New Hampshire ranks first in Cato’s 2023 Freedom in the 50 States

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We’re No. 1!

Again!

Fresh from its No. 1 ranking in the Fraser Institute’s Economic Freedom in North America report, New Hampshire tops the 7th edition of the Cato Institute’s Freedom in the 50 States report.

“New Hampshire is once again the freest state in the Union and in 2022 set the record for the highest freedom score ever recorded in the 21st century. Governor Chris Sununu and the New Hampshire legislature have much to be proud of. In 2000, on the full index, Nevada was number one, just ahead of New Hampshire.”

The Cato report ranks states on 230 variables in the broad categories of economic freedom, personal freedom and fiscal policy.

New Hampshire excels in taxation and government spending. “The state government taxes less than any other state but Alaska,” the report concludes. The state scores well on rankings of government debt, government consumption and government employment.

Although New Hampshire fares well in many categories, our regulatory burden “is a blemish on such an otherwise free state,” the authors write.

Not surprisingly, “the Granite State’s primary sin is exclusionary zoning.” On local land use regulations, “New Hampshire is among the most regulated states.”

The report also dings New Hampshire for not having a right-to-work law or universal school choice, and for imposing a renewable portfolio standard that raises the cost of energy.

Florida, which ranks second in both the Cato and Fraser Institute reports, has improved its position dramatically in the last two decades. The Sunshine state has both a right-to-work law and universal school choice.

New Hampshire has stood atop the Cato rankings since 2011, and the state’s latest score is the highest in the history of the report, which began in 2000. Among the reasons for our high ranking this year was our relatively less burdensome approach to the COVID-19 pandemic. New Hampshire ranked 9th on COVID policies, which is a testament to how badly most states reacted to the pandemic.

But at a Freedom in the 50 States event in Manchester on Thursday, Gov. Chris Sununu and report authors Will Ruger and Jason Sorens all warned against New Hampshire resting on its laurels. The state and local governments still impose many unnecessary constraints on both personal and economic freedom. As long as those restrictions remain, they will continue to be a drag on the economy and give other states opportunities to dethrone New Hampshire from its position as America’s freest state, they said.

 

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Court dismisses lawsuit challenging legality of Education Freedom Accounts

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The Merrimack County Superior Court this week dismissed a lawsuit brought by Deb Howes, president of the American Federation of Teachers-New Hampshire (AFT-NH), challenging the constitutionality of New Hampshire’s Education Freedom Account (EFA) program, the state’s largest school choice program. 

Howes challenged the EFA program on three grounds: (1) The EFA program violates Part II, Article 6-b of the N.H. Constitution by allocating lottery money to EFAs, (2) the use of Education Trust Fund dollars for EFAs violates RSA 198:39 regarding distribution of funds from the Education Trust Fund, and (3) the EFA program represents an unlawful delegation of governmental duty to a private entity (Children’s Scholarship Fund New Hampshire). 

Presiding Justice Amy L. Ignatius granted the New Hampshire Department of Education’s motion to dismiss on all three grounds. 

On the claim that lottery money is spent on EFAs, Justice Ignatius concluded that Howes had not and could not demonstrate a violation.

Part II, Article 6-b of the New Hampshire Constitution reserves lottery revenue “exclusively for the school districts of the state.” Lottery revenues are deposited into the Education Trust Fund. But so are revenues from eight other sources. In the 2022 fiscal year, lottery revenues comprised only $125 million of the $1.145 billion in the Education Trust Fund. Howes was unable to show that any lottery revenues were included in the $9 million transferred to the EFA program. Lottery money comprised only 0.01% of the Education Trust Fund, and EFA spending could easily have come from the other 99.99% of the fund.

On the claim that the Legislature violated RSA 198:39, governing distributions from the Education Trust Fund, Ignatius ruled the claim moot since legislators had added a provision expressly allowing distributions to scholarship organizations that manage the EFA program. 

On the claim that the EFA program constitutes an unlawful delegation of legislative authority to provide an adequate education, the court was unpersuaded. Howes had claimed that the EFA program was created to remove children from the public school system for the purpose of eliminating the state’s obligation to provide children an adequate education, and that it prohibited students from obtaining an adequate education. Ignatius dismissed the claims, countering that neither was logical. Parents who choose an EFA lose nothing, Ignatius pointed out. If parents choose an EFA, the state is not obligated to provide their children with a public school education while they participate in the EFA program, she noted. But that is the family’s choice. If they choose later to enroll their children in a public school, their participation in the EFA program does not block this option. Therefore, participation in the EFA program in no way prohibits families from accessing a public school education.  

In response to the court’s dismissal of her claims, Howes said, in part:

The Legislature should be focusing far more time and resources on the needs of the 160,000 Granite State public school students who deserve a robust curriculum and fully staffed schools, not on the 4,000 students whose families choose to take state-funded vouchers. Vouchers have exacerbated an already disparate burden placed on local property taxpayers to fund the basic right to a quality public education. Every Granite State public school should be a safe and welcoming place where students have the academic challenge and support they need to thrive.

This statement flies in the face of reality on several fronts. 

First, the Legislature does focus “far more time and resources” on the 160,000 students enrolled in district public schools versus the roughly 4,000 students with EFAs. In the 2021–22 academic year, total spending (state, local, and federal) on New Hampshire public schools exceeded $3.5 billion. Total expenditures per pupil exceeded $23,000. 

The EFA program is tiny in comparison. The court pointed out that, from the $1.145 billion Education Trust Fund, a mere $9 million was transferred to the EFA program in the 2022 fiscal year. The state’s estimated cost in the 2024 fiscal year is just $22 million, a tiny fraction of the more than $3.5 billion spent on public schools. EFA expenditures per pupil average just $5,255 versus more than $23,000 for public schools.

Average district public school spending in New Hampshire is 14.4% above the national average, while teacher pay is 5.3% below the national average. Moreover, district public school enrollment fell by 14% from 2001–2019 (a loss of 29,946 students), while inflation-adjusted spending at district public schools ballooned by 40% ($937 million). 

Far from being strapped for cash and staff, New Hampshire’s district public schools have never experienced higher funding despite continued drops in enrollment. Between the 2019–20 and 2023–24 school years, New Hampshire’s public schools experienced a 6.3% decline in enrollment (a loss of more than 11,000 students). New Hampshire experienced the nation’s largest percentage increase in district public school staffing relative to student enrollment from 1994–2022. 

Additionally, as more families choose to access educational alternatives outside of their assigned district public schools, per-pupil funding for those who remain in the public schools only increases since local funding (which accounts for 60% of public education funding in New Hampshire) remains untouched by the EFA program. 

From 2001–2019, inflation-adjusted public education spending per student increased by 66.8% in New Hampshire. By 2019, per-pupil public education spending in the state was 25.7% above the national average. 

The state’s Education Trust Fund ended the 2023 fiscal year with a $148 million surplus. The long-term decline in the state’s school-age population has left the fund with such a big surplus that legislators have considered changing the funding formula so that such a large pool of money does not sit unused. 

So, it’s untrue that the EFA program is draining money from district public schools. The state has a huge surplus of funds available for spending on public education even after increasing public school spending by nearly $1 billion, adjusted for inflation, in the first two decades of this century. And legislators in the most recent state budget further increased public education spending by $169 million during the two-year budget cycle and by a projected $1 billion over the next decade. 

