As the legislature returns in 2026, so too does an ongoing education funding conundrum New Hampshire has debated for nearly 50 years.
Historically, New Hampshire has prized local control, believing that school boards, select boards, and planning boards can better represent residents’ views. Local control has meant the largest portion of public education is funded by local taxpayers. If voters, for instance, in the Kearsarge School District choose to spend $33,000 per student rather than the $27,000 proposed at last winter’s school meeting, they have the right to do so.
For context, the average expenditure per pupil in New Hampshire is $24,755, according to the Department of Education. Meanwhile, public school enrollment has declined from 205,000 students in 2005 to 162,000 today.
The Claremont lawsuit challenged this funding methodology, and the New Hampshire Supreme Court has ruled that state taxpayers must assume a larger responsibility for education funding.
Most recently, the Supreme Court, in a 3-2 decision, ruled the state must increase “adequacy” funding by more than $530 million, to $7,356 per student. How that gets resolved is why the conundrum continues.
Against the backdrop of litigation, however, state funding for K-12 public education has increased significantly in recent years.
As Senate president in 2023, I worked with Gov. Chris Sununu, my Senate colleagues — notably Sen. Tim Lang — and the House to enact a new funding formula that increased state funding by $169 million over the two-year budget. That formula will increase state education funding by 31 percent over 10 years. While local taxpayers retain the largest share of funding responsibilities, no one can deny that state funding has increased significantly. Increased education funding is one of the reasons the Senate passed that budget 24-0, and a huge bipartisan House majority concurred.
According to a recent Department of Education report, total state funding above and beyond “adequacy” averages $7,100 per pupil. The formula created in 2023 targets communities with greater needs for higher funding than adequacy alone. That is why Manchester receives $11,029 per student, Newport $14,419, Claremont $13,443, and Berlin $14,469. Funding levels depend in part on the strength of a community’s property tax base and the number of students receiving free and reduced-price lunches, a proxy for per capita income. An overwhelming majority of legislators rightly agreed in 2023 that communities most in need of funding should, in fact, receive greater support.
It should be noted that every year since Sununu became governor, state education funding has increased without upending New Hampshire’s advantageous tax structure.
That tax structure is a significant reason New Hampshire ranks so highly compared to other states on key metrics: the lowest poverty rate in the nation (Census Bureau), the seventh-lowest unemployment rate (Bureau of Labor Statistics), the fourth-highest household income (U.S. News and World Report), and the third-lowest overall state and local tax burden (Tax Foundation). These rankings help explain why New Hampshire is second in the U.S. News and World Report Best States rankings.
So how might the legislature respond to the most recent Supreme Court order — and, more importantly, how will that impact both the budget and New Hampshire’s competitive advantage?
The court order could be met, to a significant degree, if funding were provided strictly on a per-pupil basis for adequacy. However, many towns with greater needs would lose significant funding. That option is neither desirable nor politically realistic.
That leaves new or higher taxes. An income or sales tax could provide the necessary funding, but would completely undermine New Hampshire’s tax advantage. In today’s highly mobile society, people are fleeing high-tax states for more favorable tax climates, one reason people are moving to New Hampshire.
An income or sales tax would make today’s high cost of living even less affordable. Adopting either would also undermine the state’s favorable business climate. Look at Northeastern states that have both income and sales taxes: they also have high property taxes. An income or sales tax leads in only one direction — higher taxes, less affordability, and little relief for property taxpayers.
Given bipartisan legislative opposition and Gov. Kelly Ayotte’s firm stance, neither an income nor sales tax is likely in 2026.
Many Democratic legislators support raising business taxes and restoring the tax on interest and dividends. The legislature began lowering what was the nation’s 48th-highest business tax rate in 2015, from 8.5 percent of profits to 7.5 percent. The lower rate encouraged economic growth, and until very recently, business tax revenue greatly exceeded expectations, providing more resources to fund education.
Raising business taxes would hurt New Hampshire’s competitiveness, making the state less favorable for job growth. Businesses, like people, vote with their feet. Raising business taxes would not only harm job growth but would likely fail to produce anywhere near the revenue needed to meet the court order.
Restoring the interest and dividends tax would impact roughly 70,000 filers, including business partnerships. New Hampshire has risen to the third-lowest state and local tax burden, largely due to eliminating this tax.
In any event, raising business taxes and restoring the interest and dividends tax would likely generate only $250 million to perhaps $300 million, depending on assumptions — including the unrealistic assumption that higher taxes would not change behavior. People and businesses do react to higher taxes. Other high-tax states should serve as a warning: New Hampshire should not go down this road.
Democratic legislators have also called for eliminating Education Freedom Accounts, which provide choice and opportunity primarily for families of modest means. While the program has expanded to higher-income households, its roughly $50 million cost would not meet the court mandate, but it would undermine educational opportunities for students who need alternatives.
The final option has been tried before: a statewide property tax that shifts dollars from one community to another, creating “donor towns.” Residents in donor towns paid higher property taxes.
I worked to repeal this onerous tax in 2011, allowing towns to retain all their tax dollars. At that time, about 40 communities were donor towns. If the cost of meeting the court mandate rises beyond $7,356 — and proponents of the litigation sought $10,000 per student — there will be many more donor towns in the future. Make no mistake: a statewide property tax would increase property taxes for many New Hampshire residents. Is that the outcome legislators want?
Yes, property taxes are high, but local voters have a say. Look no further than the Kearsarge School District.
Any of the tax options under consideration would make New Hampshire less affordable, less prosperous, and less able to retain and grow high-paying jobs.
Nor should we forget that New Hampshire ranks third-best nationally in total state and local tax burden — an achievement worth preserving.
Rather than focusing on raising taxes, the more appropriate question is why costs have escalated so dramatically when student enrollment has declined by 20 percent, and achievement scores have not improved. The focus should be on student outcomes, not wholesale changes to our tax structure.
If we maintain a favorable tax climate, revenues will continue to grow, and they should be used to increase state funding for education — just as the legislature committed to in the 2023 budget. That is the best way to address the education funding conundrum.
