New Hampshire School Fight May End State's Tax Taboo


For nearly three decades, pledging to veto broad-based taxes has been a rite of passage for New Hampshire governors. No one spurning the pledge has ever won the state's highest office, and Gov. Jeanne Shaheen was no exception in winning her second term last November.

But New Hampshire's status as one of two states without a general income or sales tax Alaska is the other -- is in jeopardy, Shaheen's promise notwithstanding.

Why? Because New Hampshire is under a state supreme court mandate to find a fairer way to pay for public schools than its current, locally based property tax system. Many analysts believe avoiding broad-based taxes will be impossible, especially if the state must raise $500 million to $1 billion as expected.

In December 1997, the court ruled that New Hampshire's near-total reliance on widely varying local property taxes to pay for public schools was unconstitutional. It gave the governor and the Legislature until the end of the current tax year, April 1, to enact a solution.

The court said public education is a state duty that must be paid for with a state tax. New Hampshire had been leaving it to communities to raise 91 percent of the cost through locally assessed property taxes.

Since the state constitution requires taxes to be proportional, the property tax can only be used in the future to pay for schools if its rate is uniform statewide, the court said.

The ruling also affirmed an earlier decision in which the court said the state must provide an adequate education and ensure it is adequately funded. It left it to the governor and Legislature to decide what's adequate.

Since the ruling, Shaheen, a Democrat, and the Republican-controlled Legislature have considered various plans but failed to find a solution.

Shaheen offered a hybrid statewide property tax plan where the state paid the share wealthy towns would have had to pay under a ``pure'' statewide property tax. The plan passed the 400-member House. But Senate Republicans, who were in the majority, asked the court to review it. The court said it was unconstitutional because it failed to equalize property tax rates.

Another faction tried to put constitutional amendments to voters last November to nullify or modify the court ruling. Exasperated with the court's decision on her plan, Shaheen threw her support behind an amendment, but all attempts failed.

A third group pushed various broad-based tax plans, all of which died in the Legislature.

After her re-election, Shaheen, joined by legislative leaders, asked the court for a two-year postponement.

In its fourth and harshest ruling on the issue, the court chastised the state and said children and taxpayers had waited long enough for fairness. It let stand its April 1 deadline for the school portion of the property tax to become unconstitutional and uncollectable.

Meanwhile, a special commission had spent months arguing over the state's share of the $1.4 billion spent on education in New Hampshire annually. In a split report, the majority said paying $631 million would be enough to provide an adequate education to the state's schoolchildren.

Outraged school activists pointed out that parents pay more per child for daycare than the commission proposed spending for each school pupil.

Legislators now must decide whether to accept the commission's recommendation or come up with a new figure, then decide how to pay for it.

If the state tries to ``cheapen'' its share, the five school districts whose lawsuit led to the court rulings stand ready to challenge its plan.

But the plaintiffs also may be disappointed if they push for the state to spend more money on education than the $1.4 billion now spent. The court never said too little money was being spent, only that it was spent disproportionately due to inequitable taxation.

New Hampshire has just boosted its aid distribution to schools to $128 million. The $500 million increase recommended by the commission is roughly half the state's annual general tax revenues.

Even die-hard anti-taxers believe that makes a broad-based tax inevitable despite Shaheen's veto pledge. And she may have to deal with a Legislature more willing to accept a broad-based tax if it means property tax relief to its constituents. Democrats, who control the Senate for the first time since 1912, are led by a longtime income tax supporter.

Many believe a small statewide property tax coupled with money from other sources, such as allowing video lottery machines at the state's four racetracks or a one-percent tax on goods and services, will be used to pay for schools. Others, including Senate President Clesson Blaisdell, want an income tax.

Cracks may be appearing in Shaheen's promise, insofar as a statewide property tax is concerned. Her legal counsel says it may be possible to restructure the tax to make it acceptable to the governor.

Shaheen proposes using a Michigan-style referendum to give voters a final say, which could let her off the anti-tax pledge hook. Michigan adopted a school tax plan in 1994 and let voters decide whether to keep it or adopt an alternative.

Hurdles remain, however.

House Speaker Donna Sytek, the highest elected Republican state official, opposes both broad-based taxes and the referendum approach. But even Sytek says she doesn't know if an alternative exists to broad-based taxes.


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