NH paying for decision to borrow Building Aid funds

Grant Bosse

New Hampshire’s decision to borrow money for three years to pay for the state’s Building Aid Program is adding a $27.6 million crunch to the current budget debate. Despite suspending new school construction projects from applying for state assistance several years ago, state taxpayers still owe more than $495 million over the next thirty years, and an additional $168 million just to pay off the bonds for the three years lawmakers took out loans to fund the program.

Since the late 1950′s, the state budget has subsidized local school construction projects. Brising construction costs and a flood ofnew construction projects around the state made Building Aid one of the fasting growing programs in the General Fund. The New Hampshire Center for Public Policy Studies 2011 report Under Construction found that local requests for Building Aid doubled from $25 million in 2003 to over $50 million a year.

Facing falling state revenues, Governor John Lynch proposed shifting the Building Aid Program from the General Fund to the state’s Capital Budget. Instead of paying for the state’s annual assistance checks to local school districts from that year’s tax revenues, the state would increase the amount it borrowed by issuing General Obligation Bonds. From Fiscal Year 2009 to 2011, the Legislature borrowed $131 million to cover three years of Building Aid payments, incurring $188 million in debt that will be paid in full by FY30. $168 million from those bonds remaining outstanding.

State obligations to schools already entered into the Building Aid program total $495.6 million. Debt service payments for the three years of Building Aid borrowing increase the state’s future obligations by 34%.

The decision to rely on increased debt in 2009 makes it harder for the current Legislature to balance the budget, which passed the House last week and will soon be reshaped by the Senate. Scheduled Building Aid payments of $45.2 in FY14 and $42.7 million in FY15 to local school districts must be made, though the state is not likely to accept any new schools into the program. The state also needs to repay bond holders $14 million in FY14 and $13.6 million in FY15.

Total state spending on the suspended Building Aid Program will total $115 million over the next biennium. The last Legislature put a $50 million annual cap on the program should the state resume accepting new projects, but the tail from previous commitments falls sharply as older school bonds are paid off. By the time the 20-year notes taken out to fund Building Aid from 2009 to 2011 are paid off, the state’s annual obligation will have dropped to just $5 million, and taxpayers will have paid of more than 96% of their pledge to local school construction.

The state’s debt service payments on Building Aid are also front-loaded, dropping to $11.5 million annually in FY20, and just $3.8 million by FY30. But the past obligation crowds out current spending priorities in the budget that begins July 1, 2013. The decision to borrow to pay for Building Aid means there is $27.6 million less to spend on other programs over the next two years alone.