What to know about the Governor’s school funding formula proposal: modest increases in total school funding, but phases out need-based aid

In early March, Governor Chris Sununu’s school funding proposal was released as part of House Bill (HB) 1 and HB 2, the bills that would implement the Fiscal Year (FY) 2024 and 2025 state budget. The Governor is proposing several changes to the school funding formula, including:

  • Increasing per-student adequacy funding to $4,700 per student (21.6% increase over current FY2024 amounts)
  • Increasing per-student funding for students who participate in the federal Free and Reduced Lunch Program (FRL) to $2,500 (29.3% increase over current FY2024 amounts)
  • Eliminating stabilization grants that have been in place since 2012 ($157 million per year)
  • Increasing extraordinary need grants for school districts with high concentrations of student poverty and low property wealth ($9.7 million in FY2024, gradually increasing to $73.7 million per year in FY2034)
  • Creating a hold-harmless grant for school districts that would experience losses in first year of formula change ($87 million in FY2024, phasing out to zero in FY2034)
  • Increasing per-student adequacy funding by 2% annually, replacing the current biennial inflationary adjustment 

However, despite substantial increases in per-student funding and funding for students experiencing poverty, the net fiscal effect of the proposal is modest, with several long-term implications:

  • The proposed funding change would reduce the proportion of need-based school funding, which research indicates is one of the most effective ways to increase student opportunity and achievement; 
  • Overall funding for public schools is expected to increase by an average of 1.5% per year; however, this increase could be “washed out” by steadily declining student populations;
  • High-need school districts would lose an estimated $1.3 billion in need-based aid by FY2034: Even when the increase in extraordinary need grants is fully phased in ($74 million per year, beginning in FY2034), it does not fully make up for the loss in need-based aid — stabilization grants ($157 million per year) and relief aid ($17.5 million per year). 
  • The elimination of stabilization grants would make the state’s school funding formula more responsive to current needs and trends; however, the reallocation of funding does not appear to be allocated to school districts based on need. Though based on 2006 enrollment and demographic information, stabilization grants have provided aid to high-need school districts for over a decade, and the elimination of the block grant without replacing it with a comparable need-based funding stream is expected to disproportionately affect rural, high-need school districts;
  • Districts with large and/or growing enrollment will experience the greatest increases in school funding, while some rural school districts, particularly high-need rural school districts, will receive less funding over time;
  • The extraordinary need grants may not reflect long-term needs or demographics. The thresholds for awarding extraordinary need grants are fixed and do not reflect the current distribution of tax capacity among New Hampshire communities: the threshold for the maximum grant is $600,000 in equalized valuation per student; however, these figures are based on pre-2019 data. In fact, no district receives the maximum grant in FY2024 or beyond. Also, the extraordinary need grant is not tied to any inflationary increase. HB 2, as introduced, phases in a $74 million grant; however, after it is fully in effect, it is a static amount per year and its impact would likely deteriorate over time. 

Download the models below. These models are for discussion purposes only and should not be interpreted as official estimates. 

Download a town-by-town fiscal analysis of the Governor’s proposed budget for FY 2024 here.

Download a town-by-town, long-term analysis of the Governor’s proposed budget for FY2024-FY2034 here. 

Download a comparison of hold harmless calculations (block grant versus recalculated grant) for FY2024-2034 here. 

Governor’s formula would increase public school funding by 5.4% in FY 2024

Compared to current law, the Governor’s proposal would increase public school funding by $54.6 million, or 5.4%, as shown by the orange bar in the chart below. Under current law, public schools are expected to lose about $8.6 million in school funding due largely to enrollment declines and fewer students enrolling in the federal Free and Reduced Lunch program. 

The majority of communities would not receive additional funding under the Governor’s proposed school funding formula in FY2024; however, about a third would receive additional funding compared to current law. The communities that would receive additional funding include Clarksville, Nottingham, Hollis, Rollinsford, Hanover, and Bedford, as shown in the chart below.

Modest school funding increases over time, assuming no changes in student enrollment

Over time, the Governor’s proposed school funding formula would increase funding for public schools by an average of 1.5% per year over 10 years, assuming there are no changes in student enrollment. 

In FY2024, public schools would receive an estimated $1.017 billion in school funding. Of that, $363 million would be from the Statewide Education Property Tax (SWEPT), $9.7 million would be from the extraordinary need fund, and $87 million would be from the hold harmless grant. 

