NH school-funding commission wrestles with ‘first-last dollar’ rule

The Commission to Study School Funding appears set to challenge the so-called “first-last dollar” rule by which the New Hampshire Supreme Court has arguably required the state to fund the entire cost of a constitutionally adequate public education.

In 1993, the court ruled the state is obliged to provide an adequate education and “guarantee adequate funding” to districts. Since then, the court has clarified and reaffirmed its opinion, never so bluntly as in 2006, when the justices wrote, “whatever the State identifies as comprising constitutional adequacy it must pay for. None of that financial obligation can be shifted to local school districts, regardless of their relative wealth or needs.”

In the 2018-19 fiscal year, total school expenditures amounted to $3.3 billion. The American Institutes for Research, consultant to the commission, used data from the state Department of Education to calculate the cost of funding an adequate education in every school district was $2.9 billion.

AIR presented two funding scenarios, both including some $602 million in state dollars from the Education Trust Fund, but otherwise relying solely on property taxes. One would pair a “mandatory minimum local contribution” funded by a $5 property tax with a statewide property tax at a rate of $7.24 for a total rate of $12.24. The other would consist only of a statewide property tax with a rate of $12.05.

AIR’s models show that by distributing funds among districts according to their disparate needs and resources, the state could meet its obligations to fund an adequate education in every school district with taxes uniform in rate and equal in valuation throughout the state without either raising more revenue or increasing current expenditures. And, at the same time, funding would be sufficient to drive the level of student achievement to the state average in every district.

‘Horrible policy’

At a Sept. 29 meeting of the panel, state Sen. Jay Kahn, D-Keene, who chairs the commission’s Adequacy Work Group, put it, “We’ve priced it. With the amount of money we are currently spending we can achieve the average outcomes in every district.”

But attorney Bill Ardinger, a member of the panel, turned to the first-last dollar rule, calling it “horrible policy.”

He said that if the total cost is $3 billion, “then the first-last dollar rule says, “’OK, the $3 billion is the state’s budget obligation, not the current $1 billion.’ If that’s where this goes, it breaks. It doesn’t work. If what we have to do is have 100% of our total spend be state budget dollars, we’re broken.”

Ardinger warned “there is a zero chance you can get that through the Legislature. It would crack the rating agencies’ view of the state budget.” He said the $3 billion would represent ”almost a 180% increase in state spending.”

At the same time, Ardinger claimed that the first-last dollar rule conflicted with other language from the court that “celebrates the New Hampshire tradition of local control and local financing.” Questioned by John Beardmore, he referred to the Claremont opinion in 1997.

There, the justices wrote: “We recognize that local control plays a valuable role in public education; however, the State cannot use local control as a justification for allowing the existence of educational services below the level of constitutional adequacy. The responsibility for ensuring the provision of an adequate public education and an adequate level of resources for all students in New Hampshire lies with the State.”

Massachusetts, Ardinger said, has “a great progressive distribution,” with the state contributing 38% of the cost of funding public schools and local property taxpayers, including a mandatory minimum contribution, representing the largest share.

“If the first-last dollar rule allows that,” Ardinger said, “then we can focus on $2.9 or $3 billion as the total spend target, but we’re not gutting New Hampshire and New England’s tradition of a very important role for local taxes. I think that’s what’s at stake.”

Rep Dick Ames, D-Jaffrey, noted that the New Hampshire Supreme Court has not considered a system akin to that of Massachusetts. He suggested that the court might look favorably on a system with “a mandatory minimum where municipalities would raise a lot of money, but they’d raise it through a uniform rate and the state’s dollars would provide the rest.”