Legislators address public education funding amid ongoing lawsuits

Three lawsuits challenging the legitimacy of funding public schools, all underway and nearing resolution in the courts, have spurred fresh efforts by the Legislature to address issues that lawmakers have dodged for nearly three decades

Three lawsuits challenging the legitimacy of funding public schools, all underway and nearing resolution in the courts, have spurred fresh efforts by the Legislature to address issues that lawmakers have dodged for nearly three decades.

The parameters of school funding jurisprudence are framed by two orders issued by the New Hampshire Supreme Court in the Claremont litigation of the 1990s. Then the court ruled that the Constitution places on the state an “unequivocal legal duty” to provide every child an adequate education and “to guarantee adequate funding.” Furthermore, the justices ordered that the State must fund its obligation with constitutional taxes and specifically ruled that, to the extent property taxes are levied to fund this obligation, they must be “equal in valuation and uniform in rate throughout the State.”

The ConVal suit

The first of three pending suits, brought by the ConVal School District in 2019, claims that the State has shirked its constitutional duty to fund an adequate education. Last November Judge David Ruoff of Rockingham County Superior Court, ruled that the $4,100 per pupil allotted by the State was insufficient, and found the figure should be $7,356.01 “at a minimum” and added “the true cost is likely much higher than that.” His order would represent an increase in the state share of school funding of $537.5 million.

The State appealed Ruoff’s opinion and the Supreme Court heard oral arguments in December. The Speaker of the House, Sherman Packard, together with 28 members of his Republican caucus and two Republican Senators, asked the Supreme Court to reverse the orders issued by the justices in the Claremont cases, which would absolve the State of its obligation to fund public schools altogether.

The Rand suit

Unlike the ConVal suit, which merely seeks to increase the state share of school funding, the second suit, tried before Judge Ruoff by Steven Rand of Plymouth and other property owners, charges that the entire school funding system is at odds with the Supreme Court’s  Claremont opinions.

Together, local school taxes and the Statewide Property Tax (SWEPT) provide 70% of the funding of public schools. The plaintiffs argue that, contrary to the court’s orders, both property taxes are levied at disparate rates across the state are unconstitutional and therefore are illegitimate means of funding the state’s obligation to provide constitutionally adequate public education.

First, in a separate action, the Rand plaintiffs challenged the SWEPT. The SWEPT is levied on taxable property throughout the state at a uniform rate, effectively serving as a surcharge on the local school property tax. The tax is  collected by municipalities and appropriated to school districts to defray their cost of an adequate education, calculated by multiplying the cost of adequacy of $4,100 per pupil by the number students enrolled. In more than two dozen municipalities with the most property wealth, the tax returns an excess. Since 2011, these cities and towns have been entitled to retain any excess, sparing themselves the full rate of the SWEPT.

Finding the issue a matter of law rather than fact, Ruoff skipped a trial and granted the plaintiff’s motion for summary judgment the same day he decided the ConVal case. He ordered that the State be enjoined from permitting municipalities to retain excess SWEPT revenue and required any excess be remitted to the State. The State, in league with 26 municipalities, appealed Ruoff’s order and the Supreme Court heard oral arguments in November. Of the three suits, the challenge to SWEPT appears the least complex and has the least impact.

Furthermore, the Rand plaintiffs, like the ConVal plaintiffs, argue that the state contribution to school funding is constitutionally insufficient, but take their argument a step further by reprising the opinion of the Supreme Court in the Claremont litigation. The justices held the State has foisted its constitutional obligation to fund public schools on property taxpayers to provide 70% of the revenues for public schools. The court held that local school property taxes are, in fact, state taxes levied to fulfill the State’s obligation and therefore must be “equal in valuation and uniform in rate” throughout the state.

