N.H. Court Upholds Schools Tax As Funding Debate Rages
New Hampshire's highest court last week upheld the constitutionality of the statewide property tax the state uses to pay for its schools.
The supreme court's narrow, 3-2 ruling came in a week when the state's long- running school finance troubles dominated newspaper headlines in the Granite State. On Thursday, the House of Representatives approved a plan to fill a $240 million hole in the state's school budget for the next fiscal year by repealing a business tax credit and raising the rooms and meals tax.
The bill now goes to the Senate, where members are already working on their own ideas for financing education. Gov. Jeanne Shaheen, a Democrat, strongly opposes the House measure.
"This is New Hampshire's version of the movie 'Groundhog Day,'" said Dennis E. Murphy, the executive director of the New Hampshire affiliate of the National Education Association. He was referring to the film in which the main character, played by Bill Murray, woke up each morning to find himself stuck in the same day.
"The House and Senate keep trying to pay for schools without taxing anything," added Mr. Murphy, who favors an income tax to finance schools.
Major milestones in the school funding saga came with New Hampshire Supreme Court rulings in both 1993 and 1999 that declared that the finance systems in place at those times were unconstitutional.
Both rulings stemmed from a lawsuit brought by a coalition of five poor towns. Those communities claimed they were unable to provide an adequate education for their children because the state's previous funding system relied too heavily on local property taxes to pay for schools.
To fix the problem temporarily, the state instituted a uniform, statewide property tax of $6.60 on $1,000 of property value in 1999.
System Called Flawed
But the tax ran into opposition from better-off communities, which complained that their tax dollars were being used to subsidize schooling in poorer towns.
Led by Mayor Evelyn Sirrell of Portsmouth, property owners in three of the "donor towns" brought a lawsuit against the state in December 1999. Arguing that the taxing system was suspect, they won their case last year in a trial court.
In overturning the lower court's decision on May 3, the supreme court said the donor towns had proved that the system was flawed—but not flawed enough to be unconstitutional.
"What they did not prove is that the flaws resulted in a systematic pattern of disproportionate taxation," the high court wrote.
In their dissenting opinion, Chief Justice David Brock and Justice John Broderick argued that the court had introduced a new burden of proof for successful challenges to state taxes on constitutional grounds—one that would be almost impossible to meet.
The court's majority decision was welcomed, however, by Gov. Shaheen, said her spokeswoman, Pamela M. Walsh. She said the governor, a Democrat, was already taking steps to correct the problems cited by the supreme court.
House lawmakers said the ruling may have bolstered their efforts to pass a school funding bill this legislative session.
In recent weeks, the Republican-dominated House turned down four separate proposals to pay for schools with an income tax, a sales tax, or higher business taxes.
The rejected sales-tax proposal had been a centerpiece of the governor's plan for solving the school finance problems. ("N.H. Governor Proposes Sales Tax To Pay for Schools," Feb.14, 2001.) Granite Staters have been steadfast in their opposition to most new taxes.
Hybrid Bill Emerges
Approved by a margin of 181-172, the tax package that finally emerged in the House on the evening of May 3 was a hybrid of several Republican-backed plans. It would raise the rooms-and-meals tax from 8 percent to 9 percent, generating about $25 million of the $240 million that is needed.
In voting for the package, legislators rejected a competing proposal to underwrite schools through an electricity-consumption tax.
"The electricity tax is something that everybody has to pay, including the little old lady on a fixed income, but a rooms-and-meals tax is more discretionary," said Rep. Steve Vaillancourt, a Libertarian and the co-sponsor of the rooms-and-meals amendment.
Lawmakers also voted separately to reduce the state's property tax to $5.95 per $1,000 of property value. That change was inspired by new reports from the state documenting large increases in property values.
To opponents of the tax measure, however, the plan offers only a temporary solution to a persistent problem.
That's because it maintains as its primary funding mechanism the controversial property tax—a tax that was originally intended as a stopgap remedy.
Vol. 20, Issue 34, Page 22