CONCORD, NH — Once again the state’s education funding system faces a legal challenge.
A lawsuit filed Tuesday in Grafton County Superior Court against the state by state residential and commercial property owners claims the state failed to meet the 1997 Supreme Court’s Claremont II decision declaring the use of local property taxes with varying rates to pay for the state’s obligation to provide its students with an adequate education is unconstitutional.
The court said local property taxes serve as state taxes when they help pay the state’s obligation to provide an adequate education.
In its ruling 25 years ago, the court said the constitution requires taxes to be “equal in valuation and uniform in rate throughout the State” when it declared the education funding system unconstitutional.
Brought by property owners in Plymouth and Penacook, a village in the City of Concord, the suit focuses on the disparities in tax rates among the Pemi-Baker and the Merrimack Valley and Concord school districts. Penacook has historically had its own school district separate from Concord.
“The system is badly broken,” said attorney Andru Volinsky, who was the lead attorney with John Tobin for the original Claremont education lawsuit, “and there is nothing on the horizon to fix it.”
He noted the Con-Val lawsuit claiming the state fails to pay the true cost of an adequate education is scheduled for trial in April and his group seeks to consolidate the two suits.
The suit filed Tuesday focuses solely on three aspects of the education funding system: the disparities in property tax rates, the inequities in the statewide education property tax (SWEPT) collection and the use of negative local school property tax rates to avoid paying the statewide education tax.
The system of widely varying school property tax rates affects so many things in New Hampshire and is exacerbated by the fact the state is the most reliant on property taxes to fund public education in the country, Volinsky said.
The state’s education funding system impacts “business competitiveness, familial costs, affordable housing, construction, being able to attract young families to take jobs,” Volinsky said. “It is all related to this crazy quilt scheme we have.”
Tobin said, “The reliance on widely varying local tax rates to fund the State’s responsibility to provide public education clearly violates the New Hampshire Constitution and the principles established in the Claremont cases. More importantly, the uneven funding of education in New Hampshire affects the ability of poorer districts to provide for the varying needs of their students. As the Supreme Court noted long ago, absent public education, students cannot become ‘competitors in the marketplace of ideas.’ This hurts students and hurts taxpayers and businesses in most communities across our state.”
The suit contends the administration of the statewide education property tax is also unconstitutional because it allows property wealthy communities that do not need all the levy’s money to provide their students with a state-defined adequate education to retain the surplus money instead of using it to help property-poor communities.
There are no restrictions on how towns and cities may use the surplus property tax money.
The state sets the cost of an adequate education at $3,709 per student with the average grant $4,578 with additional money for students in poverty, who speak English as a second language or need special education services.
The average statewide cost to educate a child for the 2020-21 school year was $18,434.21, according to the Department of Education, the suit notes.
Local property taxes with varying rates fill the gap between the actual cost and what a school district receives in adequacy grants.
The statewide average for the local education property tax rate was $11.33 per $1,000 of equalized valuation for the 2020-2021 school year.
Pemi-Baker towns have tax rates that vary from a high of $15.25 per $1,000 in Campton to lows of $3.33 per $1,000 in Waterville Valley and $6.90 in Holderness, while Plymouth, where plaintiff Steve Rand Lives and owns property, has a tax rate of $13.69 per $1,000.
In Penacook, where plaintiffs Robert Gabrielli, M.D., and Jessica Wheeler Russell own property, the 2020-2021 school tax rates for the statewide property tax and local school tax were a combined $16.74 per $1,000, while Concord property owners paid $13.81.
Volinsky said with regional school districts, the students receive the same educational services, but the parents pay different tax rates to support those services.
He said if a person buys a house in Penacook which is in the Merrimack Valley Regional School District, the same house a mile away in the Concord School District has a tax rate dollars lower than in Penacook.
“That is a troubling anomaly of the system and a product of how the system works,” Volinsky said, “and how it clearly is a local system and not a statewide system.”
Some small communities with no or few children set their school tax rate in negative numbers so they do not have to pay the statewide property tax.
For example, Hale’s Location sets its local school tax rate at negative $1.84 per $1,000, while its statewide property tax rate is $1.85 for an effective rate of one cent.
A total of nine North Country communities use the negative tax rate to pay little or no statewide property tax.
“Petitioners expect this tax avoidance strategy to continue regardless of the amount of revenue generated by the SWEPT,” according to the suit.
The suit also looks at the equalized valuation available to a community to pay to educate one child in the Kindergarten to 12th grade system.
According to calculations statewide, equalized valuations per pupil in 2020-2021 school year ranged from a low of $523,285 per pupil in Claremont to a high of $120,861,443 per pupil in Millsfield, and for communities with at least 100 school-aged children, the high was $8,987,902 per pupil in Moultonborough.
Portsmouth had an equalized valuation per pupil of $3,399,350, just shy of three times the state average, while Plymouth had $942,652.32 per pupil, meaning Plymouth has about 70 percent of the financial strength to raise money for its schools as the average school district in New Hampshire.
Volinsky noted the disparities are growing worse over time with 70 percent of students in districts below the state average, while the wealthier school districts are growing their valuations per student.
“We’re witnessing the widening of the divide,” Volinsky said. “It is worse now judging by the number of kids on one side of the divide versus the other.”
The state has never been in compliance despite the court’s key decision in December 1997, he said.
“And this is both Republicans and Democrats failing to deal with this,” Volinsky said. “It is a bipartisan failure.”
The attorneys representing the plaintiffs include: Natalie Laflamme of Concord, John E. Tobin, Jr., of Concord, Andru Volinsky of Concord, Gregory Little of Education Law Center, Joshua D. Weedman, Michael-Anthony Jaoude, Alexandra Zegger White & Case LLP of New York.
