1 The House version of the State Budget in would significantly enhance funding for local education Hampshire . The proposal would deploy an additional to local public education New $165.3 million ongoing aid additional to communities with relatively low over the biennium, directing primarily percentages of students eligible for free and red property values per student and high - price uced meals. These communities either have a limited property tax base from which they can draw to fund education locally, a relatively large number of students who are from households in or near poverty, or both, indicating their local fiscal capacit constrained as they have more ies are more limited abilities to raise revenue for education on a per student basis . Funds to support these - communities with limited means would be raised by expanding an existing tax to include capital gains, which are dispr oportionately received by individuals with high overall incomes. The House budget would also provide school building aid and increase State aid for kindergarten students. Schools could use the additional aid to reduce property taxes , support additional services , or a . Supporting low income students with additional aid to school districts, combination of both - particularly those school districts where many students face limited means at home, increases potential ges both upward mobility for individuals opportunities for those children and encoura and future vibrancy in areas with less economic activity. This Issue Brief draws from NHFPI’s Issue Brief on the House budget proposal, The House State Budget for State Fiscal Years 2020 and 2021 . Current ly, State law distributes funding to local public school districts through Adequate Education Aid, wh ich is determined on a per - student basis. Funding is assigned based on the municipality that is home to the student, and funding flows to the local public school district or charter school in non 173,433 students in October 2018 the student attends. - Public schools, which enrolled 1 charter student . That base schools, receive a base amount of funding from the State per S tate Adequate Education Aid amount for State Fiscal Year (SFY) 2020 is $3,708.08 per pupil. The provides upward adjustments o n a per - student basis, including (for SFY 2020) an additional $725.63 per pupil identified as an English language learner, $1,854.38 for a student eligible for 2 ion Price School Lunch Program the Free and Reduced (FRL) , and $1,995.21 for a special educat - student. Students not eligible for any of those three categories of additional aid may trigger an allocation of $725.63 over the base grant if the student scores below proficient levels on the State 3 third grade reading assessment. Public charter schoo ls, which do not levy property tax es , are provided provided funds through the per and are student funding formula additional per - student - grants as well ; they served 3,932 full - time equivalent students in October 2018 . Stabilization Gr ants are another significant component of Adequate Education Aid. These grants were designed to keep cities and towns that would have been appropriated less education funding levels. This aid than in SFY 2011 at their prior in SFY 2012, after a changed formula took effect, ◦ ◦ ◦
2 amounted to about $158.5 million each year from SFY 2012 A through SFY 2016. phase - out of this aid began i n SFY 2017, reducing the total by amount 4 percent of its original value per and year dropping to about $138.2 million in 4 SFY 2019. Any costs not covered by the State are paid with local property taxes , whi ch account ed for about 61.5 percent of revenue in 2017 - 2018 , with additional assis tance from federal or other grants and much smaller local or district revenue 5 . School sources report districts substantially higher per pupil costs to the State than th e base grant amounts provide. School districts reported a statewide average operating cost per pupil of $15,865.26 for the 2017 - 2018 school year, with the inclusion of certain tuition, transportation, capital items, debt payments, and facility construction and acquisition 6 bringing the average per pupil cost to $ 18,901.32. In total, Adequate Education Aid amounted to $915.7 million in SFY 2019. That total includes approximately $363.1 million raised and retained locally through the Statewide Education Property Tax, $138.3 million in Stabilization Grants, and $4 14.1 million in grants to fulfill the Adequate Education Aid formula’s per - student grants beyond the level funded locally by the Statewide 7 Education Property Tax. Adequate Education Aid is paid out of the State’s Education Trust Fund.
