What NH's Ed Funding Debate Keeps Missing

The "problem"? There are way fewer kids than there used to be.

As leaders on both sides of the aisle in New Hampshire gird themselves for the most painful budget process since the days of the Great Recession, the number one issue will likely be…education funding. Which is what made Wednesday’s press release by the state’s Department of Education (DOE) more relevant than usual:

There was a lot of emphasis on how much is being spent per pupil: NH is well above the national average; the State of NH has increased funding by over $400 million in recent years, focusing aid on the poorest communities; and look at the $44,484 the tiny town of Pittsburg is spending per pupil! In effect, the argument made by NH DOE in this press release is: “Lawmakers, the State of New Hampshire is already sending plenty of money to cities and towns.”

I get why DOE feels compelled to be explicit about this; after all, there are a pair of concurrent debates happening right now in New Hampshire about how (and how much) we fund public schools:

• What will come of an appeal by the State of New Hampshire to the State Supreme Court of a decision in late 2023 by Superior Court Judge David Ruoff? His late 2023 ruling - that the State is failing to meet its responsibility to fund public schools to the tune of at least a half-billion dollars annually - has been stayed, pending the appeal. The Supreme Court’s decision will be coming in the first half of 2025, and it is a massive fiscal elephant in the room.

• Will the state’s existing Education Freedom Account (EFA) program - which became law in 2021 under the argument that the grants for use at private, parochial, or home schools for several thousand dollars per student would be targeted to households on the lower end of the income ladder - become universally available? Originally, it was estimated that the targeted program would only take a few million from the Education Trust Fund, but as the eligibility has expanded, so has the budget impact ($25.7 million this year). If the EFA program eligibility is made universal, that number could quadruple.

That’s just at the state level; Town Meeting season is fast approaching for most of New Hampshire’s communities. The state already relies on local property taxes to fund public education to a greater extent than any state in the country, and most towns’ operating budgets are between 50% and 70% dedicated to their local schools - by far the biggest expense for towns. The pressure to hold the line on taxes is being felt at the state and local level.

Connecting the Wrong Dots

In Governor Ayotte’s Inaugural Address last week, she made the same point as the DOE press release:

And I would also say to our local officials, don't forget the importance of keeping the tax burden as low as possible. Property taxes are a burden in New Hampshire in spite of the fact that the State is sending more money than ever before down to the local level.

The implication by both DOE and Governor Ayotte is that the fundamental problem is profligate spending on local public education at the local level - so the solution would be tightening the belt on local education spending, right? It’s simply a math problem.

Well, it is a math problem, but the per pupil spending is largely a symptom of the actual math problem: The collapse of New Hampshire’s student population. Notice the bottom of the same DOE press release:

The student population of New Hampshire has actually been dropping faster than the country overall, and is obviously related to the state having the second-highest median age (43.3) in the country. This trend has been going on for more than a generation:

In 2002, New Hampshire had over 207,000 public school students; last year, that number was barely 165,000. And it is not because there are appreciably more students, in absolute terms, leaving the public school system - there are about the same number of students in private school now as there were a decade ago (roughly 17,000).

The impact of declining student enrollment in a district is sort of like the way Mike Campbell, in Ernest Hemingway’s The Sun Also Rises, described the process of a wealthy person going bankrupt: “Two ways: gradually, and then suddenly.”

Decreases at the district level are generally small - a district is typically seeing gradual declines over time, where 500 students becomes 493 students, becomes 488 students, and so forth, typically layered in over several grades’ worth of classrooms. If your average class size schoolwide was 20, it might take a few years before the average class size dropped to even 19.

That means the operating costs would not appreciably change for quite a while. You would not reduce the number of instructors, or administrators, or clerical support, or janitors. Utility costs would not change - after all, a room with 18 kids costs the same to heat as a room with 20 kids. Transportation costs would not change.

But even as the numerator (the budget) does not appreciably change for years…the denominator (the number of students) is inexorably decreasing. The resulting per pupil cost is increasing “gradually, and then suddenly”. And then, when the State of New Hampshire and most of its towns face a fiscal crunch, everybody notices the per pupil spending has been going like this:

To be clear, it is neither because there have been appreciably more teachers being hired, nor because teachers’ pay has increased by extraordinary rates. It is not the construction of “Taj Mahal” buildings, or “DEI supervisors”, or any of the politically-charged explanations lobbed on cable television or your favorite toxic social media platforms.

How Do You “Fix” Collapsing Student Enrollment?

As a former mayor and state and local government auditor, I’m here to tell you it’s primarily two related explanations, both of which have a real opportunity for bipartisan cooperation, if everybody will hold hands and jump together:

First, administrative costs. Up until about 40 years ago, the state actually put a cap on the number of School Administrative Units, or SAUs, largely as a way to prevent runaway administrative costs, and push smaller communities to work together. In the 1980s, there were under 60 SAUs. But as the number of students have collapsed, the number of SAUs have…increased. What was under 60 SAUs in the 1980s grew to 90 by 2012 - and is now at 105. The Josiah Bartlett Center for Public Policy, a free market think tank, found in a study a few years ago that, between 2001 and 2019, the greatest increase in public school employment was not inside the classroom, but administrative - much of it from SAUs.

My own work in the field of public administration confirms what so much research shows: That the greatest educational gains come from investments inside the classroom (direct spending) rather than outside the classroom (indirect spending). Increasing SAUs at the same time we are decreasing in student enrollment means the percentage of total education spending that is leaving the classroom has increased. If it feels like we are spending more money on education, but not getting the corresponding outcomes, this is largely why.

Second, old-fashioned math. Even if we were not increasing the number of SAUs over the last 30+ years, the reality is that a small number of generally high-income communities are seeing real growth in their student enrollments (Windham, Bedford, and Hollis are three of the only districts in the state whose enrollment is bigger now than it was in 2000), while the vast majority of districts have seen 20%-40% enrollment declines this century. It is not sustainable, which is the tension many state and local leaders are feeling when they describe the anger and frustration of local taxpayers.

If the State Supreme Court affirms the Superior Court decision that the State of NH is indeed on the hook for hundreds of millions of dollars more annually to adequately fund baseline education costs, perhaps this will be the existential fiscal threat that forces policymakers to put sufficiently strong fiscal carrots and sticks in place to get local and regional governments to collaborate (including consolidating SAUs and districts), so that communities can deliver high-quality education at a price our property taxpayers can actually afford.