Again, it’s untrue that state spending on district public schools is declining at all, much less that it is declining because of EFAs. So, in addition to the legal arguments in this case being unfounded, the financial claims were as well. 

 

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N.H. again tops all of North America in economic freedom

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New Hampshire is the most economically free state in North America and in the United States, once again edging Florida to top every Canadian province, U.S. state and Mexican state as ranked by the Fraser Institute, Canada’s free-market think tank. 

The Fraser Institute’s 2023 Economic Freedom in North America report, released in partnership with the Josiah Bartlett Center for Public Policy, measures government spending, taxation and labor market restrictions using data from 2021, the most recent year of available comparable data.

New Hampshire surpassed Florida as having the highest level of economic freedom in the U.S., having scored 7.96 out of 10 in this year’s report. Rounding out the top five freest states are Florida (2nd), Tennessee (3rd), Texas (4th) and South Dakota (5th). Puerto Rico came in last with 2.85. The least free states were New York (50th), California and Vermont (tied for 48th), Oregon (47th) and Hawaii (46th).

The Granite State also topped the list of all states in North America, scoring 8.14 out of 10, followed by Florida (8.07), South Carolina (8.06), and then Idaho and Indiana, tied for fourth (8.05). Alberta is the highest-ranking Canadian province, tied for 31st place with a score of 7.90. 

“New Hampshire is proof for all of North America that economic freedom creates maximum opportunity and prosperity,” Josiah Bartlett Center President Andrew Cline said. “The formula is proven, and anyone can follow it. Even Vermont, if it wants to.” 

“The freest economies operate with comparatively less government interference, relying more on personal choice and markets to decide what’s produced, how it’s produced and how much is produced; as government imposes restrictions on these choices, there’s less economic freedom and less opportunity for prosperity,” said Fred McMahon, the Dr. Michael A. Walker Research Chair in Economic Freedom at the Fraser Institute and report co-author.

The report includes an all-government ranking, which adds federal government policy to the index and includes the 50 U.S. states and the territory of Puerto Rico, 32 Mexican states, and 10 Canadian provinces.

Taking into account both federal and state policies, U.S. economic freedom declined from 2003 to 2011, began to recover, and then declined again after 2017. The last two years have seen the lowest levels of measured economic freedom in the U.S. in the last two decades. And while the U.S. remains more economically free than Canada, the gap is relatively small.

“The evidence is clear—lower levels of economic freedom are associated with less prosperity, slower economic growth, less investment, and fewer jobs and opportunities,” said Dean Stansel, economist and research associate professor at Southern Methodist University and co-author of the report.

The Economic Freedom of North America report, also co-authored by José Torra, the head of research at the Mexico City-based Caminos de la Libertad, and Ángel Carrión-Tavárez,  director of research and policy at the Instituto de Libertad Económica in Puerto Rico, is an offshoot of the Fraser Institute’s Economic Freedom of the World index, the result of more than a quarter-century of work by more than 60 scholars, including three Nobel laureates.

See the full report at www.fraserinstitute.org/economic-freedom.

New Hampshire’s cores in key components of economic freedom (from 1 to 10 where a higher value indicates a higher level of economic freedom):

  • Government spending: 8.25
  • Taxes: 7.68
  • Labor Market Freedom: 7.60

About the Economic Freedom Index

Economic Freedom of North America measures the degree to which the policies and institutions of countries support economic freedom. This year’s publication ranks 93 provincial/state governments in Canada, the United States and Mexico. The report also updates data in earlier reports in instances where data has been revised.

For more information on the Economic Freedom Network, datasets and previous Economic Freedom of North America reports, visit www.fraserinstitute.org. And you can “Like” the Economic Freedom Network on Facebook at www.facebook.com/EconomicFreedomNetwork.

Download the entire report here: EFNA-2023-US.

 

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NH families are choosing to spend their EFA funds in a variety of ways, including at public schools

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As New Hampshire’s Education Freedom Accounts (EFAs) gain popularity, confusion about how the money is spent continues to cloud public discussion. 

Contrary to some of the rhetoric used to describe the program, EFA funds are not exclusively reserved for covering tuition costs at private schools. A breakdown of authorized EFA spending in the last fiscal year shows that less than two-thirds of the money was spent on nonpublic school tuition, and some even went to pay for courses at district public schools. 

From September 1, 2022, to June 30, 2023, the Children’s Scholarship Fund New Hampshire, the state-approved administrator of the EFA program, authorized upwards of $10 million in spending submitted for approval by parents. 

About 63% of those funds (nearly $6.6 million) covered tuition and fees at nonpublic schools. Of the 116 private schools that received EFA funds, 63 (or 54%) could be classified as “religious” schools—schools with a religious component to their operations or curriculum. The other 53 (or 46%) included secular nonpublic schools as well as alternative education providers and unconventional models, such as learning pods, microschools, homeschool co-ops, etc. 

If tuition and fees at private schools accounted for only 63% of EFA spending in the last fiscal year, then where did the other 37% go? 

Parents are allowed to spend EFA money on authorized educational uses, such as textbooks, instructional materials, tutoring, and some limited infrastructure such as computers and Internet services. 

In the last fiscal year, parents spent 17% of EFA funds on textbooks, supplies, and other instructional materials, 8.4% on tuition and fees for summer education and specialized education programs, 5.2% on computer hardware, Internet connectivity, and other technological services, 2.6% on tutoring services, and 1.3% on tuition and fees for private/nonpublic online learning programs. 

Parents spread the remaining 2.5% among educational services and therapies, educational software, fees for standardized assessments and other exams, school uniforms, tuition and fees at career and technical schools, tuition and fees at institutions of higher education, and individual classes, curricular activities, and programs at district public and charter schools. 

In fact, New Hampshire families directed $27,328.88 to 12 district public schools to help pay for individual courses and programs offered at those schools to supplement their children’s education. 

Tuition at nonpublic schools certainly accounts for a sizable portion of EFA funding, but focusing solely on tuition at these schools misses the broad variety of choices parents are making. 

Whether it’s paying for a tutoring service like Mathnasium of Nashua, music therapy services at Manchester Community Music School, tuition at Saplings, A Forest & Nature Preschool, LLC, textbooks and supplies at Amazon and Staples, a class at Souhegan High School, or AP tests through the College Board, the EFA program opens up a host of educational options for families. 

It also misses the important point that some families are choosing to purchase services from district public schools. 

The portion of EFA spending at district public schools is small right now for two likely reasons: (1) Families using the program now are primarily seeking alternatives to the public school system, and (2) district public schools aren’t accustomed to marketing themselves to parents and providing a-la-carte services (in other words, competing for those dollars).

As EFAs grow, district public schools will need to adapt by offering services that attract parents who’ve been empowered to decide where to spend their state adequate education grants. When they do, their share of EFA spending will rise.

The competitive forces created by a growing EFA program can be expected to produce a net benefit for all students, those who use EFAs and those who don’t. Dozens of studies have already shown that the introduction of school choice programs produces positive results for students who remain in traditional public schools. There’s no reason to expect different results in New Hampshire. 

According to the Department of Education, 4,211 New Hampshire students are currently participating in the state’s largest school choice program this academic year. That’s a 39% increase (1,186 students) from last year’s starting enrollment, and a 158% increase (2,576 students) from the EFA program’s first year in 2021.

