#

Lawmakers are considering a new solution to New Hampshire’s (potential) $500 million education funding dilemma:

Ignore the state Supreme Court.

A proposed House concurrent resolution (HCR) allows lawmakers to say the state Supreme Court’s 1993 Claremont decision, which defines a constitutional right to an adequate education, is a non-binding suggestion and not a court mandate.

“This simply affirms that the power of judicial review is not the power to force the other branches to pass legislation,” said Rep. Greg Hill (R-Northfield), a lead sponsor of HCR 11.

Hill brought his proposed resolution to the House Judiciary Committee on Wednesday, hoping to inspire lawmakers to take control of the education spending issue. He argued the Claremont decisions regarding “adequate funding” were wrongly decided and violated the separation of powers. 

“This (resolution) says that we, the House and Senate, find the lines of responsibility between the legislative and judiciary to have been crossed,” Hill said.

The Claremont Decision is a fiscal time bomb that could finally go off this year. The pending ConVal school funding decision, which could force a $500 million per year state spending increase, is based on the court’s view of how much funding is “adequate.”

The House Judiciary Committee also heard testimony Wednesday on a proposal to possibly impeach the ConVal judge, Rockingham Superior Court Judge David Ruoff. The proposal does not make any specific claims that Ruoff committed an impeachable offense; it only seeks an investigation into his conduct.

In November 2023, Ruoff sided with the Contoocook Valley School District in finding the state is still violating the Claremont decision by underfunding schools. Ruoff ordered the state to up the per pupil adequacy grant from $4,100 to at least $7,400. The state has appealed to the Supreme Court and a decision is pending.

HCRs do not have the force of law in New Hampshire, making the proposal as a defiant gesture rather than a policy change, said Greg Sorg, an attorney who backs the resolution. Defiance against judicial overreach is now needed, he said.

“I always felt it would be a healthy thing in an egregious case like this if the legislature repudiated the court,” Sorg said. 

House Judiciary Committee member Rep. Tim Horrigan (D-Durham) said the legislature is already ignoring the Claremont decision, and has been for the past three decades. In the 16 budgets passed since the 1993 decision, the legislature effectively ignored the ruling and continues to underfund education.

“Haven’t we gotten away with not funding education? Haven’t we triumphed over the courts?” Horrigan said.

New Hampshire lawmakers approved about a $150 million increase in public school funding in the last budget. The state spends more than $1 billion on public education, including adequate education grants and statewide property tax revenue. If the ConVal lawsuit decision is upheld by the Supreme Court, the state will need to come up with another half a billion dollars. 

Zach Sheehan with the New Hampshire School Funding Fairness Project, said the state only pays for less than a third of public education costs. Local taxpayers carry the heaviest burden, paying 70 percent of the education costs through local property taxes. That burden is because the state has failed to live up to Claremont, Sheehan said.

Horrigan suggested increasing statewide taxes to pay for education — the most obvious option being an income tax — would lower the local property tax burden. 

“Isn’t that an option?” Horrigan asked.

Sorg is skeptical that adding an income tax would lead to a smaller overall tax bill for Granite Staters.

“I think the appetite of the schools for money is just limitless,” Sorg said.

The New Hampshire Supreme Court could soon decide whether judges, or elected officials, should determine how much the state kicks in for local schools. If it decides the power belongs with the courts, the result could be a more than $500 million increase in state taxpayers’ share of funding for education.

Justices heard oral arguments Tuesday in the ConVal education funding appeal as New Hampshire Solicitor General Anthony Galdieri argued Superior Court Judge David Ruoff’s decision is unconstitutional.

Ruoff ruled in 2021 the real cost of the constitutionally mandated adequate education is at least $7,300 per pupil, while Galdieri and the state say it’s $3,900. Galdieri said Tuesday that Ruoff erred by including line items like school buses, building maintenance, and facility costs into his calculation. The legislature only funds direct costs, such as teacher salaries and learning materials, through the education adequacy grant system.

“The (Supreme Court) already decided the legislature only has to pay for what’s been defined,” Galdieri said. 

But Michael Tierney, ConVal’s attorney, said the legislature’s funding definitions exclude costs like heating oil, cleaning supplies, and even positions like principals and superintendents from the formula. 

“The state’s funding is woefully inadequate and unconstitutional,” Tierney said.

Galdioeri also objects to Ruoff overstepping the legislature by setting a number at all, arguing that violates the separation of powers. Tierney counters judges set damage amounts in court cases all the time.

