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Advocates of a state income tax to fund public schools suffered a setback Tuesday when New Hampshire’s Supreme Court ruled the current Statewide Education Property Tax, or SWEPT, is constitutional.

The case, Rand v State of New Hampshire, was the first of two education funding lawsuits launched in hopes of upending the current property-tax-based system. Still looming is the ConVal ruling and its potential $500 million per year price tag.

In a 3-1 decision, the Supreme Court overruled Superior Court Judge David Ruoff, who had declared that the way money is collected is unequal across the state and unfair. He also ruled against the state’s current education spending formula in the ConVal case.

Though the cases aren’t connected, opponents of the ConVal lawsuit were heartened by Tuesday’s ruling, seeing it as a hopeful sign of how the court may be leaning.

New Hampshire’s constitution requires that taxes be applied at the same rate for every community, and Chief Justice Gordon MacDonald wrote in the majority opinion, the current SWEPT law does just that.

“The State Constitution requires that taxes, as ‘impose[d] and lev[ied],’ must be ‘proportional and reasonable.’ N.H. CONST. pt. II, art. 5. The plaintiffs do not dispute that under the SWEPT, as administered, taxpayers are actually assessed at a uniform rate. That concludes the constitutional inquiry,” MacDonald wrote.

The majority ruling states that since every community that collects SWEPT is also allowed under the law to keep excess revenue, there is nothing unconstitutional in the fact that some wealthy communities use the extra revenue to lower local taxes.

The Rand plaintiffs wanted SWEPT suspended since some wealthy towns with high property values collect more SWEPT than needed for education. Under the law, the SWEPT rate is set by the state, but the municipalities collect the revenue and then send it to their local school districts. The law allows towns that collect more SWEPT than required to use the excess revenue to lower local tax rates. The Rand plaintiffs argued that this allowed wealthy communities to effectively have lower tax rates than poorer communities.

Dissenting Associate Justice James Bassett argued that the fact some wealthy communities use SWEPT to lower the local SWEPT tax burden, means those wealthy communities are effectively getting taxed at a lower rate than poor communities, a violation of the constitution.

“To the contrary, when excess SWEPT funds are not sent to the State, but instead are retained by communities, the taxpayers’ effective SWEPT rate in those communities is reduced and Part II, Article 5 is violated,” Bassett wrote.

All four justices agreed that the state’s practice of setting lower SWEPT rates in a few poorer communities does violate the constitution.

(The fifth Supreme Court Justice, Anna Barbara Hantz Marconi, is on leave after being indicted for two felonies and five misdemeanors relating to her attempts to interfere with a criminal investigation into her husband, Geno Marconi.)

Marc Decoteau with the Education Funding Coalition Communities advocacy group applauded the decision, saying it keeps a fair system in place and allows people to decide how to operate their local schools and governments.

“This decision by the court says each community and each taxpayer is being taxed through the SWEPT in the same way. But there is a fairness component to this decision as well. Education expenses are decided by the voters who will pay the property taxes for use within their community, and this decision ensures that their hard-earned tax dollars will be spent in their community while providing for direct accountability,” Decoteau said.

At the opposite end of the debate, NH School Funding Fairness Project Executive Director Zack Sheehan said Tuesday’s decision leaves a fundamentally unfair system in place.

“Allowing some taxpayers in this state to continue to get special treatment and avoid paying their fair share of taxes to support the education of all students in the state is beyond disappointing. For far too long, the State has allowed this two-tiered system to operate, and this order will allow it to continue at the expense of funding for schools in the districts that need it the most,” Sheehan said.

Now, Gov. Kelly Ayotte and the legislature are waiting to see if the Supreme Court will uphold Ruoff’s ConVal decision. In that case, initiated by the Contoocook Valley School District, Ruoff found that the state’s per-pupil adequacy grant of around $4,000 is too low. As a result, he said, it violates the Supreme Court’s Claremont decision.

Ruoff ruled that the per-pupil grants need to be raised to about $7,200. If that’s upheld, taxpayers would need to find an extra $500 million each year to fund public schools.

Just days after a New Hampshire Department of Education report showing public school enrollment plunging amid spending hikes, a judge has ordered the state to pay even more.

Rockingham Superior Court Judge David Ruoff released his long-awaiting ruling in the ConVal education funding lawsuit on Monday, declaring the state must pay a per-pupil minimum state adequacy grant of $7,356. The net cost to state taxpayers would be nearly $538 million per year. And, Ruoff said, that’s likely just the beginning.

“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 $7356.01 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.

Ruoff wasn’t done. In a separate ruling in the Rand vs. State of New Hampshire case, Ruoff ruled that property-rich communities can no longer keep excess Statewide Education Property Taxes revenue in reserve. That practice allowed these communities to set a negative SWEPT tax rate.