As EFA enrollment grows, its competitive forces will strengthen, leading to further adjustments among all educational providers in the state and a larger variety of opportunities for New Hampshire students.  

 

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New Hampshire leads the nation in home price growth in 2023 (so far)

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It seems like it’s every week that there’s some new concerning statistic about the New Hampshire housing market.

This time it comes from CoreLogic’s U.S. Home Price Insights. At 9.4%, New Hampshire saw the highest home price growth in the country from August 2022 to August 2023. 

The top 10 states with the highest year-over-year increases in their home prices include four other New England states. The rest of the top 10 are Maine (8.9%), Vermont (8.9%), Rhode Island (8.4%), New Jersey (8.1%), Connecticut (8.1%), Wisconsin (7.0%), Missouri (6.7%), Indiana (6.6%), and Ohio (6.0%).

Nationally, from August 2022 to August 2023, home prices rose by 3.7%, which means that New Hampshire home prices increased by more than double the national average so far this year.

Not every state saw a jump in home prices over the last year. States like Arizona, Idaho, Montana, Nevada, New York, Texas, Utah, and Washington saw some of the largest year-over-year drops in their home prices. 

Many states in the Western U.S.—the three states along the Pacific Coast, as well as all Mountain states but New Mexico—saw annual declines in home prices.

Is this a coincidence? Hardly.

Several of those states happen to be building the most homes. According to an analysis of U.S. Census data by RubyHome Luxury Real Estate, Texas (22.5%), Utah (20.65%), Idaho (20%), Nevada (16.74%), and Colorado (16.30%) all rank among the top 10 states with the highest rate of new homes built (as a percent of their total housing stock) from 2010 to 2022.

Another analysis of U.S. Census data by Construction Coverage found similar results. By new housing units authorized per 1,000 existing homes, Mountain West states like Utah (26.7), Idaho (24.2), Arizona (19.4), Colorado (19.2), Nevada (15.3), and Washington (15.1), as well as Southern states like Texas (22.2) and Florida (21.1), were among the top builders of new housing in 2022. 

This spring, Montana’s legislature passed a slate of zoning reform bills to speed up home construction. 

Towards the bottom of the list are many of those states that experienced the highest year-over-year increases in their home prices, including New Hampshire. At 7.4 new housing units authorized per 1,000 existing homes, the Granite State ranked 38th in housing development in 2022. 

Similarly, Rhode Island (2.8), Connecticut (3.7), Ohio (5.9), Vermont (6.8), Missouri (7.5), and Wisconsin (7.7) all ranked in the bottom half, while Maine (9.5), Indiana (9.6), and New Jersey (9.8) were middle of the road. 

The U.S. Census Bureau’s Building Permits Survey (BPS) tracks the number of new privately owned housing units authorized by state each year. Before 2022, Arizona and Utah each saw 11 consecutive year-over-year increases in the number of housing units authorized, and Idaho saw 10. In total, Colorado, Texas, and Washington each had 10 year-over-year increases in the number of units authorized.

New Hampshire, meanwhile, saw seven total year-over-year increases in units authorized, the longest consecutive stretch being the four increases from 2012 to 2016.

New home construction is one of many different factors that play a role in determining home prices. But at a minimum, there’s a strong correlation between states that have higher rates of home building and states that have seen recent drops in their home prices (or relatively minor increases compared to many states in the Northeast). 

As we’ve shown, New Hampshire municipalities have made housing development very difficult with onerous land-use regulations that restrict supply and inflate home prices.

If Granite Staters want lower home prices, we can follow the lead of many Western states and build, baby, build!



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The Burgess backfire

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In its annual report to the Public Utilities Commission last year, Burgess Biopower outlined its numerous efforts to provide financial security by diversifying its revenue base.

Burgess pursued other regional economic development projects to reduce and offset the costs of Burgess’ power, such as co-development of a number of suitable businesses including a greenhouse, a data center, and a cryptocurrency mining operation; location of an on-site energy generation system using landfill gas; working with the City of Berlin on a waste heat recovery and municipal snowmelt project; and development of ground-mounted solar resources.

The common denominator among all potential co-location partners is simple: no one is willing to put capital at risk to develop a project which relies on a power plant with an uncertain future.

The word choice in the last line is interesting. No company has a certain future. What Burgess lacked wasn’t certainty, but reasonable probability of success.

This is every company’s problem at the start. Burgess tried to solve it by playing politics. It isn’t entirely to blame. The State of New Hampshire encouraged it to do this. 

New Hampshire mandates that electricity providers buy a certain percentage of their power from “renewable resources.” This gave Burgess an opening. If it built a wood-fueled power plant, it could sell power at above-market rates to electricity producers compelled by the state to buy from companies that generated power from politically favored fuels. 

The problem with building a business model on what amounts to a government subsidy is that one’s survival depends on favorable treatment by politicians. That’s never a good place to be.

Burgess wound up with a worse deal than it had initially anticipated. After ratepayers had been forced to pay it $100 million above market rates for electricity, any future payments above the market price had to be refunded. It hit that cap years earlier than expected, thanks to technological advances that lowered the price of natural gas. It then exceeded the cap, necessitating repayments to ratepayers, which it could hardly afford. 

Its business model busted, it seemed only a matter of time until it found other sources of revenue or collapsed. Except, there was a third option. Convince legislators to pass a law forgiving its debt to ratepayers. Ongoing subsidies would be nice too. 

On Thursday, legislators failed to override Gov. Chris Sununu’s veto of House Bill 142, a last ditch political bailout for the unprofitable plant. If the company can’t figure out how to balance the books with money from people who pay it willingly, it looks like curtains. 

With so much trouble raising capital, maybe Burgess just needs a law requiring investors to fund it. Maybe, to keep the plant open, the Legislature could mandate that every retirement fund doing business in New Hampshire “invest” in the financially struggling plant. 

Why not? After all, it would “create jobs.”

If you can see the flaws in such a scheme, then it should be equally obvious why ratepayer subsidies were unjustified. Neither investors nor ratepayers should be forced against their will to support a politically preferred business. 

What about the benefits, though?

Burgess and its supporters claimed that paying more money for energy produced by burning wood made Granite Staters better off. But increasing numbers of academics who study such things conclude that biomass is not a net benefit for people or the planet.

A professor at Harvard’s Chan School of Public Health wrote last year that “air pollution from burning biomass can cause asthma exacerbations, hospitalizations for heart attack and respiratory disease, birth defects, neurodegenerative diseases and death, among many other health impacts.”

His research found that “burning biomass in buildings, industry, and power plants leads to more deaths than conventional coal-fired power plants.”

Britain’s left-wing Guardian newspaper reported in 2017 that the UK’s top climate researchers were turning against burning wood for power. 

“But burning wood to produce electricity is a relatively inefficient process. In generating exactly the same amount of electricity, wood will release four times as much carbon into the atmosphere as gas would do, and one and half times as much as coal. In addition, energy is used in harvesting and transport while vast stretches of land are needed to create the forests to supply generating stations with the wood they need.”

It’s conceivable that the scheme to subsidize Burgess not only cost ratepayers north of $200 million, but also caused health problems and lowered life expectancy among the hard-working folks of the North Country—the very people it was intended to help.

The alleged economic benefits we addressed here.

