Judge David Ruoff made a decision on ConVal School District and SWEPT cases
On Nov. 20, Judge David Ruoff of Rockingham County Superior Court delivered a one-two punch to the state’s school funding system, ruling with one hand that the state is failing to fulfill its constitutional duty to fund an adequate education and with the other that administration of the Statewide Education Property Tax (SWEPT) is unconstitutional.
Ruoff’s decisions are anchored in the foundational orders of the NH Supreme Court in the Claremont litigation of 1993 and 1997 when the justices held the state must fund an adequate education for every educable child with taxes uniform in rate and equal in valuation throughout the state.
Ruoff ruled in two separate cases. The first, filed by the ConVal school district represented by Michael Tierney, charged that the base adequacy per pupil of $3,708 and $3,786 allotted by the state in fiscal years 2021-22 fell far short of the average per pupil expenditure of $19,399 across the state.
Acknowledging the Legislature would have the last word, Ruoff held the base cost of an adequate education should be “no less than $7,360.01 per pupil, adding “the true cost is likely much higher than that.” This, he calculated, amounted to an increase of state funding for education of $537,550,970.95 “at a minimum.”
The second case, filed by Steven Rand and five other property taxpayers — represented by attorneys Andru Volinsky, John Tobin and Natalie Laflamme — claimed that the rate of the SWEPT varied from one municipality to another contrary to constitutional requirement that state taxes be equal in valuation and uniform in rate throughout the state.
Although the SWEPT is levied at a uniform rate, where the tax raises more revenue than required to fund an adequate education, municipalities are entitled to keep the excess, which reduces the effective rate of the tax. Ruoff ruled that this fiscal legerdemain “results in a disproportionate tax rate in violation of Part II, Article 5 of the Constitution.”
ConVal decision
The ConVal case was filed in 2019. Following a trial, Ruoff ruled for the plaintiffs, but declined to peg the cost of an adequate education, acknowledging that duty rested with the Legislature. Both parties appealed the decision to the Supreme Court. The justices, stymied by the factual issues the case presented, remanded it for a second trial, asking Ruoff to place a dollar figure on the cost of an adequate education.
In his decision Ruoff wrote, “The sole issue before the is the constitutional sufficiency of base adequacy aid.” He noted that at trial the plaintiffs marshaled abundant evidence that students were deprived of the fundamental right to an adequate education. The state, on the other hand, offered no affirmative evidence to justify the sufficiency of base adequacy aid, but instead sought to diminish and undermine the evidence presented by the plaintiffs.
Ruoff found “the evidence at trial overwhelmingly established that no school could provide the opportunity for an adequate education if it had to rely solely on the base adequacy aid from the state.” He concluded that the plaintiffs had demonstrated “a clear and substantial conflict” between the amount of base adequacy and Part II, Article 83 of the Constitution, which the New Hampshire Supreme Court has ruled requires the state to fund an adequate education. Consequently, Ruoff ruled the burden of proof fell to the state.
The ConVal case, Ruoff explained, posed three questions. First, what are the necessary components, or cost-drivers, of an adequate education? Second, how much money is required to provide them? And third, how does this compare to what the state provides?
The state also argued that actual costs may not represent necessary costs, to which the plaintiffs responded that actual costs cannot be distinguished from constitutionally required costs. They explained that personnel costs, teacher salaries and benefits in particular — the largest single share of expenses — are driven by market forces. Ruoff found that any discrepancies between actual costs and what is constitutionally necessary have no meaningful impact.
Dr. Kimberly Rizzo Saunders, superintendent of the ConVal School District, drawing on actual costs reported in 2008 and 2018 and adjusted to real-world costs, presented extensive evidence to show that base adequacy is constitutionally insufficient and should be increased to at least $9,900 per student plus actual transportation costs. Ruoff found “the working methodology employed by Dr. Rizzo Saunders is a reliable way to determine the requisite level of base adequacy funding.” He then addressed the essential cost-drivers to educate students in the prescribed content areas, using “conservative figures that likely undervalue the requisite level of funding.”
Ruoff then calculated appropriate per pupil costs for each cost-driver. He pegged teacher salaries at $57,000, 5% less than the average of $60,00 calculated by Rizzo Saunders.
Teacher benefits, including health insurance, retirement contributions, FICA payments and unemployment insurance, he calculated at $29,108. All together, the cost per teacher came to $86,109 or $3,981 per pupil, which adjusted to a teacher-to-student ratio comes to $3,157.
Ruoff calculated the per-pupil cost of nonteacher employees at $901, instructional materials at $430, facilities maintenance at $1,000, transportation at $750 and nursing services at $294. These numbers, which add up to a base adequacy figure of $7,356, Ruoff concluded, “demonstrate the insufficiency of the $4,100 base adequacy figure set in 2023.”
