Wealthy Town Lawyers Seek to Protect their Tax Advantages with a little Help from the State

See who actually benefits from the current state property tax.

The state and intervenors have now filed their briefs in response to the Rand school funding challenge to the Statewide Education Property Tax or SWEPT.  They seek to reverse Judge David Ruoff’s ruling of last November that the SWEPT was illegally administered by the NH Department of Revenue Administration (DRA). The DRA allows some residents to completely escape paying any state property tax by imposing local education taxes that are in the negative. In this scheme a state property tax rate of $1.50 is paired with a negative local education tax rate of a negative $1.50. The two rates cancel each other and the taxpayers in these preferred communities are relieved of the duty to pay the SWEPT.

In other privileged communities, Judge Ruoff found that there is a substantial automatic rebate of the revenues raised by the SWEPT in towns and cities where more than what is needed to pay for the local cost of adequacy is raised.  SWEPT is supposed to be the state tax that is used to pay for adequacy across the state, but ever since the Shaheen days, it’s been set up to act like a local education tax.  The local town imposes the tax. Taxpayers make their payments to the local town and then the town transfers the tax revenues to the local school district to pay for adequacy.

In instances where local property values are so low that the SWEPT doesn’t generate enough local money to pay for adequacy, the state supplements the local revenues with money from the Education Trust Fund, which is funded by regular state taxes, like the state’s businesses taxes.

Here’s where the problem kicks in. The DRA currently allows wealthy towns to keep money generated by the SWEPT in excess of their local adequacy funding needs rather than send the excess revenues generated by this state tax to the state. In effect, it’s an automatic rebate of the excess and the wealthy communities basically get to use the rebated money however they choose, without any state supervision. Most of the wealthy communities use the rebate to pay education costs not required for adequacy. Some have submitted affidavits in our litigation that claim if they must pay over their excess money, it will affect their ability to re-pave roads or revamp water treatment or sewer systems. The affidavits ignore that the SWEPT is an education tax designed to pay the state’s cost of adequacy, not build local roads.

The constitutional problem is that state taxes are to be imposed at a uniform rate across the state. The automatic rebate means that the effective rate for the SWEPT in the wealthy communities is a lot less than the full rate that is paid by poorer communities.

If this sounds familiar, it’s because the NH Supreme Court already decided the use of an automatic rebate is unconstitutional in its consideration of the Shaheen ABC Funding Plan in the late 1990s. The wealthy towns, and the state’s lawyers, just hope the current NH Supreme Court justices will “pull a Dobbs,” which is to ignore longstanding precedent based on the justices’ personal political preferences.

The NH Fair Funding Project also just released a study that identifies who benefits from the illegal preferences in the SWEPT. The Project’s findings made me think of Kelly Ayotte.

I drive past a green, blue and white Kelly Ayotte for Governor sign when I drive to my office. Although I generally disagree with Ayotte on political and policy matters, I’ve always thought of her as a professional committed to raising the quality of civil discourse. That is, until now.

I am struck by what Ayotte has chosen for her campaign tagline. It’s “Don’t Mass Up NH.” I take this to mean that Ayotte is upset with our neighboring state and wants us to be upset at Massachusetts, too.

I could think of a thousand reasons why someone like Ayotte would be upset with Massachusetts making NH look bad. I think of free community college tuition in Massachusetts, a minimum wage that is double our minimum hourly wage, rebates and charging stations for electric vehicles, the fact that Massachusetts legislators dealt with their school funding problem in the early 1990s—soon after the court decision….

Massachusetts certainly has its problems, I am sure, but does making Massachusetts a boogie man really provide the basis for a NH campaign for governor?

Well, if this is what Ayotte wants, I have a secret for her. If she becomes governor, she’ll have to deal with school funding problems, including those related to the SWEPT. And, more importantly, she’ll learn the largest group of beneficiaries of the unconstitutional SWEPT who she’ll work to protect are from Massachusetts.

By and large, the wealthy communities that keep their excess adequacy monies have significant developments of second homes. There are almost twice the percentage of second homes in NH’s wealthiest communities as elsewhere in the state (42% v. 24%).

And wait for it….

Residents of Massachusetts own a ton of these homes. That’s right, the NH Fair Funding Project’s analysis of state data reveals that the SWEPT is “MASS-ed UP.”

The wealthy communities who want to keep the SWEPT just as it is with all of its preferences do so on behalf of out-of-state property owners and large corporations. The single largest group of second homeowners are residents of Massachusetts.

Waterville Valley, the community that now chairs the coalition of excess communities and where the Sununus are dominant business owners, has about $505 million in taxable property. Ninety-six percent of the value of these properties, or $480 million, is residential. The tax bills for residential properties representing more than half of this value are mailed to addresses in Massachusetts.

In Hebron, the residential properties are about ninety-seven percent of the total value and the tax bills representing about thirty percent of the value of these residences are likewise mailed to Massachusetts. In Hale’s Location, Massachusetts owned properties comprise twenty percent of the total value of residential properties.

Newington, another wealthy coalition community who wants to keep the SWEPT just as it is, presents a slightly different picture. The state’s stilted approach to the SWEPT benefits twenty-seven large corporations that each own properties worth more than $5 million that, in the aggregate, represent $600 million in value. This is about sixty-two percent of all taxable property value in Newington. Who are these corporations seeking to maintain their tax advantage? Think Tyco, Sprague Electric, Fox Run Ventures.

The Fair Funding Project analysis may be found here.

The other thing about these communities is that if they paid the full SWEPT, and stopped receiving preferences, the world would not end as they claim. Their state taxes would go up by an average of about fifty cents per thousand dollars in property value. That’s $150 on a $300,000 house or $500 on a million-dollar mansion. It’s hard to get too upset by tax rates in the state’s wealthiest communities going up by half a buck. Here is what some representative communities pay in education taxes (local and SWEPT) as compared to Waterville Valley

Municipality Combined State and Local Equalized Education Tax Rate

Waterville Valley $2.47 ($3.03 without the SWEPT Discount)

Charlestown $14.14

Derry $11.81

Hinsdale $14.98

Lisbon $10.90

Manchester $6.58*

Milford $11.85

Nashua $7.65*

Pembroke $12.62

Plymouth $11.12

*For context, Manchester and Nashua are the two lowest spending school districts in the state. The 2020 School Funding Commission concluded that Manchester, given the high needs of its school children, should spend $10,000 more per child than it does. The additional spending would increase Manchester’s school budget from $190 million to more than $300 million. This shows how much Manchester cheats its children in an effort to keep education taxes down. Despite this, Manchester still imposes double the education taxes of Waterville Valley.

We’ll see whether our Supreme Court “Dobbs things up” or respects existing precedent. Of course, decisions by Chief Justice MacDonald and Justice Donovan to ignore their personal conflicts involving the case give reason to be concerned. Justice MacDonald’s conflicts also just became worse because the American Institute for Economic Research-led by free state icon Jason Sorens, a Koch Brothers funded concern, just filed an amicus brief supporting the state and wealthy towns. One of the reasons we asked Justice MacDonald to step aside was his involvement as an officer of another Koch Brothers funded concern, NH’s Josiah Bartlett Center.

More next week but stay tuned and speak out. Please, your voice is needed.