Wasting people’s money on a project that probably doesn’t bring the claimed benefits, and possibly causes harm instead, is a “green energy” story being told over and over again. And because it’s being told about projects that government compels people to fund, it’s causing substantial political backlash. 

Ford Executive Chairman Bill Ford put it this way in a recent interview:

“Blue states say EVs are great and we need to adopt them as soon as possible for climate reasons. Some of the red states say this is just like the vaccine, and it’s being shoved down our throat by the government, and we don’t want it. I never thought I would see the day when our products were so heavily politicized, but they are.” 

Boy are they. Researchers at Berkeley published a paper this month in which they found “a strong and enduring correlation between political ideology and U.S. EV adoption. During our time period about half of all EVs went to the 10% most Democratic counties, and about one-third went to the top 5%. There is relatively little evidence that this correlation has decreased over time, and even some specifications that point to increasing correlation. The results suggests that it may be harder than previously believed to reach high levels of U.S. EV adoption.”

Politicizing the transition to alternative energy has produced, predictably, a big backlash. It’s turned what might have been a slowly growing consensus into a rapidly growing divide.

New Hampshire’s complicated scheme to compel people to fund a power plant they would not otherwise voluntarily support might have done more than waste hundreds of millions of dollars (and possibly worsen health outcomes in the North Country). It might also have delayed the transition to alternative energy by needlessly politicizing the issue. It’s a cautionary tale. 

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The FTC’s Amazon lawsuit New Hampshire joined is a mess of bad economics

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New Hampshire Attorney General John Formella has joined 16 other state attorneys general in the Federal Trade Commission’s (FTC) lawsuit alleging that “Amazon is a monopolist” that engages in illegal anti-competitive behavior.  

But a close read of FTC Chairwoman Lina Khan’s suit reveals a confused and ultimately unconvincing case that Amazon (a) is a monopoly player and (b) has harmed consumers. 

If the FTC prevails in this legal case, it appears likely that consumers and small businesses, including the 4,500 small-to-medium-sized New Hampshire businesses that sell on Amazon and the many thousands of Granite Staters who shop online, will be harmed, not helped.

The lawsuit makes two primary claims. The first is that “Amazon is a monopolist.”

Therefore, the first test of the lawsuit’s merits is whether this statement is accurate. 

Monopoly

In a free, competitive market, not all competitors succeed or survive. Innovators regularly surge past existing players to gain large market share, becoming temporarily dominant. Though this is a natural function of a competitive market, some see this simple economic fact as evidence that a particular market is not competitive, confusing competition with the actual number of competitors at a given point in time.

This misunderstanding is at the heart of the FTC’s lawsuit against Amazon. 

“Monopoly exists when a specific individual or enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it,” Nobel-winning economist Milton Friedman wrote in Capitalism and Freedom. Amazon clearly is not a monopolist under Friedman’s definition. What about the FTC’s definition?

The FTC’s website offers guidance outlining the legal steps required under U.S. antitrust law to prove that a company is a monopolist. 

“As a first step, courts ask if the firm has ‘monopoly power’ in any market,” the FTC explains. “This requires in-depth study of the products sold by the leading firm, and any alternative products consumers may turn to if the firm attempted to raise prices.”

To be a monopolist, the FTC must prove that the company has (1) “monopoly power” in a market and (2) achieved or held onto its leading position in the market through “improper conduct.” 

Even if a company has a large market share (typically over 50%), that market share has to be durable and has to preclude competitors from entering or, once entered, offering products and services at low prices. 

The existence of competitively priced alternatives readily available to consumers in the market would be one way to demonstrate that a dominant player is not, in fact, a monopolist.

Amazon clearly does not exert monopoly control over the U.S. retail marketplace. In 2022, only 14.5% of all retail sales in the United States were online. The rest (85.5%) were done in brick-and-mortar stores. 

Walmart, not Amazon, is the top American retailer, with a nearly 17% share of the retail market, followed by Amazon’s 14.28% share, CVS’s 8.96%, Costco’s 6.51%, and Home Depot’s 4.37%. 

So, Amazon is hardly a retail monopoly.

What about online commerce? Amazon is the number one e-commerce company in the world. Does that make it a monopolist? 

Amazon accounted for 37.8% of all online sales in the United States in 2022. E-commerce data company PYMNTS pegs its share of e-commerce spending in 2023 at 48%. That’s a lot, but a monopoly it does not make. 

Walmart, Apple, eBay, and Target round out the top five online U.S. retailers. Despite Amazon accounting for the greatest share of e-commerce sales, Walmart.com, eBay.com, and AliExpress.com are the three most visited e-commerce websites. Etsy.com, Samsung.com, PlayStation.com, and BestBuy.com remain popular sites as well.

Though Amazon is the largest player (at the moment), it faces real competition. Before the FTC lawsuit was filed, Supermarket News reported this summer that Walmart’s share of online retail sales grew from 5.7% to 6.7%—a 17% increase—in the first quarter of the year. Amazon’s share grew from 43.7% to 47.9%—a 9% increase. Walmart’s comparable e-commerce sales grew by 27%. In the second quarter of this year, Walmart’s global e-commerce sales were up 24%. 

If Amazon has achieved an illegal level of market dominance, one would expect its competitors to be losing revenue and market share. But its largest competitor, Walmart, posted $573 billion in revenue in 2022 versus Amazon’s $514 billion. And Walmart’s share of online retail commerce is growing, not shrinking. Its stock is up 13.5% this year. For an alleged victim of an illegally dominant monopoly player, it’s doing extremely well. 

The FTC clearly understands this fundamental issue with its case, which is why the agency very carefully alleges that Amazon has a monopoly over “the online superstore market and the market for online marketplace services.” 

As these are two innovations that Amazon pioneered, it’s to be expected that the company maintains a large lead in these areas. That in itself is not a violation of U.S. antitrust law. But defining Amazon’s market in such a novel, limited, and arbitrary fashion is the only way the FTC can possibly claim that Amazon holds monopoly power. 

As Peter Jacobsen at the Foundation for Economic Education writes: “Notice how important these words are for the FTC. If you remove the word ‘online’ then clearly Amazon has no monopoly. There are lots of superstores. If you remove the word ‘superstore,’ again there is no monopoly. Amazon does not have a monopoly on online stores.”

That’s precisely why the FTC asserts that “brick-and-mortar stores and online stores with a more limited selection are not reasonably interchangeable with online superstores for the same purposes and are thus properly excluded from the online superstore market.” 

That’s a neat trick. The FTC deliberately excluded the markets where most American retail transactions occur so it could articulate the existence of a completely separate market ruled by Amazon. But the “online superstore” market is not a meaningfully distinct market. It’s just one part of a broader American retail market.

The FTC’s attempt to invent a distinct online superstore market is undermined by actual consumer behavior. PYMNTS reports that 28% of U.S. consumers have used a cell phone to assist with shopping while in a brick-and-mortar store, with 9% comparing the in-store price to prices offered by other merchants. 

The FTC might consider online superstores a distinct and separate market, but consumers do not.   

It’s not even clear precisely what an “online superstore” is. The Merriam-Webster dictionary defines “superstore” as “a very large store often offering a wide variety of merchandise for sale.” The FTC devotes several pages to attempting to define “online superstore.” It concludes by claiming that online superstores are so attractive that consumers won’t even shop at other types of online stores, even if they offer lower prices. 