In addition, Ruoff’s number crunching didn’t come out of the blue. He was ordered to come up with a number by the Supreme Court.

The Peterborough-based Contoocook Valley Regional School District filed its lawsuit in 2018, and was soon joined by dozens of other school districts, saying the state’s then $3,600 per pupil was well below the real cost of an education. The districts wanted at least $10,000 per pupil.

The state has since increased the per pupil amount up to $4,100

The Supreme Court ruled in the 1990s Claremont decisions that all New Hampshire children have a right to an adequate education and that the state must fund it. Galdieri said the base adequacy grants system is not constitutionally mandated, but simply the way the legislature decided to meet the constitutional obligation to fund an adequate education.

But the legislature’s solution focused solely on funding basics like teachers and materials, leaving individual communities to pay for the buildings, school busses, maintenance, and other school costs on their own.

While the parties dispute where the funding should come from, there is no debate over the fact that New Hampshire taxpayers spend more for K-12 education than nearly every other state. Average per pupil spending in the Granite State has passed the $20,000 mark, and no district spends less than Ruoff’s $7,300 per pupil minimum.

Ruoff originally ruled in favor of the districts, but he did not set a number saying that is the job of the legislature. The state appealed that decision and the Supreme Court sent the case back to Ruoff, this time telling him to hold evidentiary hearings and come up with the real cost. 

Ruoff’s order has been stayed pending the outcome of the current appeal. If it were to go into effect it would suddenly require an additional $500 million in taxpayer money for education. Progressives have argued this spending would require that the state would have to give up its vaunted “New Hampshire Advantage” and embrace either a broad-based income or sales tax.

But Republican leaders like incoming Gov. Kelly Ayotte and new state Senate President Sharon Carson say tax hikes are not on the table. Carson was asked by WMUR if the courts should decide how much is “adequate,” she replied, “absolutely not.”

“That’s not their job. That’s our job. That’s the legislature’s job. The responsibility has been given to the legislature by the people of the state, not to the courts,” Carson said.

New Hampshire taxpayers don’t have to pay a $537 million education spending bill just yet, as the New Hampshire Supreme Court stayed the decision in the ConVal lawsuit.

In a unanimous decision issued Wednesday, the Supreme Court put a hold on Rockingham Superior Court Judge David Ruoff’s November order that the state’s per-pupil spending must go up to at least $7,300. Ruoff had denied a motion to stay his decision pending appeal earlier this year.

Gov. Chris Sununu praised the stay decision, saying Ruoff’s ruling went too far.

“Today, the Supreme Court rightfully paused an attempt by one judge to usurp the power and preferences of both the legislative and executive branches,” Sununu said. “Grateful for the Supreme Court’s action to stay a decision that was so clearly overreaching.”

According to Senate President Jeb Bradley (R-Wolfeboro), implementing Ruoff’s order would wreck state finances, hurt lower-income communities, and eventually force an income or sales tax on Granite Staters.

“This decision could mean a $500 million spending increase for New Hampshire taxpayers and could cause reduced education funding for all the original towns that brought the Claremont education funding lawsuit by limiting the legislature’s ability to target special education aid to local school districts that need it the most,” Bradley said in a statement. “I remain optimistic that the Supreme Court will recognize that such huge financial decisions rest with representatives and senators that the people of New Hampshire have chosen.”

Lawmakers are looking for an affordable funding solution, and according to House Speaker Sherman Packard (R-Londonderry), the Supreme Court’s stay will give both houses time to keep working.

“We’re hopeful the Supreme Court has a different take on the matter than the lower court that will be less costly to taxpayers. The stay will allow the legislature more time to further analyze the situation,” Packard said.

The Peterborough-based Contoocook Valley Regional School District filed the lawsuit in 2019, arguing that the state’s education grant of $3,600 per pupil was far below the true cost and, therefore, unconstitutional. ConVal and the dozens of school districts that joined the lawsuit wanted closer to $10,000 per pupil.

Ruoff originally refused to set a dollar amount when he ruled the state violated the constitutional right to an adequate education, leaving that up to lawmakers. But a subsequent appeal to the state Supreme Court resulted in a 2021 order that forced Ruoff to come up with a figure.

Since the ConVal lawsuit was filed, lawmakers and Sununu have bumped up the grants to $4,100 per pupil, an amount Ruoff still found unconstitutionally low. Ruoff’s decision acknowledged it is up to the legislature to determine the funding but that it can be no less than the amount he set.

