Adequacy Grants Don't Work the Way You Probably Think They Do - Granite Grok

Adequacy Grants Don’t Work the Way You Probably Think They Do

When you hear about politicians setting up some kind of scheme for redistributing wealth, you should realize that the program they put in place probably won’t be the program we end up with.

As Will Rogers noted, the difference between death and taxes is that death doesn’t get worse every time the legislature meets.

When the federal income tax began, the top tax bracket was 7 percent on all income over $500,000 ($11 million in today’s dollars), and the lowest tax bracket was 1 percent.  Fast forward to President George W. Bush explaining how ‘small government’ means that ‘no family should have to send more than a third of its income to Washington’.

Social Security was supposed to impose a 1% tax on the first $3000 of income, and was supposed to provide insurance against retiring without any assets.  Fast forward to the new, improved Social Security, which includes Medicare, Medicaid, disability coverage, and a number of other welfare benefits; and which routinely sends ‘benefit checks’ to people who have millions of dollars in assets.

We have an excellent example right here in New Hampshire.  After the state supreme court twisted Article 83 of the state constitution into a pretzel, the legislature instituted a Statewide Education Property Tax (SWEPT) to fund so-called ‘adequacy grants’ to schools.  The original idea was that each district would tax its property at around $2 of tax per thousand dollars of value, and the state would redistribute that money, so that ‘property rich’ districts would provide support to ‘property poor’ districts.

Furthermore, the amount raised by the tax was supposed to pay for public schools.  When the law was passed, $3700 per student was enough to do that.   Fast forward to now, when this is viewed as a mere supplement, representing less than 1/5 of a typical school budget.

Many people — including legislators, and analysts in the Department of Education — appear to believe that SWEPT funds are redistributed, but they aren’t.  The law changed while they weren’t looking.  In fact, the SWEPT money collected by a district never leaves the district.

There are three ways things can go:

  1. The SWEPT amount is just enough to fund the adequacy grants for the district.  (This is rare, but theoretically possible.)  In this case, the district uses that money to fund its own adequacy grants, and everything else in the district budget is funded by additional school taxes — which is to say, by ransoming people’s homes back to them.
  2. The SWEPT amount is more than enough to fund the adequacy grants for the district.  In this case, the district uses some of that money to fund its own adequacy grants, and uses the surplus to reduce the additional ransom that need to be collected.
  3. The SWEPT amount is not enough to fund the adequacy grants for the district.  In this case, the district collects money from the state education trust fund, which is not funded by SWEPT.  But — and this is crucial to understand — it collects only the shortfall.  For example, if SWEPT funds amount to $3400 per student, the district will get just $300 per student from the state.

It’s worth noting that no district is collecting the full adequacy amount from the state education trust fund.  To do that, its property would have to have a cumulative value of zero dollars.

So when you hear someone — like your state representatives — saying, for example, that a kid leaving a school district to accept an Education Shell Game Grant is ‘costing his district $3700’ in adequacy funding that it ‘gets from the state’, you know that the person doesn’t actually understand how the system works.  Which should cause you to wonder what else he doesn’t understand — about school funding, about economics, about the state and federal constitutions, and about any number of other things.