“Even though such stores may price certain items comparably with online superstores, shoppers do not seriously consider those stores as reasonable alternatives to online superstores for a significant portion of their shopping needs.”

Again, real life contradicts the FTC’s claim. The Internet is full of online retail outlets that aren’t superstores and yet somehow manage to have customers. In 2022, the fastest-growing e-commerce site was not a superstore, but a clothing store. In fact, 10 of the 15 fastest-growing e-commerce sites last year were not superstores. Consumers do not always prefer superstores, either online or in person.  

“Online stores that sell unique, can’t-get-anywhere-else products will always have an edge over the mass-produced goods you find on Amazon,” e-commerce services provider Shopify notes, further undermining the FTC’s case. 

The FTC supports its narrow market definition by arguing that “[o]nline superstores are distinct from, and not reasonably interchangeable with, brick-and-mortar stores. From start to finish, online superstores provide a vastly different shopping experience from physical stores.” 

The fact that online superstores provide a different experience for shoppers is an inherent feature of a competitive retail market.

Anti-competitive practices   

The FTC attempts to buttress its claims by asserting that Amazon has engaged in “anti-competitive” practices. It does this primarily by making a case against certain requirements and practices deployed by Amazon to govern its own Amazon Marketplace. However, the FTC doesn’t conclude its case with a convincing demonstration of consumer harm. 

A study by Profitero of about 15,000 products sold online found that Amazon had the lowest online prices compared to 13 other major retailers in the United States. In fact, Amazon’s prices were, on average, 13% below rivals like Target and Walmart.

If Amazon offers consumers low prices, then what’s the FTC’s beef? The agency claims that Amazon leverages its Amazon Prime service to attract more consumers and to coerce sellers who choose to sell on Amazon Marketplace to use its fulfillment service, Fulfillment by Amazon (FBA). The agency deems this to be anti-competitive behavior.

But Amazon cannot compel anyone to use its marketplace. It offers incentives instead. For consumers, a wide variety of low-price products delivered quickly is the appeal. For sellers, access to a huge market of engaged customers is the appeal. 

Amazon’s fulfillment service is valuable to sellers because it lets them outsource services such as warehousing and packaging to Amazon directly, saving time and resources on the back end. 

FBA also offers access to Amazon’s Prime delivery service. Prime is valuable to sellers because it provides value to consumers. 

The FTC claims that “the Prime subscription fee makes subscribers feel as though they must make the subscription fee worth it by making more purchases on Amazon.” 

In other words, incentivizing subscribers to purchase more products on its platform as opposed to shopping on competitors’ platforms is anti-competitive and monopolistic. So, creating value for consumers is…anti-competitive?

Many retailers use similar rewards systems. Big-box stores such as BJ’s and Costco have up-front membership fees similar to Amazon’s Prime fee. Coffee shops, fast-food restaurants, and many other retailers offer rewards points and programs to encourage customer loyalty. Rewarding repeat business with discounts or enhanced services is not unique to Amazon.

“Forcing sellers to use FBA to obtain Prime eligibility impedes competition and the growth of independent fulfillment providers,” the FTC claims. 

The FTC is complaining that Amazon wants to control the packaging, warehousing, and delivery of products offered under its own branded loyalty program on its own website. But ask any restaurant owner about their experience with Grubhub or DoorDash, and it’s easy to see why Amazon would want to control this end of its business. It’s the only way to ensure quality. 

Amazon can have a perfectly legitimate business reason for not allowing another company to offer fulfillment services under the Amazon Prime brand. The FTC pretends that the only possible outcome of such a policy is to reduce competition, when in fact an obvious outcome is that Amazon can maintain a consistent, quality experience for both consumers and sellers. 

And, again, Amazon doesn’t force sellers to use its fulfillment service. But if sellers want to take advantage of the Amazon Prime brand, as many do, then Amazon has every right to couple FBA with its Prime service, as they go hand-in-hand.

Offering Prime as part of FBA is a chief way in which Amazon distinguishes itself from other independent fulfillment providers. If these competitors’ survival depends on how well they compete with Amazon Prime, how is that anti-competitive behavior on Amazon’s part?

The FTC also argues that “Amazon raises sellers’ costs by forcing them to split their inventory to sell across multiple sales channels.” What the FTC means is that a retailer who wants to sell on Amazon Marketplace, as well as Walmart or eBay marketplaces simultaneously, must divide its inventory among separate warehouses and fulfillment services. 

It neglects to mention that it’s the seller’s own choice to split inventory in order to access Amazon’s extensive consumer base while also selling through other channels. No one has to sell on Amazon Marketplace. It’s a choice, and that choice comes with tradeoffs. If retailers don’t think the tradeoff is worth it, they have many other options.

Contrary to the FTC’s assertions, Amazon doesn’t force sellers to use its fulfillment service or split their inventories. Rather, sellers do it because of the value added.

As the lawsuit makes clear, the FTC envisions an imaginary “perfect” market where every company that enters can survive and thrive by selling similar products for similar prices while not one competitor tries to gain a competitive edge over the others. But no such fantasy market exists. And if one did, its consumers would be harmed by the absence of aggressive competitors who seek dominant market share.

“Throughout the history of anti-trust prosecutions, there has been an unresolved confusion between what is detrimental to competition and what is detrimental to competitors,” economist Thomas Sowell writes in Basic Economics. “In the midst of this confusion, the question of what is beneficial to the consumer has often been lost sight of.”

Sowell’s point applies to the FTC’s lawsuit. There’s no disputing that Amazon is a giant corporation. But big doesn’t automatically equal bad. What’s important is identifying consumer harm. The FTC has failed to do this.

The agency fails to demonstrate that Amazon is a monopoly or that its alleged anti-competitive practices have, on net, harmed consumers or sellers. 

The changes to Amazon’s practices that the FTC wants to see would likely raise prices and reduce service quality and consistency—all in order for the company to be deemed “competitive” in a made-up market that the agency invented.  

It’s a disappointment that New Hampshire has joined a lawsuit with so many obvious flaws and with so many potential downsides for consumers.

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Bans and high taxes fuel black markets for tobacco & vape products

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As the Biden administration gets closer to finalizing its proposed rule banning the sale of menthol cigarettes and flavored cigars nationwide, a well-known aphorism comes to mind: “The road to hell is paved with good intentions.”

The administration’s logic behind the federal ban is that doing so will reduce smoking and correspondingly improve public health. This is the same logic used to justify increasing tobacco taxes or banning tobacco and vaping products at the state level. 

When a state bans flavored tobacco or increases excise taxes on cigarettes, legal cigarette sales in the state tend to fall as a result. But what about illegal and out-of-state sales?

High cigarette taxes and bans on flavored tobacco products create black and gray markets through which smugglers become the new suppliers of these products. 

Tax rates and smuggling

The Mackinac Center for Public Policy tracks cigarette smuggling in the United States. Its 2021 report showed how cigarette smuggling increases as excise tax rates on tobacco products increase. 

New York, which taxes cigarettes $4.35 a pack, saw the highest rate of inbound smuggling—54.48%. The total number of smuggled packs, more than 254 million, was second in the country behind California’s more than 465 million. California also had the second-highest inbound smuggling rate (44.02%) and a tax rate of $2.87 per pack.

