NH Superior Court: Parallels exist between disproportionate property taxation, educational opportunity

Gov. Sununu claims NH spends 'the most' on public education, but unequal property taxes fund 70% of public school expenditures

After Judge David Ruoff of Rockingham County Superior Court ruled  the system for funding public education unconstitutional,  Governor Chris Sununu told the New Hampshire Union Leader, “New Hampshire currently spends among the most per capita on public education than nearly any other state.”

The Governor is correct. Last month, the U.S. Census Bureau reported that in Fiscal Year 2022 New Hampshire spent $21,605 per pupil, a figure topped by only five states, all in the Northeast: New York, New Jersey, Vermont, Connecticut and Massachusetts, in that order.

However, the Governor’s statement is beside the point. The school funding litigation turns not on the sum total of expenditures, but instead on the inequitable sources of the revenue raised to fund the lion’s share of them. Property taxes, state and local — both levied at unequal rates — fund 70% of public school expenditures.

While only five states spend more per pupil than New Hampshire, in only one state is the state share of education expenditures less than in New Hampshire.

Consequently, the burden on property taxpayers varies from one municipality to another and with it the quality of the educational opportunities they provide for their children. The crux of the school funding issue lies in ensuring equitable treatment of taxpayers and equitable educational opportunities for school children.

School funding litigation is controlled by the landmark orders of the NH Supreme Court in the suits brought by the Claremont School District in 1993 and 1997. First, the justices held that the Constitution places an “unequivocal legal duty” on the state “to provide a constitutionally adequate education to every educable child” as a “fundamental right” and “to guarantee adequate funding.”

Four years later the court ruled that “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.”

At the same time, the justices drew a parallel between disproportionate property taxation and disproportionate educational opportunity, finding that “imposing dissimilar and unreasonable tax burdens on the school districts creates serious impediments to the State’s constitutional charge to provide an adequate education for its public school students.”

The justices’ conclusions about the fiscal capacity of municipalities, measured by disparate property valuations and property tax rates, were reaffirmed by the American Institute for Research report to the Commission to Study School Funding convened by the Legislature in 2019. The report found that in districts with relatively low property values and high numbers of children living in poverty or having special needs, academic performance lagged median levels of achievement across the state.

In FY 2022, the Department of Education reported the total revenue of school districts came to $3.6 billion. Local property taxes funded $2.2 billion, or 60%, of total expenditures. The Statewide Education Property Tax (SWEPT), which is added to the local  property tax bill, raised $363 million, or 10% of the total. The state share amounted to $624 million drawn from a basket of state taxes and fees and $84 million from “other state sources,”  which together represented 17% of the total. Federal funding of $323 million and $58 million in “other local revenue” amounted to 13% of the total.

The recent round of litigation tried by Judge Ruoff consisted of  two separate if similar challenges to the education funding system, one brought by the Con Val School District and the other by Steven Rand and five other property taxpayers.

The ConVal School District, represented by Attorneys Michael Tierney and Elizabeth Ewing, simply charged that the per pupil appropriation of $3,708 and $3,786 in FYs 2021-22 fell far short of what is required to fulfill the state’s duty to fund a constitutionally adequate education. However, apart from seeking to increase funding for base adequacy to $9,929 per pupil, the ConVal plaintiffs did not raise the issue of the unequal local property tax rates arising from the minimal state contribution to the state share of education expenditures.

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.” Furthermore, he concluded that the plaintiffs had demonstrated “a clear and substantial conflict” between the amount of base adequacy and Part II, Article 5 of the Constitution, which the NH Supreme Court ruled requires the state to fund an adequate education.

Acknowledging the Legislature should have the last word, Ruoff held the base cost of an adequate education should be “no less than $7,356.01 per pupil, adding “the true cost is likely much higher than that.” This, he calculated, amounted to an increase in the state’s share of funding for education of $537,550,970.95 “at a minimum,” prompting the Governor’s remark.

Meanwhile, the Rand plaintiffs, represented by Attorneys Andru Volinsky, John Tobin and Natalie Laflamme, have mounted a more comprehensive challenge to the education funding system. They argue that by failing to fund the cost of an adequate education, the state has shifted its responsibility to municipalities, where local property taxpayers are saddled with disproportionate taxes in violation of Part II, Article 83 of the Constitution.

While the Rand case is likely to be scheduled for trial in the next year, the plaintiffs filed a separate motion asking the court to find the SWEPT unconstitutional. They argued that the state, by allowing municipalities where revenue from the tax exceeded the cost of an adequate education to retain the excess, reduced the effective tax rate contrary to the constitutional requirement that state taxes be uniform in rate throughout the state.

Ruoff agreed. “In short,” he 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,” he continued, “that allowing communities to retain excess SWEPT funds lowers the effective SWEPT rate paid by those communities.”

The Judge ordered, beginning with the upcoming budget cycle — which gets underway late this year and culminates with votes in March or April 2024 — the state be enjoined from permitting municipalities to retain excess SWEPT. Furthermore, any excess SWEPT funds must be remitted to the Department of Revenue Administration.

The day after Ruoff issued his order in the ConVal case, Laflamme, representing the Rand plaintiffs, filed a motion asking for partial judgment on their claim that the state has failed to fulfill its duty to fund an adequate education, which she argued was confirmed by his decision in the ConVal suit.

The motion stated: “The State does not currently guarantee funding sufficient to cover the cost of an adequate education. As a result, New Hampshire must rely on local school taxes to bridge the gap. The local school taxes violate Part II, Article 5 of the New Hampshire Constitution because they are not uniform in rate.”

Meanwhile, Laflamme advised the court that the Rand plaintiffs do not agree with the minimum amount of $7,560.01 per pupil the court set for base adequacy, reminding the judge that he acknowledged the figure “would in actuality be far too low, and would likely not survive scrutiny.”  Likewise, she noted that the sufficiency of differential aid, a stipend added to base adequacy to serve students with special needs, was not considered in the ConVal proceedings, but would be raised when the Rand case comes to trial.