3 budget would , making The House substantially increase State support for local public schools changes to the Adequate Education Aid formula that disproportionately benefit schools with more mined by FRL eligibility, and students who live in students with low incomes, as deter 8 municipalities with lower property values per student The Office of Legislative Budget Assistant . has published estimates by municipality as to the amount of aid each would receive under the 9 which would take effect in SFY 2021. new formula, The House would augment the existing Adequate Education Aid formula by adding additional aid for schools with higher percentages of FRL - eligible students and for school districts with l ess property value per pupil. For districts school with 48 percent or more students who are FRL - eligible , an additional $3,708 would be provided 10 those pupils. for each pupil eligible, essentially doubling the base adequacy amount provided for In October 2018, sixteen school districts had more than 48 percent of FRL - eligible students . These students districts accounted for approximately 13.2 percent of Grades One through Twelve enrolled in New Hampshire in October 2018, and 27.5 percent of all FRL School - eligible students. identified as FRL eligible , which included about districts with less than 12 percent of their students - - , 20.8 percent of all public school district students and 5.2 percent of FRL would eligible students not see an increase in aid under the House proposal . D istricts with between 12 percent and 48 percent of pupils eligible would receive at least $927 and up to $3,707.23 per eligible student, based on a sliding scale calculation. Additionally, the H ouse budget proposes adding an additional grant of $6,000 per student for a municipality’s school districts where the equalized property valuation per pupil , a measure of is wealth , taxable property $350,000 or less. In 2017, the equalized valuation per pupil was lower than $350,000 only in Berlin. Additional fiscal capacity aid would be distributed based on property values per pupil for municipalities with over $350,000 in valuation per pupil, falling on a sliding scale to $0 for municipalities with a valuation per pupil of $1,000,000 or gre ater. The statewide equalized valuation per pupil in 2017 was $1,043,647 1 , 629 , and the median municipality had $98 in taxable property wealth per student . Based on available estimates, two out of every three 11 students (67.2 percent) live in municipalities t hat would be eligible for this subsidy .
4 The House would include kindergarten students fully into the Adequate Education Aid formula. Currently, kindergarten aid is set at half of the base Adequate Education Aid amount, or $1,818.03 in SFY 2019 and $1,854.04 in SFY 2020, with an additional $1,100 provided per pupil in SFY 2019. Starting in SFY 2020 under current law, additional aid up to the full Adequate Education Aid amount would be provided dependent on revenue collected from Keno gambling , with $1,100 guaranteed to be provided. The House budget, starting with SFY 202 0, would fund kindergarten students at the same level, and using the same differentiated aid factors for upward adjustments, 12 G rades O ne through T welve. as students in Education Aid funding formula would take effect in SFY 2021, While the additions to the Adequat e the House budget would restore the full stabilization grant amount from SFY 2016 to local , adding approximately $ 25.3 million in Adequate Education Aid . governments in SFY 2020 Stabilization gra nts would be eliminated under the House budget in SFY 2021, supplanted by the new formula changes. Once the new formula changes take effect, Adequate Education Aid would be limited to a 20 percent increase in aid per municipality from the prior 2021 and 2 percent year in SFY growth in each subsequent year . No municipality would receive less Adequate Education Aid than in the previous years with the exception of municipalities that raise more than needed to fund the State’s Adequate
5 Education Aid through the Statewide Education Property Tax. This tax is a State tax, but is raised and retained locally, meaning municipalities that have a small number of students relative to their property wealth keep the additional revenue from this tax, rather than sending the excess to the 13 State for distribution elsewhere. This retained amount in property - wealthy municipalities is under the House budget proposal . projected to total $26.2 million in SFY 2020 These municipalities would not be guaranteed to be appropriated the same Adequate Education Aid they 14 eceived the prior year. r Increased kindergarten aid and the increased stabilization grants would together contribute an estimated additional $34.8 million in SFY 2020 under the House budget. The additions to the Adequate Education Aid funding formula for students eligible for free and reduced - price meals and for fiscal capacity disparities based on property values, combined with the increased kindergarten aid, would add