When taxes get high enough to encourage large-scale smuggling, tax revenue falls as people stop buying from legal vendors and start buying on the street, and as some vendors switch to out-of-state suppliers and simply don’t report or pay taxes on those purchases. As a result of their high taxes, California and New York saw the two largest revenue losses—more than $1.3 billion and $1.1 billion, respectively. 

With a tax rate of $3.51 per pack, Massachusetts had the fourth-highest inbound smuggling rate (37.59%) and the ninth-highest number of smuggled packs (more than 63 million), resulting in the sixth-largest revenue loss (nearly $224 million) in 2021.

Where were these Massachusetts and New York smugglers purchasing these products? Mostly in New Hampshire. 

With by far the lowest state tax on cigarette products in the Northeast ($1.78 per pack), the Granite State saw one of the highest outbound smuggling rates in 2021 (-34.13%, which translates to more than 32 million packs). 

As smugglers crossed into New Hampshire to purchase cigarettes, the State of New Hampshire collected an additional $58 million in revenue. 

High cigarette taxes incentivize illicit market activity, encouraging smugglers to purchase products in low-tax states, cross state lines with them, and consume or resell the products in high-tax states. 

A similar dynamic takes place when a state bans tobacco products. 

Bans and black markets

After Massachusetts banned flavored tobacco in 2019, JAMA Internal Medicine found that flavored tobacco sales dropped in the state. Successful policy, right?

Not so fast. “In fact, the flavor ban has been far from successful, as sales in both New Hampshire and Rhode Island experienced double-digit growth—almost making up for the entire decrease in Massachusetts,” according to the Tax Foundation.

After Massachusetts’ ban, total sales of flavored tobacco in New England fell by only about 1% from June 2019–May 2020 to June 2020–May 2021. 

While sales of flavored tobacco decreased by 24% in Massachusetts between the year before the ban to the year after the ban, they increased by 22% in New Hampshire, 18% in Rhode Island, and 6% in Vermont. 

In fiscal year 2021, Massachusetts lost out on $125 million in tobacco excise tax revenue as sales shifted to other states. 

It’s a mistake to equate falling cigarette sales at licensed, regulated shops with an equivalent decline in smoking. The evidence shows that high taxes and bans on tobacco products shift a lot of activity to the black market. 

A University of California at San Diego study of Massachusetts licensed tobacco retailers in the two years before and the two years after the flavored cigarette ban found that the number of new tobacco retail licenses fell by 53% after the ban, with the total number of retail licenses falling by 5.8%. This finding, combined with the documented increases in out-of-state sales and cross-border smuggling, underscores the point that the ban has not ended menthol cigarette smoking in Massachusetts, but rather has moved these products onto the black market. 

Responding to incentives

Massachusetts created strong incentives for people to buy tobacco products elsewhere and bring them into the state for personal use and/or sales. People responded just as expected.

It’s important to recognize that criminals respond to incentives too. Gangs and drug smugglers can increase their revenues by adding cigarette smuggling to their repertoire of illicit activities. In the name of public health, states can find themselves strengthening existing organized crime networks and even creating new ones by imposing bans or high tax rates. 

Bans and punitive tax rates also induce evasive behaviors among otherwise law-abiding citizens. 

The Massachusetts Department of Revenue’s Illegal Tobacco Task Force issues press releases boasting of its enforcement of the state’s tobacco laws. Those press releases list people charged with running large-scale smuggling operations that include flavored tobacco, vapes, and marijuana. But they also include store owners arrested, convicted, and jailed for purchasing tobacco products out of state to avoid Massachusetts’ high taxes. 

It’s worth noting that the task force is part of the Department of Revenue. It was created “to address the problem of illegal tobacco distribution in the Commonwealth and the loss of millions of dollars of legitimate tax revenues to the state every year [emphasis added].” Massachusetts’ tax policy stimulated so much tax evasion that the state created a separate team just to find and punish tax evaders.

The solution to this interstate smuggling, some advocates argue, is a nationwide ban. Such policies used to be called “prohibition.” But as that term has fallen out of political favor, advocates instead use the term “ban” now.  

There is a large overlap between the people who want to ban tobacco and vaping products and the people who want to maximize government revenue for social welfare programs. Those two goals are in conflict. A Tax Foundation analysis of a proposed menthol cigarette ban shows how.

“A nationwide ban would result in a federal revenue decline of $1.9 billion in the first full year after prohibition,” according to the Tax Foundation. “In the states, the decline in excise tax revenue would be $2.6 billion, the decline in sales tax revenue would be $892 million, and the decline in MSA payments would be $1.2 billion, for a total state revenue loss of $4.7 billion.”

In New Hampshire, where menthol cigarettes make up 34% of the state’s market, a federal ban would mean more than $49 million in lost revenue, of which 71% would be a decline in excise tax revenue. 

And just like Massachusetts’ ban resulted in 90% of its lost sales merely moving to neighboring states, a federal ban would increase sales and consumption of other tobacco products like non-flavored cigarettes, and it would move sales and consumption of menthol cigarettes underground. 

For example, according to Reason Foundation, “approximately 22 million additional packs of nonmenthol cigarettes were sold in those states in the year after [Massachusetts’] flavor ban, leading to a net increase in cigarette sales.”

Where will illicit menthol cigarettes come from after a nationwide ban is enacted? The same place so many other banned products do: China. 

In 2020, the U.S. Food and Drug Administration banned flavored vaping products. It boasts that since the ban, it has rejected 99% of requests to sell new e-cigarettes, implying that the ban has reduced access to undesired products. 

But CBS News reported in June that the “number of different electronic cigarette devices sold in the U.S. has nearly tripled to over 9,000 since 2020.”

The FDA’s ban excludes disposable vape products. So, predictably, consumers migrated to disposables. But closing that “loophole” isn’t the solution advocates think it is. The surge in different vape products sold has been “driven almost entirely by a wave of unauthorized [emphasis added] disposable vapes from China.”

Consumers and suppliers always find ways to circumvent federal bans.

The primary achievement of such bans will be to replace legal, regulated products with illegal, unregulated ones, often from unscrupulous manufacturers. In a legal market, manufacturers and sellers have strong incentives to build market share by building trust with consumers. Legal markets promote accountability. Black markets do the opposite. Manufacturers and sellers have strong incentives to conceal their identities, which weakens accountability and reduces consumer safety. 

Any federal ban would bolster illicit trade, flooding the market with less safe products from unaccountable manufacturers. 

The goal of high cigarette taxes and flavored tobacco bans may be an altruistic one, namely to reduce smoking and improve public health. But the actual outcome of such policies is what’s important. Creating black markets, reducing accountability, shifting money from legitimate businesses to criminal networks, and reducing overall economic and personal freedom create a net negative for the economy and society. 

Reducing teen smoking is a worthy goal. Which is why it’s already illegal for teens to smoke. Rather than using policy levers that distort market incentives and infringe on the personal freedom of adults, activists should focus on improving their efforts to educate young people about the risks of smoking.



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Living in N.H. would save a New England Powerball winner up to $126 million in taxes

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If the winner of this week’s $1.4 billion Powerball jackpot lives in any New England state but New Hampshire, the record win would come with a staggering tax bill.

Excluding New Hampshire, which does not tax lottery winnings, the state income tax bill on a $1.4 billion Powerball jackpot would range from $36.8 million–$126 million, depending on where in New England the winner lives and whether he or she took the annuity or lump-sum payment.

