Method of allowing wealthier districts to keep state property tax distribution is constitutional, state says
The state of New Hampshire, together with some 30 municipalities with the highest assessed property values, have asked the Grafton Superior Court to uphold the way the state distributes revenue from the Statewide Education Property Tax, or SWEPT, that currently allocates more money to school districts that need it least.
That is the gist of the responses filed by the Attorney General John Formella and the Coalition Communities, a confederation of property-rich municipalities, to a petition filed by plaintiffs in school-funding litigation. The plaintiffs argue the SWEPT is unconstitutional, and seek to enjoin the tax in the next fiscal year.
The issue of the SWEPT is but one element of a comprehensive challenge to the system of funding public schools brought by five property owners represented by attorneys Andru Volinsky, John Tobin and Natalie Laflamme, The SWEPT is levied at a fixed rate to raise $363 million a year. Although a state tax, the SWEPT is collected by municipalities and appropriated to school districts to defray all or part of the cost of the state’s duty to fund an adequate education.
Originally, proceeds from the tax were remitted to the state, deposited in the Education Trust Fund and redistributed throughout the state by formula weighted in favor of municipalities with relatively low property value and students with relatively greater needs.
Calling themselves “donor towns,” municipalities where receipts from the SWEPT exceeded the cost of an adequate education raised a hue and cry. And in 2011 the Legislature entitled municipalities where receipts from the SWEPT exceed the cost of an adequate education to retain the excess funds. In fact, last year lawmakers went a step further when revenue from the SWEPT was reduced by $100 million — and with it the excesses these municipalities retained.
In fiscal year 2020-21, 34 municipalities retained $24,419,040 in excess SWEPT receipts.
As a result, the plaintiffs contend, taxpayers in those municipalities are spared the liability of paying the SWEPT at the full rate paid by their counterparts elsewhere in the state.
Consequently, as the SWEPT is administered, the plaintiffs claim that the effective rate of the tax varies from one municipality to another, contrary to the ruling of the NH Supreme Court in the Claremont cases of the 1990s that, “to the extent the State relies upon property taxes to fund a constitutionally adequate public education, the tax must be administered in a manner that is equal in valuation and uniform in rate throughout the State.”
Legislature’s ‘wide latitude’
In contesting the plaintiffs’ motion to enjoin the SWEPT, both the state and the Coalition Communities counter that the rate of the SWEPT is set and assessed as the state constitution prescribes and the court has ordered. The plaintiffs’ quarrel, they argue, is not with the tax itself but with how the revenue it generates is distributed, which is the sole preserve of the Legislature.
Likewise, John-Mark Turner, representing the Coalition Communities, stressed “The power of the Legislature over appropriations is paramount” and noted in its Claremont decision the NH Supreme Court granted the Legislature “wide latitude in choosing the means by which public education is supported.”
In 2011, Turner explained, while the Legislature made several major changes to the system of funding public education, it made no changes to the SWEPT itself, it eliminated the requirement to remit excess SWEPT to the state. According to the House committee report, he noted, “the overriding purpose in making this change was to bolster local control and eliminate donor towns.” The legislation, he said was a spending decision, not a tax.
Turner cites an opinion of the justices to prescribe the only restriction the court has placed on the Legislature’s authority to distribute revenue is that it “cannot arbitrarily provide that taxpayers in one district shall contribute to the support of a public enterprise which is wholly for the benefit of another district.”
The state and Coalition Communities have asked the court to deny the plaintiffs’ request to find the SWEPT unconstitutional and enjoin its collection on the grounds that the tax itself complies with the state constitution, and the distribution of the revenue it generates lies exclusively within the authority of the Legislature.
There are a total of 36 members of the Coalition Communities groups, most in the Lakes Region and Seacoast: Alton, Bridgewater, Carroll, Center Harbor, Dublin, Easton, Eaton, Franconia, Freedom, Grantham, Greenland, Hampton, Hampton Falls, Hanover, Hart’s Location, Hebron, Holderness, Jackson, Lincoln, Marlow, Meredith, Moultonborough, Newbury, New Castle, Newington, New London, North Hampton, Pittsburg, Portsmouth, Rye, Sandwich, Seabrook, Sugar Hill, Sunapee, Tuftonboro and Waterville Valley.
SWEPT proceeds were originally remitted to the state, and redistributed throughout the state weighted in favor of municipalities with low property value and students with greater educational needs.
