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New Hampshire Towns Give Tax Rebates With School Funds

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Paul Fillion, the superintendent of schools in Franklin, N.H., has a promise from the Franklin City Council: Next year, he can spend the $300,000 in additional state education aid he was supposed to get this year.

"We went uptown with it and were told it was not timely," he said of the council's decision to deny a supplemental appropriations request from the school board, and instead turn the state funds over to local taxpayers. "It's been a civil war up here."

Now, he added, "if the city council fails to live up to its promise, it means the loss of $300,000 for education. I've been working here 10 years. We'll have to wait and see."

Although the circumstances differ from one New Hampshire community to the next, officials confirm that the position Mr. Fillion finds himself in is a familiar one for many superintendents in property-poor school districts. To their dismay, communities across the state, including Franklin, have taken advantage of a recent revision of the state's school-finance system, using the funds not to increase education spending but to reduce property taxes.

The new finance system, which targets state aid to the neediest districts, was approved by the legislature earlier this year along with a $9- million aid increase. At the time, a school-finance suit against the state was pending. The suit, Jesseman v. State of New Hampshire, was later dropped.

State officials said it was too soon to tell how many of the state's 158 operating school districts are using state funds to reduce taxes. Many districts have yet to decide how to use the funds, which only became available last month, long after districts had drawn up their budgets.

But according to Paul Brunelle, the state education commissioner, about half of the districts that have decided what to do with the money are using it to reduce taxes. If that pattern continues, more than $4- million in state education aid will be lost this year to tax relief.

In Somersworth, for example, when the city council learned that the local school district had qualified for almost $350,000 in increased education aid, councilmen cut $88,000 from the school budget, said John Powers, the district superintendent. Previously, the council had cut the budget by more then $250,000, he said.

In nearby Rochester, the school board, which clears its spending decisions with the voters, not the town council, turned more than $550,000 over to the taxpayers, rather than seeking their approval to spend it on schools, said Richard Hamilton, the district superintendent. Likewise, in Newport, the school board used a close to $200,000 windfall to trim tax bills rather than put the matter to a vote.

"We presented several proposals on how the money could be spent," said John Sokul, the Newport superintendent. "But the board felt it was time for a little respite."

Local Control

Some officials defended the use of state education funds to reduce local taxes, citing New Hampshire's strong tradition of local control and its reliance on property taxes to support schools. New Hampshire has no state sales or income tax, and property taxes account for about 85 percent of all school revenues.

Mr. Brunelle also pointed out that the legislation creating the new finance system requires local governing bodies to call a special meeting of district voters to secure approval for the expenditure of new state funds. If the meeting is not called, the funds automatically are used to reduce local taxes, he said.

"The legislature can't say to districts, 'You make the decision,' and then say, 'We don't like the decision you've made," Mr. Brunelle said. "I think that's up to the district."

But others said the use of education funds to reduce local taxes defeats the purpose of the new finance law. They claimed that it would undermine support in the legislature for future education expenditures.

They also noted that the original legislation would have allowed school districts to spend the money without voter approval, and that it was amended only on the insistence of Governor John Sununu, a Republican.

Mr. Sununu has requested a report from the state education department on the extent to which communities are using the funds to reduce taxes, an aide said. He has also suggested a possible return to distributing state aid on a categorical basis, others noted.

"It was made fairly clear that this money was supposed to equalize the quality of education across the state, not equalize tax rates," said Senator Edward Dupont, who is a Republican. "State aid meant for education should be spent on education."

But now that districts are using the money to reduce taxes, "I can't go back to my colleagues in the Senate and expect them to welcome me with open arms if I want to put more money into education," he added.

John Augenblick, a school-finance consultant who designed the new state-aid formula, said he had expected some districts to use the funds to cut taxes, but he said he was "disappointed" nonetheless.

"The reason we did all that was to pump more money into education, not provide tax relief," he said. "Having identified the districts that have the most needs for kids, it surprises me that they're not using it. That's just disappointing."

"What bothers me most," he added, "is that with all the emphasis on education, the situation should be different."

Sen. Dupont said local officials were merely using "excuses" for giving the money to taxpayers this year, rather than spending it on education. "It's an election year," he said. "I assume what's going on is political."

'Barriers and Hurdles'

But Randy Bell, the associate executive director of the New Hampshire School Boards Association, said there were "a number of real barriers and hurdles to trying to spend the money this year," including a lack of planning time for districts and the need for many of them to renegotiate loans in order to cover expenses while awaiting their three allotments of state aid.

Dean Michener, the associate executive director of the Center for Educational Field Services at the University of New Hampshire, added that the state department of revenue administration, which sets local tax rates, does not permit districts to carry over funds from one year to another, unless the funds are earmarked for a specific capital expense.

Communities that participate in cooperative school districts pose a special problem, Mr. Brunelle said, because while some communities in a given cooperative may have qualified for increased aid, others may not have. In such cases, the school district could not spend the additional funds unless all participating communities raised their contributions to the cooperative by a like amount.

Mr. Bell added that of the 105 districts that qualify for increased aid under the new finance formula, all but five tax themselves at a rate higher than the state average, and thus their desire for tax relief is understandable.

"Am I upset? Of course I'm upset," said Richard Goodman, the executive director of the school-boards association, when asked about the situation. "Do I understand why?" he added. "Yes."

He said the true test of the new finance system would come next year, when communities have more time to plan. Ellen Ann Robinson, a Republican legislator who sponsored the finance reforms, agreed.

"If next year we don't see increases in spending in districts that get state aid increases," she said, "then we'll know we have a problem."

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