The top applicable personal income tax rate for each New England state is:

New Hampshire: 0%*

Rhode Island: 5.99%

Connecticut: 6.99%

Maine: 7.15%

Vermont: 8.75%

Massachusetts: 9%

*New Hampshire levies a tax of 4% on interest & dividends income, but that does not apply to lottery winnings.

At those rates, the state income tax bill on $1.4 billion would be:

New Hampshire at 0% = $0

Rhode Island at 5.99% = $83.9 million

Connecticut at 6.99% = $97.9 million

Maine at 7.15% = $100.1 million

Vermont at 8.75% = $122.5 million

Massachusetts at 9% = $126 million

To put that in perspective, $126 million is not quite double catcher Jason Varitek’s $67 million in lifetime earnings from the Boston Red Sox. 

A winner’s actual tax bill would depend on which payout was taken. If a winner chose the annual annuity, the total tax bill would equal the amounts in the graph above, assuming no tax rate changes over the next 30 years. Since we can’t predict any tax changes, we have to go with the current rates.

Those tax bills would come annually based on each year’s annuity payment. Those payments would start at $21.1 million and grow to $86.7 million in the final year. The tax bill after the first year would range from $1.3 million in Rhode Island to $1.9 million in Massachusetts. The final tax bill (barring any tax rate changes over the next 30 years) would range from $5.2 million in Rhode Island to $7.8 million in Massachusetts. 

If a winner chose the $614 million lump-sum payment, the state income tax bill would be:

New Hampshire at 0% = $0

Rhode Island at 5.99% = $36.8 million

Connecticut at 6.99% = $42.9 million

Maine at 7.15% = $43.9 million

Vermont at 8.75% = $53.7 million 

Massachusetts at 9% = $55.3 million

These huge state tax bills would come after 24% of the prize is automatically withheld in federal taxes. The federal tax bill on $1.4 billion would be $336 million. On the $614 million lump-sum payout, it would be $147.4 million.

These stunning state income tax bills highlight exactly why New Hampshire is one of the top two destinations for people who move out of Massachusetts. (The other is Florida, which also has no income tax.)

New Hampshire is one of only eight participating states and two U.S. territories that don’t tax lottery winnings on top of federal taxes. The others are California, Florida, South Dakota, Tennessee, Texas, Washington, Wyoming, Puerto Rico, and the U.S. Virgin Islands.

The New Hampshire Lottery created a TV ad to air this week mocking Massachusetts’ 9% tax on incomes of $1 million or more. The new ad, spoofing the classic Saturday Night Live “Land Shark” sketch, features a Bay Stater bitten by the “no good Massachusetts tax shark that’s been swimming around stealing all our lottery winnings.”

The ad specifically calls out Massachusetts’ new “millionaire’s tax.” Last year, Massachusetts voters amended the state constitution to raise the income tax rate from 5% to 9% on annual incomes of at least $1 million. Without this millionaire’s surtax, Massachusetts’ tax bill on a $1.4 billion Powerball prize would drop from $126 million to $70 million. On the $614 million lump-sum payment, it would fall from $55.3 million to $30.7 million.

“Why play the lottery in Massachusetts where state taxes, including the new millionaire’s tax, will cost you an extra 9%?” the New Hampshire Lottery’s ad asks Massachusetts residents. “Instead, live free and play in New Hampshire where your income and lottery winnings are always free of state taxes.”

Granite Staters are having a good laugh at the ad, judging by the media coverage it’s received. But the serious point it makes is that you shouldn’t have to pay 9% of your income just for the privilege of living in your home state.

The high income tax rates in other New England states lift significant sums from people’s pockets every year. Vermont’s 8.75% personal income tax rate kicks in at $213,150 of income. Maine’s 7.15% rate kicks in at $58,050. A lot of non-rich New Englanders pay a hefty portion of their income just to live in a state that isn’t New Hampshire. 

“It does make one wonder just how much it’s worth paying out-of-pocket to live in a state like Massachusetts,” said Andrew Cline, president of the Josiah Bartlett Center for Public Policy. “Obviously, no one’s getting $126 million worth of services from the State of Massachusetts, so it just comes down to paying for the social status of living there. When you think of how Massachusetts would squander that money, putting up with such an exorbitant tax makes no sense. You’d do more social good by living in New Hampshire and donating $126 million to charity.”

The ad wasn’t meant only to tease Massachusetts, Charlie McIntyre, executive director of the New Hampshire Lottery, said. It also had a message for Granite Staters.

“Our New Hampshire players are fortunate to live—and play—in such an amazing, beautiful state, with an exceptionally high quality of life and of course, no state income tax,” McIntyre said in a statement announcing the ad campaign. “With this new campaign, we are having some fun reminding our players how good they have it, especially when they live free and play—and win!” 

 

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Education entrepreneur spotlight: Stacey Hammerlind and Jessica Rothbart of Micah Studios

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Editor’s note: Since the COVID-19 pandemic, educational entrepreneurship has boomed nationwide. New Hampshire has experienced significant growth in the number of entrepreneurs and innovators willing to take on the daunting challenge of building a new educational ecosystem. This year, we’ll be highlighting some of the people and organizations that have begun expanding the education marketplace in the Granite State, as well as the obstacles they face in creating nontraditional learning environments. 

Our third installment highlights Micah Studios, a low-cost learning center for kids 6–18 years old in Newport, New Hampshire, focusing on low-income families.

Newport, New Hampshire, is a relatively poor, working-class town of 6,299 in Sullivan County. Between 2017 and 2021, the median household income in Newport was $65,435 (in 2021 dollars), while the statewide average was $83,449. Meanwhile, the poverty rate in the town is 19.4%, compared to the state’s poverty rate of 7.2%.

What’s more, the town’s district public schools have been underperforming by all measures. Only 24% and 22% of students in the Newport school district are proficient in English language arts and science, respectively. Worse, just 12% of students in SAU 43 are proficient in mathematics. Compared to the performance of schools/districts throughout the state, these figures put Newport in the bottom 25%.

Given this reality, there’s a dire need for alternative education in this community. Two education entrepreneurs in Newport—Stacey Hammerlind and Jessica Rothbart—are taking steps to fill this educational void and meet the needs of local low-income families.

“There was definitely a gap and a niche that needed to be filled,” Hammerlind said.

As residents of Newport with experience in the public school setting, both Hammerlind and Rothbart are aware of the unique challenges facing many in their community.

“It’s a unique population here,” Hammerlind said. “And again, the stressors—these families have no other options. So, I think that’s what really motivated us.”

A mother of six and a substitute teacher in Newport, Rothbart experimented with typical homeschooling and traditional school settings for her kids, but the remote learning that came with the COVID-19 pandemic was the last straw for her.

“Something’s got to change,” she said. “There’s got to be options. The homeschooling community is big in the area, but it doesn’t fit for what my kids want out of things. So, they want the structure of school kind of, but they want the freedom to do it their way.”

At the same time, while working in the local public schools, Hammerlind noticed that the system wasn’t responding to the many unhappy, dejected, and underperforming students she saw daily.

“Yesterday, I was working with a boy—17,” she recalled. “We were practicing the two-times tables. He did not know his two-times tables. I asked him what words he could spell. He spelled ‘the’ and ‘they,’ but he spelled ‘they’ ‘t-h-a-y.’ At [17] years old. His sister—she’s 10. She didn’t know her shapes.”