Ruoff initially tried to avoid setting a number in the ConVal case. He ruled for ConVal in 2019, finding that the state’s education funding system results in an inadequate amount per pupil, and is therefore unconstitutional. However, he originally ruled that it is up to the legislature to determine the number, not a judge.

After the state appealed, the New Hampshire Supreme Court ordered Ruoff to hold a trial and determine what the cost per pupil ought to be. 

Ruoff’s order still faces a possible challenge from the state. Gov. Chris Sununu called Ruoff’s decision an overreach.

“New Hampshire currently spends among the most per capita on public education than nearly any other state. Today’s decision is deeply concerning and an overreach into a decades-long precedent appropriately placed in the hands of our elected representatives in Concord,” Sununu said.

New Hampshire Department of Education Commissioner Frank Edelblut’s office declined to comment. Michael Garrity, communications director for New Hampshire Attorney General John Formella, said Ruoff’s decisions are being reviewed.

“We have received the court’s order. We will review it and consider potential next steps,” Garrity said.

But the Josiah Bartlett Center for Public Policy, a pro-education-reform think tank, immediately blasted the premise of the judge’s ruling, noting that education spending in New Hampshire has exploded, even as the number of students in the k-12 fallen drastically.

“NH public schools are not ‘underfunded’ and have not experienced a decline in funding this century. On the contrary, as school district enrollment fell by 30,000, spending, adjusted for inflation, rose by nearly $1 billion,” the Barlett Center posted on X.

As for the judge’s arbitrary price of an “adequate” education, the center responded:

“Trying to figure out the true cost of an adequate education by measuring what monopoly school districts spend is like trying to figure out the true cost of package delivery by measuring Post Office prices before the arrival of FedEx and UPS. Markets, not judges, set prices.”

But Democrats, who’ve been pushing for more state spending for decades, were delighted.

State Sen. Democratic Caucus Leader Donna Soucy (D-Manchester) is ready to start charging. Ruoff’s decision will be the template she and other Democratic lawmakers will use going forward as they look to increase school spending to at least the $7,300 minimum,

“Our caucus will closely review the court decisions released today, and we will examine legislative action to ensure that a constitutional formula is enacted,” she said.

Zack Sheehan, the executive director of the left-leaning New Hampshire School Funding Fairness Project, called the decisions big wins for students and property taxpayers. He said that the legislature’s refusal to fund education at the state level has pushed the bill down to local property taxes and burned homeowners.

“These are exciting rulings, but for their impact to be felt, the legislature has to get to work and bring our school funding statutes into line with this and all past school funding rulings,” Sheehan said. “The changes promised in the Claremont decisions have been denied to Granite Staters for too long already, so I want to see the state accept this ruling and not continue wasting time by appealing it to the New Hampshire Supreme Court.”

In actuality, New Hampshire hit a state-spending record on k-12 education in the current budget, while few communities cut their property taxes.

In deciding that $7,300 is the minimum adequate education amount, Ruoff used numbers provided by public school districts and the Department of Education. There was no data from public charter schools or private schools, Cline said. He added that it is like deciding what the price of a hamburger ought to be based on just the McDonald’s Big Mac while ignoring Burger King and Wendy’s.

“Markets, not judges, determine prices. That’s the fundamental flaw in this whole game. New Hampshire needs a market for educational services,” Cline said.

The ConVal and Rand lawsuits are the ideological, if not legal, sequels to the Claremont lawsuits of the 1980s and 1990s. In Claremont, the New Hampshire Supreme Court ruled all New Hampshire children have a constitutional right to an adequate education, and the state is on the hook to make sure that happens. The Supreme Court, however, left the funding details up to lawmakers.

The Peterborough-based Contoocook Valley Regional School District filed the lawsuit in 2018, arguing the state’s then-adequate education grant of $3,600 per pupil was far below the true cost and, therefore, was unconstitutional. ConVal and the dozens of school districts that joined the lawsuit wanted closer to $10,000 per pupil.

Since the ConVal suit was filed, lawmakers and Sununu bumped up the grants to $4,100 per pupil, an amount Ruoff still found unconstitutionally low. The total cost of education in New Hampshire, including the portion paid through local property taxes, averages just shy of $20,000 per pupil. 

The Rand lawsuit saw parents in property-poor towns challenging the way they claimed wealthier communities were able to game the SWEPT system, increasing the propeller of education funding inequality.

SWEPT accounts for 30 percent of education funding in New Hampshire. Under the law, as many as 30 wealthy Granite State communities keep a portion of the money raised through the SWEPT, while some poorer towns are paying more, according to the lawsuit.