“What is the base cost to provide the opportunity for an adequate education 239 years after that fundamental right was ratified in our constitution? The short answer is that the legislature should have the final word, but the base adequacy cost can be no less than $7,356.01 per pupil per year, and the true cost is likely much higher than that. At a minimum, this is an increase of $537,550,970.95 in base adequacy aid to New Hampshire Schools,” Ruoff wrote.

The legal tussle over New Hampshire’s state spending for education “adequacy” is unrelated to another hot-button political issue: Taxpayers are already burdened with increasing education costs even as the number of students is declining.

The total cost of education in New Hampshire, including the portion paid through local property taxes, averages more than $20,000 per pupil. That’s up from about $11,000 total per pupil spending in 2000. Over the same time, the state’s student population has fallen by more than 20 percent. According to the Department of Education, student enrollment numbers in the Granite State have dropped from 207,684 in 2002 to 165,095 in 2023. That’s a decrease of 42,589 public school students, or about a 20.5 percent decline during the past 21 years.

Granite State taxpayers have broken the $20,000 barrier on school spending, even as K-12 academic performance remains flat and school enrollment declines.

“Last week, the New Hampshire Department of Education released its newest cost per pupil data for the 2022-2023 school year,” the department said in a press release. “The new statewide average operating cost per pupil of $20,323 is a 4.8 percent increase from last year’s average cost per pupil of $19,400. Total expenditures for the 2022-2023 school year were more than $3.8 billion in New Hampshire.”

To put the $20,323 in perspective, tuition to attend Bishop Guertin High School, a highly-ranked private Catholic school in Nashua, is $16,400. Mount Royal Academy is the highest-ranked Catholic school in the state. High school tuition is $10,700.

New Hampshire also spends far more per pupil than most of the nation. Across the U.S., the average cost per pupil is shy of $14,295, putting New Hampshire in the top 10 nationally for education spending. And as state Education Commissioner Frank Edelblut told NHJournal, taxpayer spending on public schools has been soaring for more than a decade.

“The statewide average for New Hampshire’s cost per pupil has increased by nearly 87 percent since 2000 when it cost less than $11,000 per student. During this same time frame, public school enrollment has dropped by about 20 percent statewide,” Edelblut said.

According to Edelblut, student enrollment numbers in the Granite State have dropped from 207,684 in 2002 to 165,095 in 2023. That’s a decrease of 42,589 public school students, or about a 20.5 percent decline during the past 21 years.

Despite the massive increase in spending, Granite State students are struggling on achievement tests like the SAT. House Education Committee vice chair Rep. Glenn Cordelli (R-Tuftonboro) said it’s time to pay attention to the poor return on investment.

“It’s pretty evident that over probably a couple of decades, spending is going up, and achievement scores are pretty much flat,” Cordelli said.

New Hampshire’s 2023 SAT scores dropped off slightly again. The junior class scored 35 percent proficient in math compared to 37 percent in 2022 and 42 percent in 2021. Students also lost ground on reading proficiency in 2023, with 60 percent proficiency compared to 61 percent proficiency in 2022 and 63 percent proficiency in 2021.

Edelblut said the increasing cost per pupil is partly due to increasing costs, and partly due to the steady drop in the number of students. 

“While we have and will continue to work to expand resources for all students, it is clear that we are in a challenging environment of escalating costs and decreasing student enrollment,” Edelblut said. 

Some school districts manage to come in under the new average, with Manchester at $16,636, Nashua spending $18,107, and Bedford at $17,418. Concord is spending $22,190 per pupil, and New Hampshire’s highest cost per pupil is New Castle at $41,754, a little more than the $41,650 tuition at The Derryfield School, an exclusive private day school in Manchester.

The record spending for public school students comes as the legislature is being pressed to find a way to change the way public education is funded. New Hampshire relies largely on local property taxes to fund public education, with the state sending an adequacy grant to districts that average $4,100 per pupil.

The district responsible for New Hampshire’s current school funding scheme thanks to lawsuits in the 1980s and 1990s, Claremont, is spending almost $22,000 per pupil. The Contoocook Valley Regional School District, behind a lawsuit that could change New Hampshire’s funding system again, is spending more than $25,000 per pupil.

The recent decision in the ConVal lawsuit has the state under court order to increase the adequacy aid grant to at least $7,300. Cordelli said that increase puts New Hampshire on the path to an income tax. The ConVal decision is stayed as the state appeals to the New Hampshire Supreme Court, giving the legislature time to find another funding plan.

