Opening hearing is Friday in challenge to NH’s school-funding scheme
Grafton County court to hear plaintiffs’ call for statewide property tax injunction
Editor’s note: This article has been clarified to better explain the plaintiffs’ argument in their suit.
The opening round in the challenge to New Hampshire’s system of funding public education will begin this Friday morning in Grafton County Superior Court with a hearing on the plaintiffs’ motion for an injunction to prevent the state from levying the Statewide Education Property Tax.
The suit was filed in June by attorneys Andru Volinsky, John Tobin and Natalie Laflamme on behalf of five property owners who charge that the state is violating the mandates issues in the NH Supreme Court’s landmark Claremont cases of the 1990s.
The suit argues that the state is shirking its constitutional duty to fund an adequate education through the Statewide Education Property Tax, or SWEPT, which it says fails to meet the court’s test that, if used, such a tax must have a uniform rate and the valuation must be equal.
In their Claremont ruling, 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.” The rates of both local education taxes and SWEPT vary from one municipality to another.
With their litigation pending, the plaintiffs in October raised the ante by asking the court to enjoin the SWEPT.
Levied at a fixed rate, the SWEPT is a surcharge on the local education tax, the proceeds of which are collected by municipalities and passed to school districts. The SWEPT raises $363 million a year, representing the largest single source of the Education Trust Fund, which funds the state share of education costs.
Since 2011, municipalities where receipts from the SWEPT exceed the cost of an adequate education have been entitled to retain the excess funds, which they may use to lower property taxes or fund other public purposes. Consequently, taxpayers in these municipalities are spared the liability of paying the SWEPT at the full rate paid by taxpayers elsewhere in the state. This scheme, which undermines the uniformity of property tax rates by abating taxes, have been expressly ruled unconstitutional by the NH Supreme Court.
Last year, when the House Ways and Means Committee considered House Bill 504 to end this practice, Bill Ardinger, head of the Tax Practice Group at Rath, Young & Pignatelli, urged said the bill offers “one possible method to address the potentially serious constitutional risk of current law.” The bill was referred to interim study.
In asking the court to deny the motion to enjoin the SWEPT, the state contends the plaintiffs’ lack standing to seek an injunction. The question Citing a ruling in the first Claremont case, or Claremont I, the state argues taxpayer standing is limited to Part II, Article 83 of the state Constitution, conferring the right to an adequate education.
The plaintiffs counter that this argument overlooks Claremont II, in which the court granted standing with respect to Part II, Article 5, which covers proportional and reasonable taxes. In fact, in Claremont II the justices confined their ruling to the one of six counts challenging disproportionate and unreasonable property taxes brought by individual taxpayers.
While the state argues the plaintiffs have failed to show a “cognizable injury,” the court in conferring standing attached no such requirement.
The plaintiffs note that Part 1, Article 8 of the Constitution grants taxpayers standing to petition the Superior Court to declare whether the state or a political subdivision has spent or approved spending of public funds in violation of the law without having to show their rights were impaired.
“Under the state’s purported arguments, no Plaintiff would ever have standing to challenge an unconstitutional state education tax. That cannot be the case,” the plaintiffs counter in their argument.
The state also argues the plaintiffs have no claim because they are not challenging how the SWEPT is assessed but how the proceeds from the tax are distributed. In other words, the state argues, the plaintiffs are contesting how the revenue is distributed after they are collected and not how they are generated, which is the sole criterion of reasonable and proportional taxation.
In 1999, when the SWEPT was originally introduced, at a rate of $6.60 per $1,000, it included an abatement, subtracted from the tax calculation, to municipalities where the tax generated more revenue than required to fund an adequate education. The state claims the SWEPT, which does not adjust the tax calculation, is different. However, the plaintiffs counter that the court held the abatement unconstitutional whether in the form of an adjusted tax bill or a reimbursement payment.
The state also contends that the abatement process provides the plaintiffs an “adequate remedy at law,” a contention the plaintiffs call “fundamentally flawed.”
The abatement process, they explain, is designed to resolve specific issues of fact, such as a dispute over the valuation of a particular property, not to address the legal issues arising from the imposition of an unconstitutional tax, which affects all the taxpayers of a municipality.
According to the New Hampshire Practice Series, “the proper method of dealing with the assessment of an illegal tax … is a petition for an injunction.”
Finally, the state warns that enjoining the SWEPT would render the entire education funding system inoperable, a claim the plaintiffs dismiss as “a doomsday scenario not based in reality.” The “minimal harm” arising from an injunction, the plaintiffs says, is “self-inflicted,” as reflected by the Legislature’s failure to heed Ardinger’s advice and subsequent treatment of HB 504.
The plaintiffs insist the response to an injunction is “simple,” requiring only that the commissioner of Revenue Administration order municipalities to remit excess SWEPT funds to the state and forbid them from offsetting SWEPT with negative tax rates.
Finally, the state is asking the court deny the injunction and issue a declaratory judgment, leaving the SWEPT in place and affording the Legislature time to fashion a new system.
The plaintiffs counter that the court has shown deference to the Legislature for 30 years only to have its mandates ignored and be asked for further deference.
“The cycle must come to an end,” the plaintiffs wrote.