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N.H. Lawmakers Consider the Touchy Subject of Taxes

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Faced with what has been described as "grassroots outrage" over skyrocketing property taxes, lawmakers in New Hampshire are considering a once-taboo topic: state taxes.

Two Republican members of the state House this month formally announced their intention to file bills in the next session to impose, for the first time, state income or property taxes.

The aim of the proposals, sponsors say, is to reduce the reliance on local property taxes, which provide about two-thirds of state and local revenues. In addition, backers contend, the plans will shift more of the burden for funding services from lower- and middle-income homeowners to wealthier individuals and businesses.

But the plans face stiff opposition. Critics--including Gov. Judd Gregg--say they doubt the new levies would lead to property-tax cuts. The only way to control the growth in taxation, they argue, is to rein in spending.

The outcome of the debate has enormous consequences for schools. New Hampshire relies more than any other state on property taxes to fund public education.

Nearly 90 percent of education revenues in the Granite State come from property taxes, compared with a national average of about 40 percent.

"We have an incredible reliance on local revenue," said R. Dean Michener, associate director of the New Hampshire School Boards Association's center for education field services.

That reliance--which can create wide disparities in spending among school districts--also threatens to make the state vulnerable to a lawsuit similar those that have led to court decisions overturning the school-finance systems of Montana, Kentucky, and Texas this year.

"One of the problems we face is inequities across communities when we rely to that extent on the property tax," said Representative Douglas E. Hall, one of the sponsors of the tax measures.

Signing 'The Pledge'

The debate over state taxation has galvanized New Hampshire, where a legendary antipathy to government and its taxing power is typified by license plates that read "Live Free or Die."

Although proposals for state taxes have occasionally surfaced--an income tax was narrowly defeated in the legislature in 1972--resistance has proved too strong. The state's largest newspaper, The Union Leader of Manchester, has for decades insisted that candidates seeking its endorsement for statewide office sign "the pledge" against a state sales or income tax.

But that attitude has begun to change, observers say, in the wake of five years of double-digit increases in property taxes. In the past year alone, for example, revenues from such taxes rose by 17 percent, to $1.03 billion.

Those increases have been particularly hard on residents of poorer towns, Mr. Hall noted, since wealthier communities can raise revenue while keeping tax rates low. In such low-wealth communities, he said, "active revolts" have sprung up.

For example, the city council of Franklin, an old mill town near Concord, voted this year to limit spending hikes and place on the ballot a referendum to limit increases in property taxes.

"We must control spending," said Kenneth Larrivee, a city councillor in Franklin. "If we don't, they'll tax us out of sight."

But such tax revolts can cause severe hardships for schools, which are facing rising costs for special education, teacher salaries, and programs to meet state standards, Mr. Michener argued.

"There is quite a bit of a school district's budget that is based on items over which they have little control," he said.

'S.O.S. Local Government'

In the wake of the growing resentment of property-tax increases, Mr. Hall and Representative Bert Teague have begun discussing changes in the state's tax structure.

"The property tax is not usually debated in the legislature, because it's not a state-imposed tax," said Representative Hall. "But we can't as legislators wash our hands on the total system in the state."

Under their plans, the state would impose taxes and distribute funds to school districts, towns, and counties, with the aim of enabling the jurisdictions to lower property-tax rates.

Mr. Teague's bill would impose a 5 percent income tax; Mr. Hall would create both a statewide tax on nonresidential property and a 3.5 percent income tax. The funds would be distributed to communities on a per-pupil or per-capita basis, in order to reduce funding disparities between wealthier and poorer communities.

"The end result," Mr. Hall said, "is equalization among communities, and within communities, more of a burden on higher-income households and less on lower-income households."

The legislators have founded a group, Supporters of Strong Local Government Through Fair Taxation, or sos Local Government, to build support for the measures. They plan to enlist the support of business leaders, other legislators, and some prominent retired public officials.

But they acknowledge that they face an uphill battle.

"I do not anticipate that my bill will pass in 1990," said Mr. Hall. "Too many candidates ran in 1988 on 'the pledge' of no new taxes."

"But it is time to make this a significant public-policy debate in this state," he said. "We hope the Governor and legislative leaders can come up with proposals to raise new revenues to reduce property taxes and make the system fairer."

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