about $130.5 million in Adequate Education Aid in SFY 2021 relative 15 T he House budget would also add explicit Adequate Education Aid use and to current law. reporting requirements for school districts in statute. The House voted to lift the current moratorium on accepting new school building aid projects and provide an additional $19.3 million through the existing program from the Education Trust Fund (ETF) , which subsidizes local costs for school building . The school building aid program constr uction or acquisition , has not accepted new projects since SFY 2010 with one exception, but has be en paying for the costs of past projects since the moratorium, with diminishing 16 ETF appropriations over time. and send funds to local The House also voted to draw from the schools for education - fully fund anticipated special education for st udents who have related aid to provide an additional $4.6 million in tuition and transportation aid to school higher cost needs and districts, aimed at fully funding anticipated tuition and transportation aid to . school districts While the House plan would draw significantly on the ETF , it would also add revenue and projects to retain a positive balance in the ETF . The ETF is required to retain any at the end of a surplus State fiscal year , rather than allowing it to lapse to the General Fund. In most ETF runs a deficit and must be supported by a transfer from the General Fund, but years, the - time effects following the federal Tax Cuts and Jobs surplus revenue resulting in part from one 17 ETF into surplus, which it retains absent other changes in law. Act have pushed the The House budget proposed to modify the to include existing Interest and Dividends Tax (I&DT) in revenue dedicated to the Education capital gains in the tax base , with the expected increase
6 18 Trust Fund Capital gains result from the sale of an asset at a higher price than the purchase . sales of stocks and bonds held as price amount. Capital gains from certain sales, such as over $250,000 for an individual or $500,000 for investments or most real estate sales with gains joint filers, are taxed under federal law and would be taxed at a 5 percent rate under the House 19 budget proposal. tax Although current New Hampshire law does not include all capital gains for individuals in a base, national data provides information about who the capital gains tax might affect most in New Hampshire. New Hampshire does tax capital gains in limited circumstances under the able under the current Business Profits Tax. However, New Hampshire law states that income tax I&DT is not taxable under the Business Profits Tax, and the House proposal would not change that exemption after the expansion of the tax base to include capital gains. This may reduce the under the Business Profits Tax as proposed by the tax rate for some taxpayers from 7.9 percent 20 House budget to 5 percent under the Interest, Dividends, and Capital Gains Tax. Capital gains taxes are likely to be disproportionately paid by high - income people. Using data from the , United States as a whole the Tax Policy Center d estimate that about 90 .2 percent of all capital gains went to the top 2 0 percent of income earners, which s about $153, 3 00 per wa year in cash income and certain benefits, during he top one percent 2018 T . of income earners, or those about with incomes of 4 , 8 00 per year or more, $75 account ed for 68.7 percent of all capital gains, and approximately 52.6 percent went to the top 21 0.1 percent, or those with more than $3.3 186 million in income. The House budget would also change the filing thresholds for the I&DT , raising them to exempt more people from the new combined Interest, Dividends, and Capital Gains Tax. While the current filing threshold for the is $2,400 for an individual, partnership, limited liability company, or I&DT sociation, the House proposal would raise the as to $5,000 during a tax year, with filing threshold income below those thresholds exempt. Joint filers would be exempt up to $10,000, up from $4,800 under current law. The House also voted to amend the statute to increase the additional income exemption for those aged 65 years and older from $1,200 to $7,500, increase the income exemption from $1,200 to $2,500 for those who are blind, and from $1,200 to $2,500 for those under age 65 who have a disability and are unable to work. Increasing these exemptions would likely reduce State revenue collected through the traditional I&DT base and would reduce the number of individuals filing under the current I&DT . About 20.2 percent of I&DT filers for tax year 2016, the most recent year with published data, did not owe any tax, while another 42.6 percent of filers owed between $1 and $500. A tax liability of $500 s, dividends, indicates that the taxpayer had $10,000 of taxable income from interest payment
