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Lebanon May Face $800,000 Tax Hit: Education Aid Goof By N.H. Leads to Cuts Across the State

Lebanon — The misinterpretation of a state law could lead to a shortfall of nearly $800,000 in state aid to the school budget this year and hit Lebanon residents with an additional tax bill in order to make up for the loss.

Officials at the New Hampshire Department of Education recently discovered that the department had misread the language in the most recent version of the state’s education funding law when calculating education aid based on enrollment data and local property taxes.

The confusion has led to cuts in funding to about half of the school districts in the state, but Jim Fenn, business administrator for School Administrative Unit 88, said Lebanon is the second-hardest hit municipality, behind Keene, with a potential loss of $770,000 this year.

At the root of the problem is the way “adequacy aid,” the state formula geared to ensuring that lawmakers meet the constitutional mandate to fund an adequate education for each and every student, is calculated and distributed.

District officials said last week that they have been in close contact with Lebanon’s state representatives and state senator, who have signed onto a bill that would restore funding to previous levels.

But even if that bill passes, it would still be too late to avoid a loss of $316,000 in state aid for the current school year.

According to Fenn, the district could absorb that cut by tapping surplus funds from the budget and spreading administrative cuts across the district in order to avoid having to reduce staff from the loss in revenue.

“If the bill passes … we’ll be OK,” Fenn said at Wendesday night’s Lebanon school budget meeting. “If the bill fails … then we would really have to consider doing a supplemental tax bill at that point, because we can’t eat that type of loss.”

But even before the news about the possible extra tax levy broke at last week’s School Board meeting, Lebanon residents were already facing higher school taxes.

School Board members — who first learned of the potential extra tax bill at last week’s meeting — have been struggling to trim next year’s $37.5 million spending plan, which the board approved for the March ballot.

If the proposed budget passes, along with the three district employee contracts pending voter approval, property taxes for a home assessed at $200,000 would rise by nearly $300 next year.

Origin of the Mistake

Paul Leather, New Hampshire’s deputy commissioner of education, said the error was discovered after a school district official questioned the legislative budget assistant about education aid.

The assistant “ran the numbers again … came up with the fact that we had misinterpreted the statute,” Leather said.

State Rep. Susan Almy, D-Lebanon, said she was confident lawmakers in Concord would pass a remedial bill that secures the funding levels previously anticipated by school districts. If a bill doesn’t pass, the effect of the shortfall would be felt in the next installment of state aid, due in April.

Almy said blame the misinterpretation of the law should fall on legislators who wrote the bill.

“The (Department of Education) should have noticed it, but it’s a little bit much to expect that they would have,” she said.

Legislation has been filed in the state Senate to help school districts already feeling the pinch from increased state retirement costs. Almy said it appears to have broad support in the chamber and is likely to pass the House as well, since the mix-up affected other cities, such as Keene and Nashua. She added that the bill would not take away funding from other districts with significant political influence, such as Manchester, helping chances for passage.

“We should be able to coast it through,” Almy said.

But the legislative Band-Aid is not a permanent fix.

“Next term, (the Lebanon school district) will be faced with the same thing, but they will have had time to plan,” Almy said.

Adjusting Assumptions

The reformulation of state education aid for Lebanon is influenced by two factors.

The first is a declining trend in the student population — district enrollment has dropped by about 400 students from where it was 10 years ago, according to Fenn.

Another factor, Fenn said, is that state aid per student has risen $600 since 2004, which he said has been funded through municipal taxes.

Almy said enrollment for school districts had been based on 3-year-old data, but a law passed last year now requires the data to be monitored in real time. As a result, she said, district officials have been forced to “leapfrog,” or fast-forward, two years of declining enrollment trends across the state. Those lower enrollment projections suddenly adjusted downward the amount of aid from the state.

“All of the sudden, (district officials are) faced with a lot lower grants than they would have had before,” she said. “It won’t happen again, but the year that it happens, it’s fairly hard to take.”

While district officials had been aware of the declining enrollment trends, they were working under the assumption that they would have three years to adjust to the demographic shift and plan for future budgetary needs.

“The situation right now is that not only do they not have one year, they don’t have any years,” said Almy.

Meanwhile, the School Board debated funding cuts to next year’s school budget for more than an hour Wednesday night before eventually settling on a $160,000 reduction through the elimination of one proposed full-time “technology integrator” staff position and delaying the purchase of math textbooks for a program that is not yet in existence.

But in general, a consensus of where to cut remained elusive.

A coalition of board members, including Chairman Hank Tenney, Vice Chairman Jeff Peavey, Al Patterson, Bob McCarthy and Carissa Means, all said they were concerned that the tax burden of the initial proposal would be too much for Lebanon’s low-income residents to bear, but they split when it came to just how much, and where, the budget should be cut.

Higher Taxes Coming

The budget proposal approved Wednesday, even before having to make up for the cut in state education aid, is estimated to add $1.06 per $1,000 of assessed valuation to the school portion of the tax rate — a nearly 10 percent increase from the current rate of $10.83 — although that doesn’t take into account the cost of three contracts with school employees, all of which will appear on the March ballot in the form of warrant articles.

Pay raises in the teacher contract, totaling $661,096, would add an additional 38 cents to the school portion of the municipal property tax. The secretaries and administrators contracts, which would cost about $47,500 combined, would add 3 cents.

If all three contracts are approved by voters in March, the tax rate would increase 15 percent, or $1.47 per $1,000 of assessed value — resulting in nearly $300 more in property taxes a year for a home assessed at $200,000.

The School District is anticipating a reduction of more than $400,000 in state aid for next year’s budget, accompanied by a 25 percent increase in employer contributions to the state’s retirement plan, estimated to cost about $466,000.

The combination of a loss of state aid and higher retirement costs would on their own add about $186 to the tax bill of a property owner with a home assessed at $200,000, which explains, in part, why tax rates are climbing despite vigilance against excess spending among board members.

Another contributing factor is the district’s effort to maintain teacher-to-student ratios.

The addition of several positions in schools across the district, including elementary school teachers and classroom paraprofessionals, would total $817,000 in new wages.

Those staffing costs were referenced during the debate over funding cuts for next year’s budget, when Tenney advocated for reducing the budget by a block amount of $600,000, which would result in the budget proposal matching the amount of the default budget. If voters reject the budget in March, the district would revert to the default budget of $36.9 million.

Tenney alluded to presidential politics as he stressed the hardships facing low-income families in Lebanon.

“Maybe people, because of the last election, think that we’re out of the problems, and that we all have more money than we know what to do with,” he said. “But there’s so many people in this community that don’t have that money.”

After unsuccessfully proposing an amendment to reduce the budget by $600,000, Tenney made similar motions to amend the budget, first slashing the reduction down to $300,000, then to $250,000. But all the amendments failed to receive substantial support.

Any amendment to reduce funding by a block amount would see those funding cuts implemented by district administrators at their own discretion. Tenney and other board members asked Superintendent Gail Paludi whether the cuts they were seeking would have to come from staff. She said they would.

“You can nickel and dime it in and other areas,” she said, “but to come up with that kind of money, you really are looking at your staff.”

Ben Conarck can be reached at bconarck@vnews.com or 603-727-3213.

CORRECTION

This article has been amended to correct an earlier error. The following correction ran in the Tuesday, Jan. 15 edition of the Valley News:

The change in the way New Hampshire uses enrollment data to calculate state education aid was prompted by legislation initiated in the state Senate and passed last year. A story in the Sunday Valley News inaccurately attributed the change to an underlying budget law passed in 2011.