School-funding suit plaintiffs offer settlement: rectify SWEPT’s inequity

Offer asks state to bring uniformity to statewide property tax
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Attorneys challenging the constitutionality of the statewide education property tax on behalf of Steve Rand of Plymouth and five other property taxpayers have proposed a settlement that would resolve the issue without further litigation – apart from acknowledging the offer the state has not responded.

The so-called SWEPT was introduced in 1999 as a means of meeting the state’s obligation to fund an adequate education with taxes uniform in rate and equal in valuation throughout the state. But in a number of municipalities with relatively high equalized property valuations, the tax raises more revenue than required to defray the cost of an adequate education.

Since 2011 those municipalities have been entitled to retain the excess while in other, smaller communities, the Department of Revenue Administration sets negative local school tax rates to offset the SWEPT.

Natalie Laflamme, representing the plaintiffs, said, “The state has not offered a defense to these practices in the face of the plaintiffs’ constitutional claims that state taxes must be uniform across the state.” Instead, she added “the state clams it would be too disruptive to correct the practice.”

The settlement, Laflamme said, provides “a clear timeline for the state to come into compliance.” It proposes the state cease setting negative tax rates at the beginning of the next tax year, on April 1, 2024, and require all excess SWEPT funds be remitted to the state’s Education Trust Fund at the start of the following tax year on April 1, 2025.

The plaintiffs argue the constitutionality of the tax hinges not on its nominal rate but on its effective rate, which represents the actual burden and practical effect on taxpayers. The SWEPT, they claim fails that test.

Wide-ranging impacts

The plaintiffs submitted data measuring the difference between the equalized SWEPT rate and the rate required to fund an adequate education in the 34 municipalities that retained excess SWEPT in 2021-2022.

Equalized SWEPT rates ranged from $1.13 per $1,000 valuation in Sugar Hill to $1.53 in Hales Location. But the rates required to fund an adequate education, which the state constitution requires be uniform throughout the state, were less than the equalized rates. The difference between the two rates funds the excess SWEPT.

For example, the effective rate to fund an adequate education is 28 cents in New Castle, 40 cents in Newington, 44 cents in Moultonborough, 51 cents in Lincoln, 59 cents in Center Harbor and 63 cents in Waterville Valley. The effective equalized SWEPT rate in three of the five plaintiffs’ towns matched the equalized rate — $1.56 in Plymouth, $1.48 in Hopkinton and $1.35 in Newport.

While the SWEPT is a fraction of property tax bills, its effect is significant. In Newington, a median-priced home of $450,000 is taxed at 40 cents per $1,000, or $180, in SWEPT while a comparable home in Hopkinton is taxed at $1.48 per $1,000 or, $666 – over three times more.

According to the education funding plan enacted by the Legislature earlier this year, 43 municipalities will retain $27.3 million in excess SWEPT revenue and negative tax rates will be set in seven towns and unincorporated places.

“There is no question that the state’s actions have violated the rights of the plaintiffs and countless other taxpayers around New Hampshire by giving some property owners special treatment,” Laflamme said. She noted that settlement of the issues arising from the litigation requires the approval of the Legislature and encouraged citizens to contact their representatives and senators.

Meanwhile, both the plaintiffs and the state have filed pending motions for summary judgment on the question of the constitutionality of the SWEPT. In July, Rockingham Superior Court Justice David Ruoff said he thought the question “is ripe for a summary judgment one way or the other,” explaining that there is no factual dispute about how the tax is calculated, applied and collected.

Ruoff also presides over the trial in the school funding suit brought by the ConVal School District, which ended in May, as well as the suit challenging the school funding system brought by Rand and five other property taxpayers scheduled for trial on Sept. 25.

And the state recently filed a motion for summary judgment in the Rand case.

Last week, after earlier indicating he expected to rule on the ConVal case and SWEPT issue in the Rand case by the first two weeks of September, he stayed the trial in the Rand case pending his rulings in ConVal and the SWEPT question.

Categories: Education, Government, Law