In deference to the executive and legislative branches, Ruoff declined to set a definitive figure for base adequacy funding, but instead established his base adequacy calculation of $7,356 as a “conservative minimum threshold such funding must exceed.”
Sweeping the SWEPT
The SWEPT is levied on taxable property throughout the state at a uniform rate to raise $363 million a year. The tax is collected by municipalities, and the proceeds are appropriated to school districts to defray the cost of an adequate education.
When the SWEPT was introduced in 1999, receipts in excess of the amount required to fund an adequate education in municipalities with sufficient property wealth were remitted to the state. These funds were then distributed as state aid among municipalities where, for want of sufficient, assessed property valuation, returns from the SWEPT failed to meet the cost of an adequate education.
Calling themselves “donor towns,” those with excess SWEPT formed the Coalition Communities and pressed the Legislature to abandon what they described as the “donor receiver” model of school funding. The courts rejected efforts to spare these municipalities from paying the full rate of the SWEPT by abating or phasing-in the tax. The justices ruled that such measures would reduce the effective rate of the tax below its uniform rate Nevertheless, in 2011 the Legislature repealed the requirement to remit excess SWEPT, entitling to retain any excess, “for the use of the school district.”
In FY 2021, 34 municipalities retained $24.4 million in excess SWEPT, while in 21 other communities, mostly incorporated places with few if any pupils, the NH Department of Revenue Administration set negative local school tax rates to offset the SWEPT. According to the education funding plan enacted by the Legislature this year, 43 municipalities stand to gain $27.3 million in excess SWEPT revenue, and negative tax rates will be set in seven towns and unincorporated places.
The plaintiffs argue that because the excess SWEPT revenue and negative tax rates offset the full rate of the SWEPT, the effective rate of the SWEPT is not uniform throughout the state as the Constitution requires.
At trial, attorneys for the plaintiffs told the court that individual taxpayers, not towns or cities, pay the SWEPT, adding that as a state tax it must be levied at a uniform effective rate across the state. They also stressed that the constitutionality of the tax hinges not on its nominal rate but on its effective rate, which represents the actual burden and practical effect on taxpayers. The SWEPT, they insisted, fails that test.
The plaintiffs submitted data, compiled by Doug Hall of the NH School Funding Fairness Project, measuring the difference between the equalized SWEPT rate and the rate required to fund an adequate education in the 34 municipalities that retained excess SWEPT in 2021-2022.
Equalized SWEPT rates ranged from $1.13 in Sugar Hill to $1.53 in Hales Location. But, the rates required to fund an adequate education, which the Constitution requires be uniform throughout the state, were less than the equalized rates. The difference between the two rates funds the excess SWEPT.
For example, the effective rate to fund an adequate education is 28 cents in New Castle, 40 cents in Newington, 44 cents in Moultonborough, 51 cents in Lincoln, 59 cents in Center Harbor and 63 cents in Waterville Valley. The effective equalized SWEPT rate in three of the five plaintiffs towns matched the equalized rate — $1.56 in Plymouth, $1.48 in Hopkinton and $1.35 in Newport.
While the SWEPT is a fraction of property tax bills, its effect is significant. In Newington, a median-priced home of $450,000 is taxed 40 cents per $1,000, or $180, in SWEPT to fund an adequate education, while a comparable home in Hopkinton is taxed $1.48 per $1,000, or $666, more than three times more.
In defense of the state, Senior Assistant Attorney General Sam Garland argued that the plaintiffs have confused the setting and assessment of the SWEPT with the distribution of the revenue it generates. When the Legislature allowed municipalities to retain excess SWEPT, Garland stressed, it made no changes to the tax itself, but sought “to bolster local control and eliminate donor towns.”
In reaching his decision to find the administration of the tax unconstitutional, Ruoff wrote, Communities that do not generate excess SWEPT funds use all their funds generated under the fiscal SWEPT rate for adequacy aid purposes, and excess SWEPT communities do not. There can be no meaningful dispute that allowing communities to retain excess SWEPT funds lowers the effective SWEPT rate paid by those communities.”
Likewise, Ruoff ruled that all communities, including municipalities and incorporated places with minimal educational expenses, must levy the SWEPT at its full rate, striking the ploy of negative tax rates. Public education benefits the entire state, he wrote, not only those communities where public school students reside. Setting negative local school tax rates that offset SWEPT “to any degree,” Ruoff held, runs afoul of the Constitution.
Ruoff acknowledged that any “immediate remedy” that would affect the current budget cycle would be imprudent, but ordered that, beginning with the upcoming budget cycle — which gets underway late this year and culminates with votes in March or April 2024 — the state must be enjoined from permitting municipalities to retain excess SWEPT or set negative tax rates. Furthermore, any excess SWEPT funds must be remitted to the Department of Revenue Administration.
The state is likely to appeal both Ruoff’s decision to the NH Supreme Court, where this round of litigation first struck its roots three decades ago.