Parents and homeowners frustrated with high property taxes and poor achievement are going to demand changes, Cordelli said.

“At some point, the public is going to become aware, and something is going to happen,” Cordelli said.

Parents are already finding lower cost, and sometimes better quality, opportunities outside the public school system. Kate Baker Demers, executive director of Children’s Scholarship Fund New Hampshire, said the average Education Freedom Account grant in New Hampshire is $5,255, about a quarter of the new cost per pupil for public school students.

“So, if a parent taxpayer is concerned about the high spending and cost, they could choose an EFA and save the state $14,745 per child. Which is, what, the amount that other states spend in total?” Baker Demers said.

This school year, EFA enrollment went up 20 percent to 4,211 students in New Hampshire. Of that total, 1,577 are new to the program. Taxpayers are now paying a little more than $22 million for EFA grants.

Senate Republicans stand between the New Hampshire Advantage and dangerous judicial overreach in the ConVal decision that could force an income tax on Granite Staters, said Senate President Jeb Bradley (R-Wolfeboro).

Speaking before the Senate’s first session of the year at a Wednesday press conference in the Legislative Office Building, Bardley said the ConVal education funding decision essentially forces $536 million in new spending.

“There is no way, in my opinion, to do that without an income tax, or a sales tax or, possibly, both,” Bradley said. “That totally undermines the New Hampshire Advantage, and we just can’t go that route.”

Rockingham Superior Court Judge David Ruoff sided with the Contoocook Valley School District in its lawsuit against the state, ruling New Hampshire’s education funding system does not pay enough in adequacy grants and is, therefore, in violation of the state constitution. The Claremont state Supreme Court decisions from the 1990s found students have a right to an adequate education. That put the onus on lawmakers to define how much an adequate education costs and to come up with a fair way to fund it.

Ruoff’s decision, released in November, found the current adequacy grant of about $4,100 per pupil is too low and ought to be at least $7,300 per pupil. Ruoff left the final amount and funding mechanism up to the legislature. But Bradley said Ruoff’s decision puts New Hampshire on the road to an income tax. 

Worse, according to Bradley, it would force New Hampshire to revert to a donor town-type funding system where property taxes paid by homeowners in wealthier communities would be transferred to school systems in less-affluent cities or towns. That won’t happen while the GOP maintains control of the Senate, Bradley pledged.

“Between the 14 of us, an income tax, a sales tax, and donor towns are off the table,” Bradley said.

Some Democrats have already floated the idea of blocking the phase-out of the state’s tax on interest and dividends tax. Republicans say it’s just one step toward the longstanding goal of Granite State progressives to impose an income tax in the name of equity and social justice.

Gov. Chris Sununu is appealing Ruoff’s order to the New Hampshire Supreme Court. Bradley said it remains to be seen if the ConVal decision survives the appeal. 

Protecting New Hampshire’s strong economy and free way of life from a tax regime is one of the Senate GOP’s top priorities for the coming session, Bradley said.

“It’s vitally important that we protect hardworking men and women from higher taxes, allow small businesses to thrive, and maintain our economic status,” Bradley said.

Public safety is the second pillar of the Senate GOP’s agenda, he said, and that starts with bail reform. The House and Senate have competing proposals to fix the 2018 bail reform law. While it was supposed to end cash bail for non-violent offenders, it’s now blamed for returning violent criminals to the streets.

“Our bail system, with the best intentions several years ago, was reformed, and those reforms did not protect the public,” Bradley said.

Despite differences in the proposals, Bradley said he is optimistic a deal can be struck between the two chambers to fix the bail system one way or another. 

“I think the House has made a good faith effort,” Bradley said. “Nobody gets everything they want around here.”

The Senate is also looking to block sanctuary cities in New Hampshire, strengthen protections at the Northern Border, and pass mandatory minimum sentences for fentanyl traffickers, said Sen. Sharon Carson (R-Londonderry). 

The GOP agenda includes a parental transparency proposal that guarantees guardians access to school information about their children, a hotly-contested issue as some school districts insist teachers and administrators have the right to keep secrets – or even lie to – parents about their children’s behavior.

The senators will also push for local property tax relief, improvements to health care and mental health care, clean drinking water, investments in affordable housing, and a constitutional amendment to enshrine New Hampshire’s First in the Nation presidential primary into law. 