By 2034, when the hold harmless grant is fully phased out and the extraordinary need grant is fully phased in, public schools would receive an estimated $1.18 billion in funding, with $363 million raised from SWEPT. Extraordinary need grants would provide schools with $73.7 million in state funding, and the remainder would be calculated based on student enrollment and demographics. Download the town-by-town analysis here.

With hold harmless formula interpretation, schools would lose $150 million in hold harmless funding over 10 years

In HB 2, the hold harmless grant is recalculated each year — meaning that instead of a block grant like the current stabilization grant that phases out over time, the hold harmless grant is recalculated each year. Since there are increases in the adequacy aid formula and biennial increases in extraordinary need, this means that comparing Current Law FY 2024 adequacy figures to those adjusted numbers would result in an estimated $150 million loss in hold harmless funding during the 10 year period. 

Near elimination of need-based aid would make schools especially vulnerable to changes in student enrollment, limit ability to meet student needs

By eliminating stabilization grants and relief aid and placing more emphasis on school funding based on enrollment and student demographics, the Governor’s proposal moves the state further away from a need-based funding formula. In fact, New Hampshire public schools would lose approximately $1.3 billion in need-based aid between FY2024 and FY2034, according to estimates, by eliminating stabilization grants and relief aid, and replacing it with phased-in extraordinary need grants. Increases in per-student adequacy funding largely offset these losses in the total grant amount, but the effect of this would be that high-need districts would have to rely on their adequacy funding increases to offset this loss, while districts that do not rely on need-based aid would not.

Currently, about 19% of state funding for public schools is based on need. However, in FY2034 when the extraordinary need grants are fully phased in, only 6.2% of state funding would be based on need. 

There are two considerations for this proposal: First, research overwhelmingly suggests that providing schools with funding based on need is one of the most critical ways to increase opportunities and outcomes for underserved students, and the current school funding formula creates wide disparities in outcomes and opportunities among New Hampshire students; and second, relying heavily on student enrollment rather than need, makes schools especially vulnerable to declining enrollment. 

When there are shifts in the number of students and/or the number of students who need additional support — including students experiencing poverty or trauma and students with disabilities — New Hampshire communities must make up the difference. This has led to an overreliance on local property taxes to fund public schools and disparities in opportunities and outcomes because of the wide gap in communities’ capacity to raise revenue from those property taxes. By relying more heavily on flat, per-student enrollment, the Governor’s proposal may exacerbate disparities between high-need communities and those with adequate local resources.

House Bill 529, which a subcommittee of the House Finance Committee has discussed whether it should be folded into the state budget, would restore two state funding sources for high-poverty school districts and school districts with low tax capacity in New Hampshire, providing an additional $100 million per year. Read more here: Proposed funding package would give a $100 million boost in state funding to state’s highest-need districts 

High-need, rural school districts are expected to lose funding over time

The Governor’s proposed school funding formula increases per-student funding while eliminating two key funding sources: stabilization grants, which are static block grants that were implemented in 2012 following a major school funding formula change, and relief aid, which provides $17.5 million per year to districts with the highest concentrations of students experiencing poverty. This affects small, high-need, rural school districts more than others. 

Two-thirds of districts (163 of 245) are estimated to receive more funding between FY2024 and FY2034, including the state’s largest school districts: Manchester, Laconia, Concord, Nashua, Keene, and Dover. 

Of the 23 school districts that are expected to lose more than 10% once the hold harmless grant is fully phased out in FY2034, all but two are in high-need, rural areas. All but two received both extraordinary need grants (a funding source for districts with the highest concentrations of student poverty and lowest property wealth) and relief aid (a funding source for districts with the highest concentrations of student poverty) in FY2023. 


The figures presented are based on figures from the New Hampshire Department of Education FY2024 Estimate – Municipal Summary of Adequacy Aid, published on November 15, 2022, and House Bill 2 as introduced. 

These figures are based on data collected and published by the New Hampshire Department of Education on November 15, 2022. Notably, models assume no change in district- or state-level student enrollment, student demographics, and/or equalized valuation over the 10-year period. Long-term estimates will likely differ based on changes in these and other factors. 

Figures and totals do not include charter schools or unincorporated places. 

These models are for discussion purposes only and should not be interpreted as official estimates. 

For any questions or comments about this analysis, please contact Christina Pretorius, Policy Director, at christina@reachinghighernh.org