Since property wealth varies widely among towns and cities, local school tax rates vary with them. The Department of Education reported that, in 2022-2023, the median equalized property value per pupil was $1.9 million and ranged from a low of $778,484 in Charlestown to a high of $25,055,786 in New Castle. Consequently, local school tax rates ranged between $23.21 in Hopkinton and $1.33 in Newington, contrary to the court’s order.

In September, the Rand case was tried in Rockingham County Superior Court before Judge Ruoff. Two longtime school superintendents, John Freeman of Pittsfield and Corinne Cascadden of Berlin, testified in detail and at length, drawing on financial data to demonstrate that the state funding allotted to their districts was insufficient to meet even the Minimum Standards for Public School Approval prescribed by the State, let alone provide an adequate education. The plaintiffs in the Rand case have suggested Ruoff has yet to decide the case.

The ConVal suit, with its $537.5 million price tag, would require the State to pony up more money for education, adding to the fiscal challenges just as the State is tightening its belt in the teeth of slumping revenues while leading to increased property taxes. The Rand plaintiffs have upped the ante by proposing that the costs of an adequate education should be derived from the average per-pupil expenditure, which now tops $20,000, while at the same time ensuring the system is funded with constitutional taxes.

The legislation

Lawmakers have introduced a number bills to address the major issues put in play by the pending litigation, but none so much as refer to the Supreme Court Claremont orders, let alone seek to comply with them.

Meanwhile, nine Republican Representatives, including three members of House Leadership, have sponsored House Concurrent Resolution 11, declaring that the Supreme Court orders in the Claremont cases are not binding on the legislative and executive branches.

HB 675, sponsored by House Majority Leader Jason Osborne (R-Auburn) and his deputy Joe Sweeney (R-Salem) mirrors a proposal presented by Rep. Tracy Emerick (R-Hampton) in the wake of the ConVal decisions, which died by the hand of former governor Chris Sununu.

The bill would hike the rate of the SWEPT, which currently raises $363 million, to nearly $5 per $1,000 of assessed value to yield $773 million, enough to increase the cost of base adequacy to $7,356 as the court ordered. By what amounts to a shell game, the local school tax would be redefined as SWEPT, causing the SWEPT rate to rise and the local rate to fall in equal measure.

The bill would also require municipalities accruing SWEPT in excess of their cost of adequate education to remit the funds to the State. Those that withheld funds would forgo their share of the meals and rental tax distributed to municipalities. Together these measures would match the cost of base adequacy to the court’s order and cure the constitutional flaw in the administration of the SWEPT while stoking resistance from the so-called “donor” municipalities.

At the same time, HB 675 would restrict local control of school spending by capping the annual growth of school districts’ operating budgets, exclusive of investments in acquiring property and constructing facilities. Until June 20, 2027, appropriations would be limited to the prior year expenditures multiplied by the three-year average of the Consumer Price Index (CPI). Afterwards, appropriations would be limited to either the three-year average percentage change in enrollment or the three-year average appropriation, whichever is greater.

Two bills, HB 339, sponsored by Rep. Walter Spilsbury (R-Charlestown), and HB 669, sponsored by Rep. Marjorie Smith (D-Durham), would require excess SWEPT be remitted to the State. On the other hand, HB 137, sponsored by Rep. Glenn Cordelli (R-Tuftonboro), would entitle municipalities to retain any excess and apply it to both educational and municipal expenses. “My bill is not intended to address fairness,” Cordelli said.

HB 527, sponsored by Rep. Sallie Fellows (D-Holderness) would scrap the SWEPT altogether. She described the SWEPT as a tax that exists “only on paper,” explaining that the State reports “a SWEPT revenue never collects and a SWEPT expenditure it never collects.”  She explained that repealing the SWEPT would be “an honest and transparent recognition that, when local homeowners and businesses pay property taxes, that is local support of education and not state aid.” Fellows said that her bill is “revenue neutral,” explaining that  “the total taxes paid will be the same,” while other bills raising the SWEPT would raise property taxes on every property owner.