While the senators presented a united front for their agenda, there is a major fault line when it comes to marijuana legalization. Sununu reversed course last year by calling for the legislature to legalize recreational marijuana. Bradley admits the issue divides his caucus, but there will be a legalization effort this year he hopes everyone can agree to.

“There is the opportunity to get that done, but we’ll see what happens,” Bradley said.

With the tax filing deadline fast approaching, a new analysis finds New Hampshire residents have the lowest tax burden in New England and one of the lowest nationally.

Meanwhile, just across the line in Massachusetts, soaring taxes on top earners are sending them fleeing to low-tax states like Florida and, yes, New Hampshire.

The new WalletHub analysis uses a metric of income taxes, sales taxes, and property taxes to calculate overall tax burdens. New Hampshire has the third lowest overall tax burden, trailing just Alaska and Delaware. New Hampshire’s performance is even more impressive when compared to other states in the region. Three of the five states with the highest tax burden are in New England (Maine, Vermont, and Rhode Island).

New Hampshire is the only New England state not in the top 20 for tax burden.

State Senate Finance Committee Chairman James Gray (R-Rochester) said New Hampshire’s low taxes and efficient government are some of the reasons for the state’s economic success. “There’s an awful lot of people who choose New Hampshire because we are fiscally responsible with our money,” Gray said.

A different Wallethub analysis last week ranked New Hampshire number one for taxpayer return on investment.

The one glaring exception was property taxes. Granite State homeowners have the third highest property tax burden in the country, according to WalletHub, behind Maine and Vermont.

Gray said New Hampshire’s reliance on property tax to pay for services like education gives voters the most control over their money possible. He said that local control likely results in lower spending and taxes than if the decisions were all made in Concord.

“You have to have something to run a government by, and a lot of the things that we fund, especially schools, we pay for through a property tax,” Gray said. 

The effects of New Hampshire’s low taxes and efficient spending don’t end at the border. A new report from the Massachusetts Society of CPAs on the impact of the Bay State’s new “millionaire’s tax” — which raises the top state income tax rate to nine percent — says 82 percent of CPAs report they have high-income clients seriously considering relocating in the next 12 months. 

And tax-free New Hampshire is near the top of their list of potential destinations.

“Florida and New Hampshire are overwhelmingly the most popular choices for relocation,” the CPA report states. “While some may argue that a move to Florida is driven by a desire for better weather and a different lifestyle, the fact that the second most popular destination is New Hampshire suggests that people want to stay in the area but may be motivated instead by a lower cost of living, including a lower tax burden.

“Furthermore, New Hampshire is set to repeal its Interest and Dividends Tax by 2026, which would decide to relocate even more appealing.”

Granite State Democrats tried but failed to push through legislation reversing the repeal of the interest and dividends tax for people earning $50,000 or more per year.

New Hampshire already has the strongest economy in New England, with low unemployment and low poverty rates. The Live Free or Die state’s commitment to low taxes will help it stay in the pole position, according to Joseph Krupka, an accounting professor at Florida State University.

“Here is a simple answer, the lower state tax burden will drive the state economy. Corporations seek state tax incentives when developing long-term strategies for where to locate new facilities such as plants and offices,” Krupka said. “Reduced corporation and real estate tax burdens along with a favorable personal income tax for their employees are the two keys.”

Gray knows there are a lot of factors considered by business owners who want to relocate, from infrastructure and energy costs to the local labor supply. Some states even offer financial incentives that New Hampshire does not currently match. But, he said, New Hampshire will keep to its low-tax structure.

“That’s just the way we do it,” Gray said. 

Political strategists see it as the third rail of New Hampshire politics, but some Granite State Democrats just can’t seem to let it go: A state income tax.

In a recent interview with the Keene Sentinel, Peterborough Democrats Jonah Wheeler and Rep. Peter Leishman both said they could support a broad-based income tax to shift the burden of education funding away from property taxes. 

“Wheeler said that to further boost public-education funding, he believes a new source of revenue is needed in the form of an income tax, which he said would simultaneously take the burden off property taxpayers,” according to the paper. “Leishman said he would support that kind of legislation and has voted in favor of it in the past.”

They aren’t alone.

During an October 2022 podcast interview, Claremont Republican-turned-Democrat state Senate candidate Charlene Lovett said she was “open to looking at” a shift to an income tax as well. During the interview, she discussed her Citizens Count survey declaration that she is  “undecided” on the idea of a broad-based income tax and the backlash that answer inspired.

