Governor’s Veto Message Regarding HB 1607
By the authority vested in me, pursuant to part II, Article 44 of the New Hampshire Constitution, on June 21, 2012, I vetoed HB 1607, an act establishing an education credit against the business profits tax. I vetoed a nearly identical bill, SB 372, on June 18, 2012.
HB 1607 establishes an education tax credit against the state’s business profits tax for business organizations that contribute to non-profit “scholarship organizations,” which award scholarships to be used by students to defray the educational expenses of attending an independent school, as well as grants to defray the cost of home-schooling. Beginning in the first year of the program and for several years thereafter, a majority of the scholarships, which initially average $2,500 per student, must be awarded to students who are switching from public to private schools. For each contribution to a non-profit scholarship organization, a business is eligible for an 85 percent tax credit against the business profits tax.
This bill shifts limited state funds away from public school districts and downshifts the cost of reduced adequacy payments to local communities and property tax payers.
HB 1607 requires that for each student receiving a scholarship, the Department of Education reduce the per pupil adequacy payment (base per pupil aid, plus additional amounts for free and reduced lunch, special education, and English Language Learners) from the scholarship recipient’s school district’s grant for the upcoming school year. The recipient’s school district will lose between $3,450 and $8,381 per recipient. Importantly, this will occur after the school district budget is passed for the coming year, but before the tax rate is set. Therefore, the loss of state funds for scholarship recipients will most likely be downshifted to local property taxpayers to make up for state funds anticipated but not received from the state.
Proponents of this bill believe that school districts may save up to $500 per student in operating costs due to students switching to private schools. But the vast majority of costs incurred in operating schools are fixed costs that are incurred even if some students switch to private school. The loss of students from the public schools as a result of these scholarships will not meaningfully reduce school operating costs. Even accounting for the state stabilization grants that would be paid to schools that lose state adequacy grants and the reduction of some variable costs from the loss of scholarship students, the Department of Education has calculated that the bill will collectively cost school districts $3,687,861 in year one, $5,472,119 in year two and $6,330,646 in year three. Struggling school districts and local taxpayers cannot afford that loss.
Diverting public funds to private schools and downshifting costs to cities and towns is the wrong policy for our state and taxpayers, and is the main reason I have vetoed this bill and SB 372. But I have other concerns as well.
HB 1607, like SB 372, will also allow private, non-profit corporations to determine where public education dollars are spent. This bill does not identify those organizations beyond requiring that they be non-profits, register with the state’s Charitable Trust Division and comply with applicable state and federal anti-discrimination laws. The bill also fails to establish a system of accountability for these private entities. I believe that the executive and legislative branches should determine where public school money is spent, not a private corporation.
Finally, HB 1607 and SB 372 initially set aside about 30 percent of the scholarship funding for children whose families qualify for the federal free and reduced lunch program. Although these bills do limit eligibility to students from families at 300 percent of the federal poverty level, the proportion of funding required to be dedicated to free and reduced lunch-eligible students diminishes to zero over the course of 15 years.
I strongly believe that any tax credit program enacted by the legislature must not weaken our public school system in New Hampshire or downshift additional costs onto local communities or taxpayers. Accordingly, I am vetoing HB 1607, and the nearly identical SB 372, because they do not meet that test.
Respectfully submitted,
John H. Lynch
Governor
Dated: June 21, 2012
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