7 stock distributions, and other liabilities in the current I&DT base. Of the revenue generated by the I&DT , only 11.5 percent came from those who owed less than $10,000 in tax year 2016; this indicates those filers who had more than $200,000 i n income from non - wage, non - capital gains, interest, dividend, and distribution income that was taxable under the I&DT paid 88.5 percent of the revenue in tax year 2016. Increasing exemptions would likely decrease the number of taxpayers paying relatively small amounts in income I&DT while preserving most of the tax base, which is disproportionately comprised of high - 22 individuals. 23 New Hampshire’s generated $105.8 million in revenue during State Fiscal Year 2018. The I&DT he I&DT to include capital gains would generate an additional House budget projects expanding t $150 million in revenue each year. The House budget would appropriate the first $150 million generated by the Interest, Dividends, and Capital Gains Tax to the Education Tr ust Fund , primarily to pay for increase - poor school districts and those schools with more students d aid to property from households with low incomes. Although the House proposed redrafting the education funding formula in a manner that does not sunset or expire, the House pro posal would also examine various options to fund local schools The House budget would appropriate $500,000 to fund a commission to study in the future. school funding, including “whether the New Hampshire school funding formula complies with court decisions mandating an opportunity for an adequate education for all students, with a revenue source that is uniform across the state” and identifying trends and disparities in student performance. Funding for the commission would support ind ependent staffing as well as the If this commission were to be established, it utilization of independent school finance experts. would likely inform in the next State Budget . local school funding decisions The State Budget debate has moved from the House to the Senate , which is scheduled to vote on its own version of the State Budget by June 6 . For more on the State Budget process, see NHFPI’s Building the Budget resource and NHFPI ’ s NH State Budget web page . 1 These counts are conducted based on an October 1 census of school district attendance. For related – Fall Enrollments by Grade, 2018 - data, see the New Hampshire Department of Education, State Totals 2019 . 2 Children are eligible for the Free and Reduced - Price School Lunch Program if their household incomes are below 185 percent of the federal poverty threshold. For a family of two, 185 percent of the federal 9,461 for a family of three. In New Hampshire, students poverty threshold in 2019 is $31,284, and it is $3 re al anyone in the household is enrolled in the New Hampshire Food Stamp Program or the so eligible if a program , or if the applicant is a foster c hild. For more on the Temporary Assistance for Needy Families
8 National Center for Education Statistics, National School Lunch Program as a measure of poverty, see the NCES Blog , April 16, 2015 . For more on poverty “Free or reduced price lunch: A proxy for poverty?” U.S. Department of thresholds and for tables showing the different thresholds for family sizes, see the Hea U.S. Federal Poverty Guidelines Used to Determine Financial Eligibility for lth and Human Services, . Certain Federal Programs information , see the New , HHS Poverty Guidelines for 2019 For more ’ s National School Lunch Program Application Materials . Hampshire Department of Education 3 Office of For more on the method for determining Adequate Education Aid currently in place, see the Fiscal Issue Brief, Calculating Education Grants, Traditional Public Schools , Legislative Budget Assistant, . January 2 019 4 To see a summary of the Stabilization Grant calculation method, see the Office of Legislative Budget Fisc al Issue Brief, Calculating Education Grants, Stabilization Grants Assistant, . For , January 2019 historical data on Stabilization Grants, see . New Hampshire Department of Education, State Aid Programs 5 To learn more about school district revenue sources and expenses, see the New Hampshire Department of Education, State Summary Revenue and Expenditures of School Districts, 2017 - 2018 . 6 New Hampshire Department of Education, Office of School For a full breakdown of reported costs, see 017 2018, December 17, 2018 . Finance, State Average Cost Per Pupil and Total Expenditures 2 - 7 For a full breakdown, see the New Hampshire Department of Education, State Aid Programs, Final . Adequacy Aid 2019, March 6, 2019 For more on the Statewide E ducation Property Tax, see NHFPI ’ s Revenue in Review resource . 8 Children are eligible for the Free and Reduced - Price School Lunch Program if their household incomes are below 185 percent of the federal poverty threshold. For a family of two, 185 percent of the federal 9,461 for a family of three. For more on the National poverty threshold in 2019 is $31,284, and it is $3 School Lunch Program as a measure of poverty, see the National Center for Education Statistics, “Free or reduced price lunch: A proxy for poverty?” NCES Blog , April 16, 2015 . For more on poverty thresholds and for tables showing the different thresholds for family sizes, see the U.S. Department of Hea lth and Human Services, U.S. Federal Poverty Guidelines Used to Determine Financial Eligibility for Certain Federal Programs , HHS Poverty Guidelines for 2019 . For more on property values in New Hampshire, see NHFPI’s August 2018 Issue Brief Measuring New Hamps hire’s Municipalities: Economic Disparities and Fiscal Capacities . 