Rothbart couldn’t account for how a 17-year-old student could be so far behind.

“How did he get to that point?”

Homeschooling would normally be the next-best option for these students struggling in traditional schools, but Hammerlind and Rothbart said many of the working-class parents they know can’t devote the necessary time to it and need a place for their kids to go during the day.

“We just wanted an alternative for those kids because we see a lot of those kids and there’s nothing,” Hammerlind said.

So, they created Micah Studios as a refuge for these students.

Creating and operating this alternative requires start-up capital and tuition payments. While Hammerlind and Rothbart have been dipping into their own savings to get Micah Studios up and running, they knew tuition would present a problem for the local low-income families they intended to serve. But after learning about Education Freedom Accounts (EFAs)—New Hampshire’s largest school choice program—they knew they could do it.

“It would not have happened without the EFAs because the families we want to reach…can barely pay the rent,” Hammerlind said. “They don’t have money for an alternative school program without the EFAs.”

Micah Studios is funded entirely by EFA payments, meaning the three families enrolled do not pay anything out of pocket. All expenses are covered by the EFA grants.

“This could not happen if they had to pay a dime,” Hammerlind said.

The EFA payments alone are enough for Micah Studios to operate on a full-time basis: Monday–Friday, 8 a.m. to 3 p.m., nine months of the year. That allows the 12 learners currently enrolled to access a truly low-cost alternative educational setting.

The funding keeps Micah Studios afloat financially, allowing Hammerlind and Rothbart to rent space, purchase supplies, and take their learners on field trips.

With the funding taken care of, the logistics of actually setting up Micah Studios proved much easier for Hammerlind and Rothbart than they imagined.

When asked what regulatory bumps in the road they hit along the way, their answer was somewhat surprising.

“Bizarrely, none,” Hammerlind said. “And I’m still waiting for the other shoe to drop. We talked to the economic development person in town, and she’s like, ‘Oh no, you’re all set, you don’t need to do anything.’”

And that’s because Micah Studios is strictly a learning center. “We’re not a daycare and we’re not a school, so we don’t meet any of those regulations,” Hammerlind explained.

In other words, they don’t need to jump through any hoops with the town of Newport.

Similarly with the state, Hammerlind and Rothbart haven’t had any issues. “The state hasn’t asked us for anything either, no,” Hammerlind said. “I don’t think the state has any regulations for learning centers.” Rothbart added, “We are an official nonprofit.”

The kids at Micah Studios are all recognized as homeschoolers by the town and state. Under state law, as long as the students are properly observed as home-educated and/or in the EFA program, the learning center where they’re being educated falls outside the regulations required of nonpublic schools. So, it is that simple.

Hammerlind and Rothbart are currently renting space in a local church, as well as accessing the town library when necessary. The two entrepreneurs are not teachers, but guides, and the kids are learners, not students.

Micah Studios’ model is based on several important themes common among educational startups: Mixed-age classes, individualized learning, and student autonomy.

Micah Studios sees obvious benefits to a class of seven-year-olds, 17-year-olds, and every age in between.

“It’s amazing to see the different ages working together,” Hammerlind said. “And that’s the way society runs…that’s the way people are wired. We’re supposed to live in a community, and learn from your elders, and learn through play.”

Although traditional school settings keep kids of the same age group together, that doesn’t mean every student is at the same level academically. At Micah Studios, it’s understood that not every learner is at the same level, and the mixed-age setting allows for each learner to progress at their own pace regardless of age.

Rather than viewing the class as one unit of similarly aged students progressing at the same pace, the small, mixed-age environment allows Micah Studios to “focus on the whole child,” as Rothbart said, in what is an individualized approach to education.

And Hammerlind and Rothbart have tailored individualized educations for their learners.

“Each learner has a binder with their own specific work in it,” Rothbart noted. “So, they all have their own curriculums. Some of them are sharing the same curriculum, but they all are individualized to their learning.”

Rothbart took the time to understand where each of Micah Studios’ 12 learners was academically and tailor each curriculum to each individual learner, focusing on their interests and how they learn best. She’s relied on locally accessible curricula from Barnes & Noble and Borders, as well as online curricula such as Horizon and Beast Academy.

“One of my kids has requested Beast Academy because it’s a graphic-novel version of mathematics,” she said. “She’s like, ‘I can read a graphic novel chapter and then I can do my lesson. Maybe it will work better for me,’ because she’s such a visual learner.”

This individualized education works in tandem with the student autonomy at the heart of Micah Studios. Whether it’s their core learning, the meals they make for lunch, or their year-long projects, the learners direct their education based on their needs or interests.

“I look around and literally half the kids were at the chairs working with clipboards doing their work, and then the others were playing monopoly, and I’m looking and I’m like…‘I don’t have to do anything, this feels weird,’” Rothbart said. “Coming from somebody who subbed in the school district, I’m like on top of them constantly, ‘Do your work, do your work, do your work.’”

At Micah Studios, by contrast, the kids are at the helm of their learning.

Traditional schooling—teacher oversight and direction with a set curriculum—works for some kids, but not all. Hammerlind and Rothbart push back against those who would argue their nontraditional, student-driven approach is dysfunctional and unaccountable.

“People want to learn; kids are driven to learn,” Hammerlind countered. “They want to learn; they’re so excited about it. And these are kids that were not able to be successful in public school, so the structure of the public school pretty much failed them.”

“It’s not all about their academics either,” Rothbart added, “They’re a whole person. So, if they’re not okay in that situation with that structure, structure doesn’t work for everybody.”

“These were kids that probably a lot of them were bullied, or they have really bad anxiety, and they can’t thrive in the traditional setting,” Hammerlind explained. “So, public school may be wonderful for some people…but it’s not for everybody, and kids deserve choices and families deserve choices.”

To the best of their knowledge, Hammerlind and Rothbart are the only ones offering this kind of alternative for low-income families in the region. Before, the Newport school district faced no competition for the town’s low-income population in the education market. Enrolling their kids in the local government schools was the only available option financially for these Newport families. SAU 43 effectively had a monopoly on education in Newport.

Now, with Micah Studios entering the marketplace, these families have the choice to take both their kids and their state per-pupil adequate education grants out of their district public schools without having to leave their town. And Hammerlind and Rothbart are confident they’ve created a replicable model for others to follow.

This competition incentivizes improvement. This fall, the Newport school district has to compete for these families and their state per-pupil tax dollars. And the same principle applies to Micah Studios. If families are dissatisfied, they can go back to their assigned district school.

“This needed to happen,” Hammerlind said. “These kids needed this…. I mean, it’s such an honor that somebody else trusts you with their kids. It is the ultimate honor. ‘I want my kids to come be with you for the day because I know that they will be happy and they will be learning.’ So, yes, I guess we are educational entrepreneurs. Because, as far as we can tell, we’re the only ones focusing on this population in this area.”

Only a few weeks into their new venture, both education entrepreneurs have much to look forward to. “I think my excitement for the year is to learn with them,” Rothbart said.

“I’m excited to see the kids happy and wanting to learn,” Hammerlind added. “These are kids that were not happy, just not happy kids, miserable kids, and to see them laughing…that is the biggest thing I think.”

Micah Studios in Newport can be found online at https://www.micahstudios.org/.

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