What's Sauce for N.H.'s Educational Funding Goose?

By Edward C. Mosca

In a surprise move last Thursday (June 9), the State Senate passed Senator Ted Gatsas' education funding plan, rather than the plan passed by the House and supported by Governor Lynch (HB 616).

In response, the Lynch camp was quick to point to a letter written in April, 2004 by then Attorney General Peter Heed, which they claim shows the Gatsas plan is unconstitutional. But Lynch's speedy embrace of the Heed letter may prove to be ill-advised. If Heed's position is to be the standard for constitutionality, then HB 616 may be more unconstitutional than the Gatsas plan.

To begin with, the Heed letter didn't just assert that the Gatsas plan was unconstitutional, it also asserted that the funding system in place in 2004 was unconstitutional. According to Heed, it is unconstitutional for the legislature to simply budget an overall amount to fund public education. Instead, the legislature must first determine the components of an adequate education, then figure out what those components cost, and then provide that precise amount of funding.

Under this standard, HB 616 is just as unconstitutional as the Gatsas plan since neither plan calculates the cost of an adequate education in the manner Heed claims is constitutionally required. Both plans are distribution formulas that allow the legislature to set whatever total amount of funding it wishes. Before turning to Heed's other criticism of the Gatsas plan, it's important to understand that, notwithstanding the Heed letter, the manner by which HB 616 and the Gatsas plan compute the cost of an adequate education is not unconstitutional. The constitution expressly provides, and the supreme court has repeatedly affirmed, that it is up to the legislature to determine the rules and procedures applicable to the legislative process. This means it doesn't matter constitutionally whether the legislature determines the cost of adequacy through a computer program or by picking a number from a hat. It is the substance of a law that determines its constitutionality.

The Heed letter also deemed the Gatsas plan unconstitutional because of the way it eliminated donor towns. But HB 616 also eliminates donor towns. And in a way that clearly violates the Claremont II decision. HB 616 eliminates donor towns by eliminating the statewide property tax. Unlike the current funding system, it does not provide a base amount of per pupil funding to every school district and then target aid. Instead, it provides varying amounts of funding, which results in some school districts receiving materially less on a per pupil basis than other districts. This means that unless the supreme court changes its holding that adequacy requires comparable funding, HB 616 would undoubtedly be viewed as causing the local property tax to be used to pay for the cost of an adequate education in some school districts. Which is exactly what the supreme court said was unconstitutional in Claremont II.

The Gatsas plan maintains a statewide property tax of $2.84 per $1,000 of valuation, which raises $363 million. It is unclear how it eliminates donor towns. Some reports indicate that the rate of the statewide property tax is so low that only Hebron ends up a donor town. If the tax rate is how the Gatsas plan eliminates donor towns, then it complies with the letter of Claremont II in that the cost of an adequate education raised with a property tax, $363 million, would be raised at a uniform rate. Other reports indicate that the Gatsas plan eliminates donor towns by requiring that all statewide property taxes raised in a school district be spent in the district on public education, which is what the Heed letter assumed. Heed likens this to former Governor Shaheen's ABC Plan, which attempted to avoid donor towns by providing "abatements" to school districts where the statewide property tax raised more than the cost of adequacy.

The supreme court ruled the ABC plan was unconstitutional because the effective tax rate in towns receiving abatements would have been less than in other towns. If the court remains consistent, Heed's analysis is correct. The Gatsas statewide property tax raises approximately $1,815 per student. If towns where the tax raises more than base per pupil spending are allowed to retain the excess, they would be contributing less than $1,815 per student toward the cost of an adequate education. Which would make their effective tax rates less than $2.84 per $1,000. The best way to settle the issue is to send both plans to the supreme court for an advisory opinion.

Mr. Mosca is an attorney practicing in New Hampshire. LINK

Posted June 15, 2005

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