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Paying the price of state downshifting



Last modified: Wednesday, February 15, 2012
New Hampshire, according to the Federal Reserve Bank of Boston, relies more heavily on property taxes to fund government and educate children than any other state. It is an unfair system that places an exceptionally high tax burden on some communities, generally those whose residents have the least ability to pay, and lets others off lightly. It's also been getting worse.

The recession, and repeated cuts in state aid to cities and towns, has increased the reliance on local property taxes, the New Hampshire Center for Public Policy Studies reports in a new study. That's all the more reason to welcome to the governor's race a candidate, former state senator Jackie Cilley of Barrington, who has not taken the simplistic pledge to oppose any broad-based sales or income tax. At a minimum, her candidacy should provoke yet another public discussion of New Hampshire's archaic tax system and its inherent inequities.

In 2001 local property taxes, on average, accounted for 56 percent of city, town and school spending. By 2010, that figure had become 60 percent, a 4 percentage point gain. That increase does not take into account further downshifting to cities and towns by the Legislature in 2011, when it eliminated the state's once 35 percent share of municipal employee retirement costs.

The sting of the tax bill has been made all that much worse because owners are paying more on property that's worth less - and getting less in return in the form of municipal services. Reductions in state revenue sharing caused most communities to eliminate jobs, defer capital spending and slash funding for conservation, housing and economic development.

The total valuation of the property in the state, which hit $174 billion in 2007, has fallen to $157 billion. When the decline in values is not accompanied by a corresponding cut in municipal spending, tax rates increase. Those increases hit residents far harder in some communities than others. In the Lakes Region and tourist areas of the White Mountains, second homes account for some 30 percent of the tax base. That shifts the cost of government out of town and in many cases out of state. But in much of the state, second homes make up as little as 5 percent of the taxable property.

The percentage of government funded by local tax revenue varies widely. Some communities receive much more in state school aid than others, and in some license fees fund a sizeable share of the budget. Property taxes accounted for 51.9 percent of Concord's total budget in 2010, but made up 71.6 percent of Canterbury's spending, 79.1 percent of Webster's budget, and a whopping 84.4 percent in Newbury. Franklin came in at the bottom with local property taxes funding just 40.8 percent of government, the center found.

Should the school funding constitutional amendment backed by Gov. John Lynch and the Senate become law, the gap in local tax effort between communities will explode, since some will get more state aid and others will get very little. It would mean further tax increases or deeper budget cuts for many cities and towns.

The most galling thing about the state's massive downshifting of the cost of government to the local level is that the state's revenue picture has improved. Receipts are coming in over projections, revenue that the Legislature opted to no longer share. That's not the case for cities and towns. Property values remain low and development is slow or, in the residential sector, almost nonexistent. Without even considering the harm the Legislature could do this session, all this almost certainly means higher property taxes than ever next year.