in revenue, Moultonborough must only raise its taxes by $0.26, and in Portsmouth it takes an increase of $0.14.

The total cost of restoring a 7.5 percent contribution is estimated at around $28 million. Instead of giving 7.5 percent to every community, make the state’s contribution in inverse proportion to property values.

For example, pay 90 percent of the pension costs in the state’s poorest communities, such as Claremont, Winchester and Berlin, and pay lesser amounts to the state’s wealthiest communities. Even better, funnel the entire $28 million into reducing pension costs in school districts alone. This will make a huge difference to the poorest districts.

Here’s a bonus. As the retirement monies are not school adequacy funds, they can be targeted without violating the constitution.

Bring all public school advocates together, whether they support the Claremont school-funding principle that requires the state to pay the full cost of an adequate education in all schools or whether they would like to amend the state constitution to permit targeting aid. Public education needs its supporters on the same page. Partial restoration of the state’s promise to fund local pension costs is a good first step.

Contact your legislators and encourage them to create a multi-faceted win by supporting HB 1417 and tilting it to help our poorest communities.

Andru Volinsky was lead counsel in the Claremont school-funding cases, was a two-term executive Councilor, ran for governor and is now the Civic Scholar in Residence at Franklin Pierce University.

Categories: Government, Opinion