The stage is set for the three-cornered litigation over the legitimacy of the Statewide Education Property Tax (SWEPT) before the New Hampshire Supreme Court, which will weigh the state’s appeal of the ruling by Judge David Ruoff of Rockingham County Superior Court that the administration of the tax is unconstitutional.
Three parties have squared off before the court. The state and Coalition Communities, a consortium of property-rich cities and towns, are asking the justices to overturn Ruoff’s decision. The plaintiffs in the Rand school funding case, which remains to be decided in Superior Court, are urging the court to uphold it.
The NH Supreme Court has scheduled oral arguments in the appeal for Wednesday, Nov. 13 at 11 a.m.
The state is represented by Attorney General John Formella and Solicitor General Anthony Galdieri and the Coalition Communities by John-Mark Turner of Sheehan, Phinney, Bass and Green. Attorneys John Tobin and Natalie Laflamme represent the Rand plaintiffs.
In the wake of the Supreme Court orders in the Claremont cases of 1990s that the state must “guarantee” funding to provide every child an adequate education, then Gov. Jeanne Shaheen and the legislative leadership at once turned to a statewide property tax to meet the state’s obligation. As Donna Sytek, speaker of the House, said at the time that of all taxes lawmakers have the most experience and understanding of property taxes.
Instead, apart from the failure of the state to comply with the Claremont orders, the administration of the SWEPT has proven the most contentious component of the school funding system, above all by affording financial advantages to the most affluent cities and towns least in need of them at the expense of those most in need of them.
The SWEPT is levied on taxable property throughout the state at a uniform rate set to raise $363 million a year, or 10 percent of the total school funding package. The tax is collected by municipalities and the proceeds are appropriated to school districts to defray the cost of an adequate education.
The state calculates each districts cost by multiplying the base cost of $4,182 per pupil plus additional dollars for each pupil living in poverty, learning English language and receiving special education services aid students by the district’s enrollment.
In some two to three dozen municipalities with abundant property wealth, the SWEPT raises more than required to meet the cost of adequacy. When the SWEPT was introduced in 1999, this excess was remitted to the state and distributed among municipalities where, for lack of sufficient property valuation, receipts from the tax fell short of the cost of an adequate education.
Cities and towns with excess SWEPT — dubbed “donor towns” — balked. The Legislature, with support from Shaheen, made three efforts to spare the donor towns the full rate of the SWEPT. First they proposed abating the excess altogether, then phasing the tax in over five years and finally letting donor towns keep the excess. The courts flatly rejected all three of these ploys.
Nevertheless, in 2011 the Legislature repealed the requirement to remit excess SWEPT, entitling municipalities to retain any excess.
By 2021 34 municipalities retained $24.4 million in excess SWEPT In FY 2021, 34 municipalities retained $24.4 million in excess SWEPT while the NH Department of Revenue Administration (DRA) has set negative local school tax rates in 21 incorporated places, offsetting the SWEPT altogether.
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 state constitution requires.
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 at 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 their defense the state and Coalition Communities argue that legitimizing the retention of excess SWEPT represents an “appropriation” or “spending decision,” which falls exclusively within the authority of the Legislature.
The plaintiffs counter that there is nothing in the legislative history of HB 337, the bill that repealed the requirement to remit excess SWEPT to the state, to indicate lawmakers even contemplated, let alone intended, spending a share of those revenues to increase state funding solely in affluent municipalities. Nor is there any evidence that the alleged appropriation underwent the budget process applied to all other appropriations.
Instead the plaintiffs claim the legislative history confirms that the sole intent and purpose of HB 337 was simply to do away with “donor towns,” a conclusion echoed by the Coalition Communities whose brief reads “the Legislature’s overriding purpose in making this change was to bolster local control and eliminate donor towns.”
In repealing the requirement to remit excess SWEPT, the Legislature amended the statute (RSA 76:8, II) prescribing the collection and distribution of the tax to require the tax be assessed, collected and paid “to the municipality for the use of its school district or districts.”
Referring to affidavits from four Coalition Communities, the plaintiffs argue that contrary to the statute these towns have treated excess SWEPT not as an appropriation for local schools but instead as “a fungible financial windfall,” to be spent “solely as they saw fit and only for their municipal benefit.”
Mark Decoteau, the town manager of Waterville Valley who chairs the Coalition Communities, explained that without excess SWEPT, which amounted to $504,321 in 2023, the town would hard pressed to build a new waste water treatment plant, overhaul its drinking water operations, upgrade its solid waste facilities, replace its fire truck and ambulance, and complete a major repaving and road repair project. Finally, he said the loss of excess SWEPT, which represents a third of the school budget, “will gut our school.”
Town Administration Karen Sanborn of Hebron calculated the town would forego $279,117 in excess SWEPT, which would crimp its plans for building a new library and community center while expanding services for its elderly population. The loss of excess SWEPT, she noted, would “limit our ability to provide public services to our community.”
In Moultonborough, Town Administrator Charles Smith noted that $4.6 million of the $5.1 million in excess SWEPT represents more than a quarter of the $16.6 million school budget. The loss of the funds, he said, “will have a serious impact on the education that the town is able to provide.” Smith added, the loss of excess SWEPT would hamper the town’s plan to expand its sewer lines to stanch run-off along its 15 miles of shoreline on Lake Winnipesaukee, which contributes to algal and cyanobacteria blooms.
Matthew Scruton, town administrator in Rye, provided a list of projects that would be at risk without the town’s $2.2 million in excess SWEPT. These include repairing and paving roads, repairing or replacing a bridge, purchasing a fire engine and an ambulance and upgrading the fuel island at the transfer station.
The plaintiffs argue that the affidavits belie the presumption that excess SWEPT represents an appropriation by the state, which played no part in allocating funding for these infrastructure improvements and equipment purchases. At the same time, these expenditures of excess SWEPT funds contradict the statute requiring that any excess be appropriated to school districts.
Furthermore, the plaintiffs challenge the state’s argument that because unincorporated places are not municipalities there are “just reasons” for exempting owners of property within them from the SWEPT. For the purposes of the tax, they argue, the state itself has treated unincorporated places as municipalities, including them in its calculation of the SWEPT rate and tax and issuing warrants to all unincorporated places to collect the tax.
But, for more than decade, the DRA has set negative tax rates in unincorporated places, which offset the tax rate. For instance, in 2021 DRA set a SWEPT rate of $1.82 per $1,000 in Hale’s Location, where a home on a golf course sold for $995,000 in 2022, then set a local school rate of minus $1.82, which offset it.
The state also argues the exemption is justified by the differences between municipalities and unincorporated places. Property in unincorporated places, the state argues, is “subject to different benefits and burdens than property in municipalities.”
In particular, property owners may need to spend their own money to maintain and repair roads as well as provide for law enforcement and other services. Lacking the population and institutions to fund and share these costs the exemption from taxation enables these property owners to afford costs that otherwise would be met by municipal government.
This argument, the plaintiffs claim, ignores “the obligation that all taxpayers have to support public schools, regardless of whether the community is large or small or has only a small school population or none at all,” referring to the opinions of the Supreme Court in Claremont II.
