The Lunch Ladies are Not Smiling

The NH Supreme Court upholds the tax advantages of towns with great property wealth.

The NH Supreme Court decided the first of the two pending school funding cases yesterday. There will be no happy meals served by kind lunch ladies in Lisbon or Berlin today but Waterville Valley residents will rejoice in their ability to spend state tax monies earmarked for education on sewer repair projects. Portsmouth, a city whose valuable tax base gives it numerous advantages over neighboring Somersworth and Rochester, will be able to continue to press those advantages in ways unforeseen by King George (who originally established Portsmouth’s boundaries).

The NH Supreme Court has spoken.

In Rand v. State, a three member majority of the Court led by Chief Justice MacDonald acknowledged that the statewide education tax (SWEPT) “is an education tax imposed on property across the state.” The majority then chose to ignore evidence from administrators in wealthy towns that education tax monies were used by these wealthy towns to repair sewer and water systems and build roads, activities ordinarily funded by non-education local taxes. The three member majority, all of whom were appointed by Governor Sununu, did not see a statutory or constitutional problem with the idea that the power to divert state education tax revenues to other municipal purposes resulted in a lower effective education tax rate in the twenty-five or so very wealthy communities able to reduce their municipal taxes through this scheme.

Justice Bassett Dissents.

Justice James Bassett disagreed. Bassett wrote a compelling dissent that pointed out “when excess SWEPT funds are not sent to the State, but instead are retained by communities, the taxpayers’ effective SWEPT rate in those communities is reduced and Part II, Article 5 is violated.” (Part II, Article 5 of the NH Constitution requires state taxes to be imposed at a uniform rate across the state.)

While the majority attempted to characterize the effective tax rates as “theoretical,” Justice Bassett pointed out:

“The impact of the SWEPT scheme on taxpayers in excess SWEPT communities is anything but ‘theoretical’ or ‘indirect’: the effective SWEPT rate reduction those taxpayers enjoy is real and direct. The impact of the SWEPT scheme on taxpayers in other communities that do not generate excess SWEPT is also real and direct: those taxpayers enjoy no comparable reduction in their effective SWEPT rate. For example, retention of excess SWEPT monies results in an effective SWEPT rate of $0.44 per thousand in Moultonborough, as compared to an effective rate of $1.56 per thousand in Plymouth. This disparity in effective tax rates violates Part II, Article 5 and ‘is precisely the kind of taxation and fiscal mischief from which the framers of our State Constitution took strong steps to protect our citizens.’” Claremont School Dist. v. Governor, 142 N.H. 462, 465 (1997) (Claremont II); see also id. at 471 (‘There is nothing fair or just about taxing a home or other real estate in one town at four times the rate that similar property is taxed in another town to fulfill the same purpose of meeting the State’s educational duty.’).”

The plaintiffs in the Rand case are all property owners and property taxpayers who sued the state under NH’s tax clause, Pt. 2, Art. 5 of the NH Constitution, which requires taxes to be reasonable and just. Comparative tax rates and effective tax rates are important to taxpayers. If Moultonborough gets to divert education funds to fix roads, for example, and Plymouth doesn’t, Plymouth is at a very real disadvantage. Either Plymouth roads go without repair or additional taxes must be levied to fix them.

The ConVal School Funding Case remains pending. It is expected the Court will issue a decision in the next few weeks. The Wadleigh Starr firm of Manchester represents the plaintiffs in ConVal.

Should the Chief Justice have recused himself.

Together, the Rand and ConVal cases raised three issues. The opinion released yesterday decided one of the issues. Originally, the ConVal case included all three issues but two were dropped. The Rand legal team moved to recuse Chief Justice MacDonald from our case because he was the Attorney General when the SWEPT issue was originally filed in the ConVal case and Attorney General MacDonald was in charge of defending the state. Justice MacDonald has recused himself from the ConVal case. The Rand case was filed to continue the litigation of the two issues that ConVal waived.

The three school funding issues are:

• Is the Statewide Education Property Tax (SWEPT) constitutional with its rebates and forgiveness of a state tax to property owners in certain communities?

• Is the state’s assigned cost of a constitutionally adequate education of approximately $4100 per pupil sufficient when the average cost per pupil is $26,000? This assigned cost is often called, “base adequacy.”

• Are the additional increments assigned by the state to cover the additional costs of educating children who live in poverty, who are not native English speakers or who qualify for Special Education sufficient? The additional increments are called “differentiated aid” in statute.

Both the ConVal and Rand cases raised the second issue concerning the cost of base adequacy. The ConVal plaintiffs proved at trial, and the trial judge so ruled, that the state doesn’t cover the cost of an adequate education with the state’s payment of $4100 per pupil. The state appealed to the Supreme Court. That case is pending. In addition to challenging the cost of base adequacy, the Rand case also raised the first issue concerning the SWEPT, which was decided yesterday. The last issue, concerning differentiated aid increments, remains pending before Judge David Ruoff who heard the case in October 2024.

The Last Bake Sale Book Tour Continues.

Last night, I was in Plymouth. Tonight, June 11^th at 5:30 I’ll be at the Bookery on Elm Street in Manchester.