Understanding School Funding
The way that New Hampshire chooses to funds its public schools affects every student and community. Equitable and sustainable school funding helps the Granite State keep its promise to the next generation. These investments help students build the skills they need to become prepared, independent, and engaged adults that strengthen our communities and local economy.
How are New Hampshire schools funded?
Schools receive money from local property taxes, state aid, and federal funding. Property taxes provide the largest share. The state’s school funding formula sets a base amount for each student and adds money for certain student needs. The Statewide Education Property Tax (SWEPT) is collected by towns and counts toward the state’s share. But towns have different levels of property wealth. Some can raise more money with lower tax rates, while others face higher rates and fewer school resources. These differences can limit students’ opportunities based on where they live. A fairer funding system would better support both students and taxpayers.
Why do we care about school district taxes?
The majority of funding for local school districts comes from the revenue generated by local education property taxes. Property taxpayers fund seven out of every ten dollars used to fund public education. This means that every cent raised from local taxpayers holds tremendous value. To learn more about how public schools are funded in New Hampshire, check out Fair Funding NH and New Hampshire Fiscal Policy Institute.
How are school district tax rates determined?
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Voters determine the school budget. District residents vote on the school district operating budget annually.
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The property tax levy is determined based on the budget. The property tax levy is the total amount a district must raise to cover its budgeted costs after accounting for other sources of revenue. Other sources of revenue primarily include state funding and federal grants.
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The New Hampshire Department of Revenue Administration (DRA) sets tax rates based on the property tax levy and property valuations. The DRA uses a city or town’s taxable assessed value to determine the tax rate needed to raise an amount of money equal to the property tax levy. In cooperative school districts, the tax levy is first apportioned based on the district’s formula, and then tax rates are calculated.
School district tax bills might change if:
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The tax levy changes. The property tax levy – the amount of the school budget that needs to be raised from property taxes – could change for a few reasons. One is a change in other revenue sources. If state or federal aid increases, local taxpayers do not need to raise as much. The tax levy shrinks, and so tax rates drop. The tax levy also might change because of a change in school costs. If the cost of running a school increases and other revenue sources do not increase at the same rate, the property tax levy is likely to increase, leading to a higher tax rate and higher individual bills. Likewise, if school costs go down, and other revenue sources remain steady, the tax levy may be lower, decreasing tax rates and individual bills.
- The town’s property tax base changes. This can be caused by new housing developments, new construction, or an increase in assessed value. In general, a higher total assessed value means a lower tax rate if the levy stays the same.
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An individual’s property assessment changes at a different rate than the town’s. If your house is now a larger share of the town’s overall property value, your tax bill will increase even if the rate stays the same.
Why does state funding matter?
At the local level, funding for municipal services like schools, roads, and public safety is constrained by residents’ ability to pay. If every town had roughly the same wealth, this wouldn’t be a problem. But in New Hampshire, as in most places, this is not the case. In towns where property is more expensive, people with greater means tend to move in. That makes it easier for these towns to raise the money they need for their schools without straining residents’ budgets.
Mechanically, it is easier, too. When home values are higher, a lower property tax rate will generate the same amount of money as a higher rate on a lower value home. The result is the situation we are living in today: the towns with the lowest property values tend to pay the highest property taxes.
Similar levies, very different bills.
Newport and Sunapee are neighboring towns with similar tax levies – that is, similar amounts they are trying to raise for education through local property taxes – but very different tax bases. The result? Two very different bills depending on which side of the town border you live on.
This discourages investment – what business wants to move to a town with higher property taxes? – which keeps property values low and taxes high. Eventually, in this cycle, even residents who love their public schools will have to vote against a budget increase, and schools will be forced to cut programs or close entirely, further lowering property values.
This particular cycle is not unique to New Hampshire, but it is why every other state provides more centralized resources for education. The Education Commission of the States cites fairness as a core component of sound school funding policy, and specifically suggests adjusting for differences in local wealth. State-level funding allows state governments to equalize resources, redirecting some revenue from higher wealth communities to lower wealth communities. States raise these resources in a variety of ways, including income taxes, sales taxes, or business taxes.
A 2020 report commissioned by the NH Legislative Commission to Study School Funding and conducted by experts at the American Institute for Research said that: “New Hampshire’s current system of funding is not working for large segments of New Hampshire’s students and taxpayers. Specifically, communities with higher poverty rates and lower property wealth are doubly penalized under New Hampshire’s current system. Students in these communities, on average, receive fewer resources in the form of funding than students in wealthier communities. Taxpayers in these communities do their best to provide for their children, often levying higher local education property taxes than residents of wealthier communities.”
Indeed, NH data show a negative correlation between property values and local tax rates – that is, the lower the property values, the higher the tax rates. A 2024 report titled The Adequacy and Fairness of State School Finance Systems ranked New Hampshire high relative to other states in total funding provided, but found that New Hampshire has the third most unequal opportunity. Put simply: our rich districts are doing great, but our poorer districts are lagging further and further behind.
How do school district tax caps work?
Get the full story.
Understanding Administrative Spending
Administrative spending has been in the spotlight in New Hampshire. To determine whether administrative spending is really such a large issue, we need to begin by understanding what administrative spending is and what patterns exist. One important question is how spending on administration correlates with district size. We can assume that larger districts spend more on administration – because they spend more in general – but how does that pattern change when you consider admin spending as a percentage of total expenditures? What are the differences between districts of similar size? And how can understanding these trends offer guidance in how to deal with administrative spending from a policy perspective?
Does school funding improve outcomes?
Decades of research has shown that when public schools are sufficiently funded in a sustained manner, students do better academically, are more likely to graduate high school, and have higher lifetime earnings. This is especially true for students who are furthest from opportunity -- including students from low-income families, who live in poorer neighborhoods, and those of traditionally excluded backgrounds.
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Education Funding Series:
The way New Hampshire pays for its schools has been a hot topic for decades. Here we unpack important elements of the education funding so that more Granite Staters can join the conversation and make informed decisions.
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