Two other bills, HB 651 and HB 550, both sponsored by Rep. David Luneau (D-Hopkinton), would also increase the per-pupil cost of base adequacy to $7,356. HB 651 would also increase the differential aid allotted for students qualifying for free and reduced-price lunch, learning English language and receiving special education services. Both bills would expand the definition of an adequate education to include all the ancillary services required to operate a school and require their costs  to be adjusted every two years based on the actual costs of all approved schools.

HB 772, also introduced by Luneau, represents the third iteration of the school funding plan prepared by the Commission to Study School Funding convened by the Legislature in 2020. The plan seeks to address the disparities in both financial resources and academic achievement among school districts by applying a formula that distributes disproportionate shares of state funds to the districts in greatest need. Funding would consist of a minimum local contribution complemented by a state appropriation sufficient to ensure that student performance, measured by test scores, reached the statewide median in all districts.

HB 503, sponsored by Rep. Thomas Schamberg (D-Wilmot), would reverse the reductions Business Profits Tax (BPT),  Business Enterprise and Meals and Rooms taxes made during the Sununu administration as well as increase the share of revenue from these taxes deposited in the Education Trust fund to fund public schools. The BPT would increase from 7.5% to 8.5%, the BET from 0.55% to 0.75% and the Rooms and Rooms Tax from 8.5% to 9%. The bill would also restore the Interest and Dividend Tax at a rate of 5% on investment income of $20,000 or more and deposit the revenue in the General Fund.

HB 769, sponsored by Rep. Linda Gould (R-Bedford), would simply raise the cost of base adequacy to $7,356 to comply with the ConVal order while raising the rate of the SWEPT to $2.50 per $1,000.

HB 283, sponsored by Rep. Dan McGuire (R-Epsom), would trim the cost of an adequate education by pruning the required curriculum from 11 elements to five. English language, arts and reading, mathematics, science, social studies, health and wellness, and physical education would be required. But, social studies would no longer include civics, government, economics, geography, history and genocide education. Arts, foreign language, engineering and technology financial literacy and computer science would no longer be components of an adequate education.

HB 115, sponsored by 10 Representatives and four Senators, all Republicans, would open the EFA program to all school-aged children in the state, including those attending private and parochial schools regardless of their financial circumstances. Currently, eligibility is limited to students of households with incomes of no more than 350% of poverty,  or $112,525 for a family of four.

EFA grants average about $5,200. Legislation to increase the cost of base adequacy to $7,356 would not only increase funding for public schools but would also increase the EFA grants to provide tuition and qualified expenses to students attending private and parochial schools by the same amount. Three-quarters of EFA grant recipients were attending private or parochial schools when they enrolled in the program.

The Governor’s budget

“This budget,” declared Governor Kelly Ayotte in her budget address, “spends more money on education than ever before.” In particular, the budget increases funding for special education services by $98.8 million. The Governor made no mention of the litigation pending before the courts.

The Education Trust Fund, the basket of taxes and fees including revenue from the SWEPT that funds state aid to public schools is recommended to grow from $1.245.5 billion in FY 2025 to $1,278.6 billion in FY 2026, and to $1.292 billion in FY 2027. The Budget Summary does not indicate the revenue sources driving the increased appropriations. The budget also includes a $98.8 million in additional funding for special education services, an increase of 50%.

Rather than extend the EFA program to all school-aged children, including those attending private schools, the Governor said, for the moment, the program would only be extended to the some 162,000 students enrolled in public schools, but added she favored opening it to all school-aged children. Funding for these EFA grants, amounting to about $5,200 per student, would be drawn from the Education Trust Fund at the expense of the budgets of the public schools that students attended before leaving them.

Legislation to increase the cost of base adequacy to $7,356 would not only increase funding for public schools but would also increase the EFA grants to provide tuition and qualified expenses to students attending private and parochial schools by the same amount.

The Governor did not address the cost of expanding the program or how students who attended private schools before enrolling in the program and receiving grants would be treated.