Attorneys ask court to find SWEPT unconstitutional, but questions arise

This week, attorneys for the plaintiffs in the school funding litigation before the Rockingham County Superior Court will ask Justice David Ruoff to find the statewide education property tax (SWEPT) unconstitutional, a ruling that would rescind the tax as of the 2024 tax year.

There are three major questions posed by the litigation. First, is the state’s determination that $3,706 per student is sufficient to fulfill its constitutional duty to fund an adequate education? Second, if this amount is insufficient, are local property taxes, levied at varying rates from one municipality to another, required to fund the shortfall? And finally, is the SWEPT administered in conformity with the Constitution?

After the suit was filed in June, plaintiff attorneys Andru Volinsky, John Tobin and Natalie Laflamme fastened on the SWEPT as the low-hanging fruit. In October they sought to enjoin the SWEPT for the 2023 tax year.

In December, Ruoff denied their motion for a preliminary injunction, which he found would disrupt the processes of setting municipal tax rates and preparing municipal budgets already underway.

Without questioning Ruoff’s decision, the plaintiff attorneys note that his order did not address the merits of their claim that the SWEPT is unconstitutional. They add that the court acknowledged that the facts surrounding the administration of the SWEPT are not in dispute, leaving the legitimacy of the tax a matter of law.

By asking the court to issue a partial motion of summary judgment declaring the SWEPT unconstitutional, the plaintiffs seek to resolve the issues raised by the SWEPT before the beginning of the next property tax year on April 1, 2024. All parties, they say, would benefit from a ruling prior to the start of the next property tax year. Moreover, since the Legislature would be in session there would be an opportunity for a legislative remedy.

The SWEPT is levied at a fixed rate to raise $363 million a year. The tax is collected by municipalities and appropriated to school districts without passing through the state coffers.

Since 2011, municipalities where receipts from the SWEPT exceed their cost of an adequate education have been entitled to retain the excess funds, which they may use to fund other public purposes or set a negative local school tax rate, offsetting the SWEPT altogether.

It is important to note that municipalities do not set their tax rates. The Department of Revenue Administration sets municipal tax rates. In other words, a state agency has not only permitted municipalities to retain excess SWEPT revenue but also set negative local school tax rates.

Consequently, many taxpayers pay higher effective property tax rates than their counterparts in municipalities with excess SWEPT revenue or negative local tax rates.

In 2020-2021, 34 municipalities retained $24,419,040 in excess SWEPT. In another 21 municipalities, the local school tax was set at a negative rate.

Taxpayers in these municipalities are spared from paying the SWEPT at the full rate paid by taxpayers elsewhere in the state, contrary to the mandate of the New Hampshire Supreme Court in the foundational Claremont litigation of the 1990s.

Then the justices held “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” in conformity with the Constitution, which requires taxes be “proportional and reasonable.”

Despite this express language, the plaintiffs claim, “the State has repeatedly sought new schemes to alleviate the tax burden on wealthier towns. And, each time, the courts have held these schemes unconstitutional.”

In 1999, when the SWEPT was introduced, the New Hampshire Supreme Court advised that abatements to municipalities where property values generated more revenue than required to support an adequate education were unconstitutional. The court also rejected a proposal to allow property-rich towns to remit the full tax gradually over five years while requiring less prosperous towns to pay the full rate at once. And in 2006, the Superior Court ruled allowing municipalities to retain excess funds unconstitutional.

The court dismissed the argument that the “special abatement is designed to protect towns from financially contributing to the adequate education of children in other towns or school districts” and remarked “difficult decisions which may cause social unrest cannot be a factor in the court’s review.”