But rather than taking a clear anti-income tax stance, she said it is an option that should be discussed.

“We’ve gotta deal with the fact we have an over-reliance on property taxes and it’s hurting people,” Lovett said in the podcast. “I think we have to look at that.” 

Lovett said her openness to considering an income tax is based on hearing from people financially burdened by property taxes during her years as mayor of Claremont. It has the highest property tax rate in the state.

While Lovett is trying to thread a political needle on the income tax, other Democrats are more open about embracing broad-based taxes — or at least on ruling them out.

Rep. Debra Altschiller (D-Stratham), who is running for the District 24 Senate seat being vacated by Tom Sherman, is one of many Democrats who voted against last year’s House constitutional amendment to ban income taxes. Joining Altschiller in that vote were Reps. Steve Shurtleff (D-Concord) and Matt Wilhelm (D-Manchester), currently locked in a battle for their party’s leadership.

Neither Shurtleff nor Wilhelm responded to an NH Journal question about whether they plan to support an income tax if they become House Speaker or House Minority Leader.

The amendment to ban income taxes garnered a majority vote but died because it failed to get the necessary three-fifths majority.

Rep. Eric Gallager (D-Concord) has long been vocal about his support for taxing Granite Stater’s income, but he seems to understand the political reality for Democrats.

“I can call for one because I’m in a safe D seat running unopposed,” Gallager said recently on Twitter. “But if I ever ran for governor I’d have to stop, which is one of the major reasons why I don’t ever think I’ll do so.”

Gallager’s sense of his political future aside, no Democratic gubernatorial candidate in recent memory has supported an income tax. Current Democratic standard bearer Sherman (D-Rye) has been vocal in rejecting income taxes and sales taxes in his faltering campaign against Gov. Chris Sununu.

“I will veto an income tax or sales tax if it comes across my desk,” Sherman told the Pulse of NH.

But Sherman did back a mandatory paid family medical leave plan passed by the Democratic legislature in 2019, which was paid for by a mandatory payment based on wages. Republicans argue that is an income tax (it is actually a payroll tax), but Democrats still continue to trip over the issue.

During a recent candidate forum in the District 1 Senate race, Rep. Edith Tucker (D-Randolph) tried to explain her vote for the paid leave plan and its funding mechanism.

“It’s not an income tax,” she insisted. “It’s a tax taken for a particular purpose from your paycheck.”

Granite State voters may not see the distinction.

When Sen. Maggie Hassan attacked Gen. Don Bolduc for supporting the “FAIR Tax” during the NHPR U.S. Senate debate, nobody else in the room appeared to know what she was talking about — including Bolduc.

Days later, it was still not clear if Bolduc had ever embraced the obscure plan to eliminate the IRS, or is even familiar with its details. What is clear is that Team Hassan has worked hard to make it an issue in the waning days of the campaign — a fact that raises questions about the Democrats’ strategy.

Before last week, virtually nobody following the Hassan v. Bolduc campaign had heard the phrase “FAIR Tax.” When Hassan repeatedly declared, seemingly at random, that Bolduc backs a 23 percent national sales tax, he said he did not know what she was talking about. She pointed to his answer to a question on a Facebook Live event hosted by WMUR’s Adam Sexton a few days earlier.

The FAIR Tax slogan is “Abolish the IRS!” It would entirely replace all income and payroll taxes with a national consumption (or sales) tax. The premise is that wealthy taxpayers wouldn’t be able to use loopholes to evade paying their fair share and it would catch the revenue lost to the under-the-table economy.

Good idea? Bad? Whatever it is, it is not a topic that has been debated or discussed by either candidate — until Hassan brought it up during the debate.

No reference appears anywhere on the Bolduc campaign website. There was not a single media report of Bolduc ever talking about it at any of the more than 60 town halls he has held. A Google search for any previous mentions of “Don Bolduc” and “Fair Tax” came up empty.

So, where did it come from?

During the WMUR/Facebook Live event, Sexton read a question from an “Ann Heffernon.”

“Can you please ask Don Bolduc to speak more about his FAIR Tax plan?” Heffernon wrote.

In his answer, Bolduc did not endorse, or even mention, the FAIR Tax proposal or a sales tax of any kind. Instead, he said, “I want a fair tax so that everybody pays their fair share based on the income they make.”

Obviously referencing a tax “based off income” doesn’t sound like the FAIR Tax, and it is not part of his campaign. So, why was a viewer asking about “his Fair Tax plan?”

