Stateline Story

New Hampshire Still Vexed By School Funding Challenge

  • May 11, 2001
  • By Norma Love
Temperatures soared above 90 on May 3 and New Hampshire's House chamber sweltered with no air conditioning to ease tempers frayed by three years of fighting the same fight -- how to pay for public schools.

Like the week before, the House spent hours debating funding options before rejecting them all.

As it approached 8 p.m., heat, the pleading of Republican leaders or exhaustion pushed legislators into sending the Senate a tax plan to cover all but $37 million of a shortfall in the next two-year budget. It was a weak attempt to deal with the most challenging crisis to come before them in a century -- restructuring public school finance.

The key vote was 180-179, hardly a comfortable margin.

"Let's pass something, let's go with it and let's go home," implored Rep. Lawrence Guay, a Republican from Gorham.

Democratic Gov. Jeanne Shaheen immediately promised to veto the bill, and thenext day several senators vowed the Republican Senate would never accept it.

In the 3 years since the state Supreme Court ordered the state to find a fairer way to fund schools, New Hampshire's anti-tax tradition has risen up to thwart every attempt to use a personal income or general sales tax to restructure the state's old property tax system.

Instead, the state is relying for more than half its funding on a temporary statewide property tax that survived a court challenge with a warning from a sharply divided court to fix the tax -- and soon. Ironically, the ruling was issued that same sweltering day, offering lawmakers perhaps their only relief from a seemingly endless battle.

Had the court tossed out the tax, lawmakers would have been looking for ways to close a shortfall of more than $1 billion instead of the $225 million they must now find. They face such a sizable shortfall because they failed to pass enough taxes to pay for school aid two years ago in a similar clash over restructuring the tax system.Now the bill for next year's school aid is coming due and without more money New Hampshire will run out of cash at the end of August. State Treasurer Georgie Thomas must make an $84 million school aid payment Aug. 1 and another $84 million aid payment Sept. 1. The two payments are the first toward the state's promise of $881 million that local districts already are counting on in their budgets.

Compounding the state's cash woes is a $75 million bill due in June to the University System of New Hampshire. After August, the state will face a serious cash crunch, says Thomas.

Shaheen has been warning lawmakers for months the state is headed into a"train wreck" if they fail to address the fiscal problem. The trouble is, Shaheen and the Legislature remain deeply divided over the best path to avoiding disaster.

Shaheen and some legislators believe an income, sales or other broad-based tax is needed to restructure the state's tax system, lower the statewide property tax and provide a stable funding source for schools.

House Republican leaders back a more traditional New Hampshire approach of looking to smaller taxes to produce just enough money to take care of the immediate shortfall. For example, the House package would raise business taxes -- hitting the state's largest, most profitable businesses hardest -- and increase the consumer tax on renting hotel rooms and restaurant meals. Property taxes would continue to rise.

Republicans stress the importance of maintaining New Hampshire's status of being one of two states -- Alaska is the other -- without a personal income or general sales tax

The Senate has not spoken on the issue, but it, too, has champions for options familiar to the debate -- legalizing video poker and an income tax.

The House has voted down both ideas already this year, but Senate PresidentArthur Klemm, a Windham Republican, is a strong gambling supporter.

Another group of Senate Republicans wants to change the way New Hampshiredistributes school aid by targeting it to poorer towns. That, too, faces stiff opposition from lawmakers whose towns would lose money.

Sen. Ned Gordon, R-Bristol, wants the state to pick up the tab for teacher salaries, special education and other instructional costs instead of distributing aid on a per pupil basis. Communities would pay transportation, building maintenance and operational expenses. He would distribute another pot of money to the poorest towns.

Gordon may have trouble, however, getting votes for a plan that could distribute less aid overall and create new "winners" and "losers" in aid amounts. That's something lawmakers have not been willing to do so far in the school funding debate.

If lawmakers raise the taxes the state needs to pay its bills, Thomas can borrow in anticipation of the tax receipts to ease the state's summer cash crunch.

However, New Hampshire's credit rating could be in jeopardy even if lawmakers pass more taxes. Three Wall Street bond rating firms have warned the state they expectlawmakers to implement a long-term school funding solution by July that isn't a patchwork of funding sources.

If Shaheen and the Legislature deadlock over funding, Thomas' only other alternative is to "deficit borrow," borrowing without an anticipated flow of revenue. That would be expensive and would trigger an immediate lowering of the state's credit rating, she says.

Shaheen is urging a bipartisan effort to avoid that fate, but a deep philosophical gulf separates the warring factions. If they fail to meet the July deadline, New Hampshire lawmakers could be in for more exhausting hot days in a Statehouse cooled only by fans.