16 December 2009
A temporary suspension of the state program of school building aid is a reasonable and sensible reaction to the current fiscal calamity and the program's inequities. However, the Legislature should make clear that the suspension is temporary so it doesn't provide a distorted economic incentive for some towns.
In New Hampshire, the state government has 13 different programs of state aid that help pay local school costs. Together, the 13 programs send more than $1 billion and pay about 40 percent of the $2.6 billion we spend on public schools. The largest program is what we call "adequacy aid." That is the part the court has its fingers in.
The second-largest program is called school building aid. Because capital costs of new building are very high, the state will help pay for 30 to 60 percent of the costs of new schools or administrative offices over time.
At one time, it was thought that the state could better afford these payments than local governments could. So it was natural to shift some of the financial burden to the state. Today, that's simply no longer true.
The state is in the middle of a long and severe fiscal crisis that will force it to make dramatic cuts in every area of government. Last year, as an emergency measure, the governor borrowed the money to make $40 million of building aid payments.
It was generally agreed that this was bad financial practice. Those who supported the borrowing did so for the most part as a temporary, emergency fix. It was to be a one-time event that would not occur again. Unfortunately, legislators upped the ante in the current budget. Instead of borrowing money for $40 million of building aid, we are now borrowing more than $91 million over the two-year budget.
The state isn't borrowing money to build the schools. The towns do that through long-term loans. Instead, the state is borrowing to help towns pay the cost of the mortgage. That's the same thing as if you put next month's mortgage payment on your credit card.
Clearly, the state is not currently the deep pocket that can help subsidize the cost of new construction.
We are increasing aid for new construction, and yet we are cutting by about 10 percent the amount of state special education aid. Reasonable people regardless of ideology can probably agree those priorities are almost exactly backwards.
We reduced aid to cities and towns by about $60 million. We asked the commissioner of Health and Human Services to make millions of dollars of cuts to the programs that serve our neediest populations. We face an additional $38 million shortfall in those programs because of a recession-induced increase in caseloads. We have a $250 million shortfall in the current budget. We have a $625 million shortfall in the next budget.
Given all of that, it seems quite sensible to say, "Let's hold off on building any new buildings while we deal with the current crisis."
Towns that already built a building with the understanding that the state would pay half the cost have a reasonable expectation that the state will not leave them behind to default. Therefore, the cost of the program won't go down dramatically right away.
In addition, it seems likely that any suspension of building aid will include a provision that towns in the pipeline are still eligible, along with any emergencies that come up during the suspension.
It's important that the suspension be clearly temporary. Most of us are familiar with town debates in which advocates of a new building say we have to act to take advantage of the state's offer to pay half the cost. It's like a giant 40-percent-off coupon that entices you to buy that new stereo.
We don't want towns that are eligible but undecided to rush to judgment and say we have to build now or we'll never get the chance to offload half the costs on the rest of the state. If the suspension is temporary, a town can make its decision carefully and consider whether it, like the state, might also want to hold off on some major capital projects until after the recession abates.
In the middle of a fiscal crisis, with every state program on the chopping block, suspending building aid is a sensible and prudent action. It should certainly not be immune from reductions that will affect every other area of government and programs with a much higher priority.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.