Perhaps because Ann Heffernon is a long-time leader in the Cheshire County Democratic Party. In fact, she was named the county’s Democrat of the Year in 2017.

NHDP Chair Ray Buckley and “Democrat of the Year” Ann Heffernon.

According to the Keene Sentinel, “She’s been active for decades and has served as [county Democratic Party] chair, vice chair, secretary, and treasurer of the organization. She’s coordinated events (including a women’s rally at Keene State College last fall), canvassed, conducted trainings, ran offices, gave rides, made food — anything that needs to be done.”

It is not difficult to deduce how this extremely specific question on an obscure topic made its way to Facebook.

Campaigns planting questions is nothing new. It’s standard operating politics for everything from talk radio interviews to town halls to make sure your candidates’ fans are the ones asking the questions. But planting a Facebook Live question to set up a radio debate attack on an issue literally nobody in New Hampshire is talking about?

Why?

To many longtime political pros, it was just another sign the Hassan campaign is still struggling. Running against an underfunded, inexperienced candidate who gives them a gaffe-a-day to work with, Hassan’s polls continue to fall. She took a double-digit lead and $50 million and turned it into a neck-and-neck race.

“Don Bolduc can’t win this race, but Maggie Hassan can lose it,” veteran GOP operative Karl Rove told The Wall Street Journal on Monday.

The Hassan campaign denies it invented this controversy, and it uses a 20-second clip of Bolduc at an October 14 Salem town hall in which he said, “We need either a fair tax or a flat tax,” and complains about the complexity of the tax code. Hardly a pillar of his campaign.

So once again — why? The tax issue is hardly a winner for Hassan.

In 2017, she voted to kill the Tax Cuts and Jobs Act (TCJA) which gave the average household earning between $50,000 – $75,000 a 19.4 percent tax cut, according to Americans for Tax Reform.  These Granite State households saw their average federal income tax liability drop from $6,030.80 in 2017 to $5,050.35 in 2019. Hassan voted against it.

The TCJA also increased the Child Tax Credit nationwide by $573.4 billion over a decade. She voted against that, too.

The New Hampshire GOP calls the Hassan campaign’s FAIR tax stunt both desperate and dirty.

“This is what desperation looks like,” said state party executive director Elliot Gault. “Gen. Bolduc is winning, all our candidates are rising in the polls, and we’re in the final days. Democrats have to turn to dirty tricks because they can’t beat our candidates on the issues.”

“Dirty trick” may be a bit over the top. But with Democrats bouncing from attack to attack — their new ad targets Bolduc’s comments on a “microchip” conspiracy theory — and Hassan’s lead fading in poll after poll, “desperate” sounds right on target.

When neighboring “Taxachusetts” was considering a hike in its already high income tax in 2013, many people in the Granite State welcomed the proposal.

“Welcome to New Hampshire!,” said Senate Majority Leader Jeb Bradley at the time. “We should be putting up billboards. We have long marketed New Hampshire’s attractiveness as a place to do business for precisely this reason.”

But recent research suggests that raising taxes and spending in one state can have substantial negative effects on people in neighboring states.

While border counties within a state that raises taxes are obviously affected by the change, about half the effect spills over to counties on the other side of the border, found Sam Peltzman, a researcher at the University of Chicago, in a study released last year.

Research suggests areas that rely on interstate business suffered in the wake of a 1 percent rise in a state’s taxes and spending. (Credit: University of Chicago)

Peltzman examined economies in neighboring states from 1975 to 2012. He measured employment levels, wages, and the number of businesses established after tax and spending policies were implemented. The results suggested that the economy of a border county shrank when its state’s taxes and spending increased, and local economies on the other side of the border were also impacted.

“The results in this paper tend to add weight to the view that larger state and local government is purchased at the cost of a smaller private sector,” Peltzman wrote in his study.

So why are two state’s economies, like Massachusetts and New Hampshire, so intertwined? Well, for many people who live in border cities and towns in the Granite State — Nashua, Londonderry, and Salem, to name a few — they commute everyday to the Bay State for work.

When Massachusetts was considering a bump in the income tax, many residents who lived in or near Nashua said they would feel the effects of it when they took home a smaller paycheck. If they take home a smaller paycheck, they have less money to put back into the economies of the towns where they live.

Even New Hampshire businesses near the border can feel the impact of tax changes in the state south of the border.