9 Office of Legislative level basis, see the To see a distribution of the aid anticipated on a municipal - Budget Assistant, Education Funding Analysis, Preliminary Estimates For Discussi on Only , 2019 - 1232h, – . The Office of Legislative Budget Assistant produced s March 24, 2019 on April 25, updated estimate 2019, which changed the totals slightly; those updated totals are reflected in the text of this Issue Brief. 10 Throughout this Issue Brief, “school districts” refers to public school districts, public academies and joint maintenance agreemen ts. Public charter schools are not included here. 11 Calculation b ased on data provided by the Office of Legislative Budget Assistant. To see a list of the equalized valuation per pupil by municipality New Hampshire Department of and the state average, see Education, Office of School Finance, Equalized Valuation Per Pupil 2017 2018, December 19, 2018 . To - estimate the percentage of students that would receive a subsidy if this policy were in place, this Issue Brief uses Average Daily Membership in Residen ce for 2017 - 2018 and the Equalized Valuation per Pupil for 2017. Based on those 2017 data, if this subsidy were in place without other restrictions, nearly three out of every four students (73.2 percent) lived in municipalities that would be eligible for this subsidy in 2017 - 2018. Figures provided by the Office of Legislative Budget Assistant suggest nine fewer have municipalities would in Equalized Property Valuation Per Pupil less than $1 million , yielding an estimate of 67.2 percent of students living i n eligible municipalities . 12 Common Cents For more on kindergarten funding in New Hampshire, see NHFPI’s November 8, 2017 post “ Elections Highlight Continuing Questions About Keno Revenue .” 13 ’ s Revenue in Review ducation Property Tax, see NHFPI resource . For more on the Statewide E 14 To see a distribution of the aid anticipated on a municipal - level basis, see the Office of Legislative Budget Assistant, Education Funding Analysis, Preliminary Estimates For Discussion Only , 2019 - 1232h, – . The Office o f Legislative Budget Assistant produced updated estimates on April 25, March 24, 2019 2019, which changed the totals sli ghtly; those updated totals are reflected in the text of this Issue Brief. 15 To see the total estimated distribution of new Adequate Education Aid, see the Office of Legislative Budget Assistant, Education Funding Analysis, Preliminary Estimates 1232h, For Discussion Only , 2019 - – . March 24, 2019 . The Office of Legislative Budget Assistant also produced updated estimates
9 16 RSA 198 :15 - - w . For more on the school building aid program, see a through RSA 198:15 17 For the requirement that the Education Trust Fund be non - lapsing, see RSA 198:39 . To see a recent history of Education Trust Fund deficits, see the Department of Administrative Services, New Hampshire Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2018 , page 150 . 18 For more on the current Interest and Dividends Tax, see NHFPI’s resource. Revenue in Review 19 For more on how taxable capital gains are defined in federal law, see the Internal Revenue Service web – pages on and the Sale of Residence capital gains and losses (Topic Number 409) Real Estate Tax Tips . 20 A:4, I for the statute exempting income taxable under RSA 77. See also the fiscal note for See RSA 77 - House Bill 686 of the 2019 Legislative Session Elizabeth McNichol, State Taxes on Capital Gains , and mber 11, 2018 Center on Budget and Policy Priorities, Dece . 21 For the data table, see the Tax Policy Center, T18 - 0231 Distribution of Long - Term Capital Gains a nd - Qualified Dividends by Expanded Cash Income Percentile, 2018 . Learn the income sources included in expanded cash income at the Tax Policy Center’s web page: Income Measure Used in Distributional . Learn more about the federal capital gains tax and the incomes of Analyses by the Tax Policy Center those historically most likely to realize capital gains from The Economic Effects of Thomas L. Hungerford, Capital Gains Taxation , Congressional Research Service, June 18, 2010 . 22 For more information on the Interest and Dividends Tax and the data source for these calculations, see the New Hampshire Department of Revenue Administration, 2018 Annual Report , page 52 . 23 For details on revenue source collections to the General Fund by State fiscal ye ar, see the Department of Administrative Services, State of New Hampshire Comprehensive Annual Financial Report for the Fiscal . Year Ended June 30, 2018 , page 148
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