Funding Gap Plagues New Hampshire's New School Financing System


CONCORD, N.H. - In the next two weeks, New Hampshire schools will receive their first aid checks under the state's new education financing system, but the war over which taxpayers ultimately will pay those bills is far from over.

The new funding system ends an old New Hampshire tradition of shortchanging public schools. In years past, the state contributed less than any other state to the cost of education -- in the 1998-99 school year just seven percent and frequently reneged on promised aid.

But that was before December 1997 when the state Supreme Court declared public education a fundamental right and made it the state's duty to ensure every child receives an adequate education that's adequately funded, whether that student lives in a rich or poor school district.

Now, the state must pay up to equalize spending even if it means going into the red. To make sure schools get their money, the legislature gave the governor the power to pay the bills even if the money isn't in the budget.

That means schools will get paid despite a funding shortfall in the financing law. When the Legislature enacted the hodge-podge of taxes to pay for schools in April, it failed to pass enough to fully fund the promised spending level.

Since then, the Senate, which is controlled by Democrats, and the Republican-controlled House have been unable to agree on how to fill the gap. The Senate and Gov. Jeanne Shaheen, a Democrat, insisted new revenues were needed while the House sought to provide the money painlessly by restraining other spending in the state budget for the next two years.

In an unprecedented move, a coalition of House Democrats and moderate Republicans bullied the Senate's version of the budget through the House to the Senate, which adopted it without further negotiations with House Republican leaders. The budget didn't address the $186 million still needed to pay for schools over the next two years.

Some critics say flaws in the new law mean the gap is even higher, perhaps $12 million to $20 million more.

Lawmakers could narrow the gap before the new fiscal year begins Thursday if they can agree on the size of a cigarette tax hike in negotiations Wednesday. The state Senate voted Tuesday to increase the cigarette tax 15 cents a pack, which would raise $54 million toward the gap. The House had passed a 25 cents per pack increase, which would raise $96 million of the shortfall.No one expects lawmakers to close the gap entirely anytime soon.

That worries Shaheen because Wall Street bond rating firms have had $854 million of state debt under review because of the shortfall since April.

To close the gap, the Senate is talking about bringing back three of the same ideas that went nowhere earlier this year: an income tax, a capital gains tax and legalizing video poker. The House Democratic leader also says he may offer taxes on capital gains and car sales in the House.

It's unlikely any of those ideas will get far anytime soon.

House Republican leaders oppose more taxes. The House voted not to consider the gambling issue again until 2001. Shaheen has not backed away from her pledge to veto an income tax.

After months of ugly discord over school funding, legislators also are sick of one another and want to go home this week. Some senators want to work into the summer to deal with the shortfall, but House Speaker Donna Sytek says she won't bring the House back before Labor Day.

The worst of the pressure is off because the new budget, which covers two years, passed in time for the start of the fiscal year on July 1.

The trouble to the state's bottom line lies in the second and subsequent years. Closing the gap will only carry the state to mid-2001, after which the deficit grows larger with each passing year.

That's because legislators still have not come up with a sustainable way to pay for schools. In the next two years, the state is relying on $126 million from sources that might not be available in later years.

Some believe the 2000 elections will be a referendum on an income tax. Both the House and Senate passed income tax bills this year to pay for schools before the idea withered under Shaheen's veto pledge. If Shaheen runs for a third term, as many expect, income tax advocates may be out of luck unless they find a challenger who can unseat her on a pro-tax platform.

Anti-tax forces have virtually no chance of getting a legislature that passed an income tax to put a constitutional amendment on the ballot to reverse the court decision.

All of this could change dramatically if the five school districts that sued the state over the old property tax system succeed in getting the new school financing system tossed out. Andru Volinksy, their lead lawyer, plans to challenge the new system in court next month.

Some of the towns forced to pay the state money for redistribution under a new statewide property tax to pay for schools also say they'll challenge the law.

Whether the challenges succeed or fail, lawmakers will again face how to pay for schools -- only the problem will be bigger.

Income tax supporters have quietly bided their time since Shaheen squelched their efforts this spring.

The same can be said for gambling supporters and those who want to return the state to the old way of paying for schools with the local property tax.

Perhaps the only certainty ahead is the uncertainty facing New Hampshire citizens as lawmakers continue to grapple with their Gordian knot - how to pay for public schools.


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