Massachusetts changed its sales tax to include a “tech tax,” a 6.25 percent sales tax on computer and software technology services, which went into effect in 2013. It was a short-lived tax, quickly being repealed by former Gov. Deval Patrick, but even New Hampshire businesses with a physical presence in Massachusetts that provided Bay State customers with services covered by the tax had to pay it. A “physical presence” could mean having one sales representative with a home office in Massachusetts, according to some interpretations of the law.

In 2014, the Bay State also made some changes to its corporate income tax that impacted some New Hampshire businesses. It applied to any service-based business that has Massachusetts customers, like law firms, medical providers, and consultants, or businesses that sell some intangible products used in Massachusetts like the licensing of software.

These companies now have to pay an 8 percent tax on the revenue derived from those Massachusetts clients. Before, a New Hampshire company’s revenues collected from Massachusetts would be used to calculate the business profits tax (BPT) owed to New Hampshire. But now, businesses are double taxed. A company still must count all of its revenue for New Hampshire’s BPT, but the revenue collected in Massachusetts needs to be counted and taxed by the Bay State.

It can be a complicated system and, sometimes, New Hampshire businesses don’t even know when they would need to pay Massachusetts taxes. In turn, some companies think twice about doing business or hiring out of state for fear of having to pay more money to another government, which could affect their bottom line.

“State tax structures can create cross-border issues in a number of ways, including positive economic development in bordering communities that are able to draw businesses and individuals into the state as well negative impacts from tax policy decisions that create adverse tax climates causing individuals and businesses to leave the state for a preferential neighboring state,” said Kathryn Michaelis, an attorney in the tax practice group at the Rath, Young and Pignatelli law firm in Concord.

It’s not all doom and gloom for New Hampshire residents and businesses paying Massachusetts taxes. Many Massachusetts residents cross the border because New Hampshire has historically one of the lowest tax rates on cigarettes in the region, a lower gas tax, no tax on liquor sales, and no sales tax. This strategy allows the state to net revenue on the sales, despite the absence of a tax, which makes it appealing to other businesses and consumers, and pumps economic activity into the cities and towns on the border.

At one point, Massachusetts tried to capitalize on the cross-border purchases by challenging in court that they should collect taxes from a store that sells tires to Massachusetts residents in New Hampshire. A court disagreed.

But New Hampshire still struggles economically on several fronts, including high electricity costs, expensive property taxes, and a high cost of doing business in the state. Both Massachusetts and New Hampshire employees get paid more than average American workers, driving up employers’ labor costs.

“While a favorable tax climate may draw in businesses to a bordering community, the state and local officials must always be careful to not offer tax incentives or subsidies or restructure the tax system in such a way that it creates too much of a cost burden on the locality or state in the long-run,” Michaelis told NH Journal. “Each state and local jurisdiction needs to find balance in retaining and recruiting business while ensuring that its revenue remains steady to support government services.”

New Hampshire worked hard in the 1980s and 1990s to have the “New Hampshire Advantage” where students would graduate school, go to college, and eventually return to raise families and work. People from Massachusetts, New York, and New Jersey moved to the state and businesses would have access to this cluster of highly educated and skilled workforce.

By the 2000s, positive net migration stopped, college graduates moved away, and New Hampshire’s business climate was not as diverse. Now, politicians are trying to figure out how to deal with a workplace shortage and make New Hampshire an attractive place for businesses.

One way the Republican-controlled State House sees on getting their advantage back is through right-to-work laws, which would prohibit public and private sector unions from charging non-members fees for negotiating on their behalf. If passed, New Hampshire would become the only state in the Northeast to have a right-to-work law.

The cross-border economic relationship is not unique to Massachusetts and New Hampshire. Illinois and Indiana have a similar relationship, with my many people leaving Illinois due to its high taxes. The same is true for New Jersey and Delaware, where a high gas tax in the Garden State could benefit Delaware, yet both have high property taxes. What tax policy is passed in one state could spill over into its neighboring states.

Carl Davis, research director for the Institute on Taxation and Economic Policy, said it can be difficult to isolate the taxes and determine if economic growth or hinderance is a result of an increase or decrease in taxes.

“It’s not cut and dry,” he told NH Journal. “It’s hard to look back and see if a state raised taxes because they have a poor economy or because of their taxes, their economy is doing well. There are always trade-offs.”

But for New Hampshire and Massachusetts, the economies and tax policies of the two states seem to be fairly linked for its residents, businesses, and communities.

Follow Kyle on Twitter.

Sign up for NH Journal’s must-read morning political newsletter.