School Finance Ruling Raises New Tax Questions in N.H.

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Despite a recent state supreme court ruling that New Hampshire's school funding system is unconstitutional, Gov. Jeanne Shaheen gave legislators no specific instructions last week on how to repair the finance formula.

Instead, the Democratic governor used her Jan. 7 State of the State Address to comment generally about the decision and to voice her opposition to creating new broad-based taxes to comply with the ruling.

"Our citizens don't want one, and I don't believe the court ruling requires one," said Ms. Shaheen, who is up for re-election this year. ("Gov. Wilson Outlines Bold Plans for Calif. School Reform," in This Week's News)

The court issued its 4-1 decision in Claremont School District v. Governor on Dec. 17, agreeing with the five poor districts that sued the state that the property tax used to pay for education is mandated and controlled by the state and thus should be imposed uniformly across New Hampshire.

"Although the taxes levied by local school districts are local in the sense that they are levied upon property within the district, the taxes are in fact state taxes that have been authorized by the legislature to fulfill the requirements of the New Hampshire Constitution," Chief Justice David Brock wrote in the majority opinion. The court gave the state a little over a year to craft a new plan.

Time To Act?

Paul Krohne, the executive director of the New Hampshire School Boards Association, said he was pleased the governor did not recommend a specific remedy so soon after the court's decision.

"There are people still literally reading through this decision," he said. "Anytime you get this kind of supreme court decision, you have to work your way through all the political rhetoric and political posturing."

Some lawmakers didn't wait to offer their solutions. Sen. James M. Rubens, a Republican who chairs the Senate education committee, wants a statewide vote in November on whether to overrule the high court decision with a constitutional amendment.

Mr. Rubens, who is also running for governor, has proposed his own 11-point education plan in the legislature that would include reducing state mandates on local schools and redirecting state education aid to the poorest districts.

No other state relies more heavily than New Hampshire on local property taxes to finance schools. Less than 10 percent of what is spent on education comes from the state.

That has led to disparate tax rates. Some poor districts tax property owners at four times the rate of other districts--and still come up with less money for their schools.

New Hampshire does not have a sales tax, except on restaurant meals and hotel stays. And its only income tax is on interest and dividends earned from stocks or savings. But some observers say that will have to change, in spite of Gov. Shaheen's comment about taxes.

"To meet the language of the lawsuit, there will have to be an infusion of state funds at a fairly significant level," Mr. Krohne said. "It's very short-sighted to be eliminating options at this point."

Defining Adequacy

The legislature must also now define educational adequacy that goes beyond "mere competence in the basics," the high court said. It added that New Hampshire should follow the lead of Kentucky, where a sweeping supreme court ruling led to a comprehensive school reform plan adopted in 1990. ("A Living Laboratory," in This Week's News.)

That's a fine place to start, Mr. Krohne said, as long as the legislature also takes into consideration the academic standards and assessments already in place in the Granite State.

The ruling does not keep the legislature from allowing local districts to add special programs or more resources once they reach adequacy, the New Hampshire court said.

"There's no reason why the legislature can't craft a remedy that encourages and allows for local control," Andru Volinsky, the lawyer for the plaintiffs, said.

And it appears from Ms. Shaheen's comments that she agrees.

"Anything we do must preserve the right of local communities to control our schools," the governor said in her address last week. "We must find a way to lift up those schools that need help without dragging the others down."

Mr. Volinsky added that he suspects the legislature will be more occupied with the tax issue than the adequacy question.

Sen. Rubens, meanwhile, argued that adopting a statewide property tax to pay for schools, which is one option, would "end local control and injure children's educational progress."

John Augenblick, a Denver school finance expert who designed New Hampshire's current funding system, said he's always described as "triage" his work in the state. "That simply meant that if you don't give me much, I'm going to do the best I can with what little money we have," he said.

Now lawmakers will have to confront difficult issues of taxation and funding redistribution against a deeply ingrained tradition of local control.

"It's a shock to them because they've operated for so many years under a different approach," Mr. Augenblick said.

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