The COVID-19 pandemic has done immense harm to the health of New Hampshire’s families and to the Granite State economy. It is now poised to do the same to the state’s budget, as tax collections have already started to fall sharply.

As a result, policymakers in Concord may soon re-open last year’s protracted debate over the FY 2021 budget. As that debate resumes, one option for balancing the state budget that should be set aside immediately is a downshifting of costs on to schools and local governments. Here’s why:

 

 

Communities across New Hampshire have been hit hard by the COVID-19 pandemic.  Downshifting costs from state government onto local property taxpayers would only make a bad situation worse.

  • As state tax collections fall, policymakers in Concord will face many difficult choices as they work to balance the budget.  Shifting costs from state government onto the backs of homeowners and local businesses will aggravate the burden of property taxes in our state.
  • If the Governor and the Legislature reduce state aid to schools, cities, and towns, families and businesses will have to make up the difference.  “Downshifting” the costs of providing vital public services on to hard-hit communities would only put more pressure on local property taxes at a time when many are struggling like never before to make ends meet.
  • Policymakers should instead aim to shore up state revenues in the months ahead, whether through short-term solutions, such as borrowing against future tax collections, or by adopting longer-term tax reforms targeted to those best able to weather the current crisis.

Local communities are still paying the price for the “downshifting” that followed the Great Recession a decade ago.

  • In the wake of the 2008 Great Recession, New Hampshire halted the general revenue sharing program that had been a fixture of state and local finances since the 1970s. It has yet to restore that program in full.
  • Just prior to the Great Recession, New Hampshire directed over $40 million in school building aid to local districts each year. A 2011 moratorium on new projects – which has never been lifted – has led to a steady decline in that aid and to a waiting list of roughly $650 million in school construction and renovation projects.
  • Between 2010 and 2013, New Hampshire completely phased out the contributions to the New Hampshire Retirement System that it had been making on behalf of police, firefighters, and teachers for decades, permanently forcing local governments to make up the difference.
  • Despite its constitutional obligation to provide an adequate education to every New Hampshire child, state government pays less than one-third of the cost of a public school education. Over the past decade, state aid has stagnated or shrunk, putting another $500 million in pressure on local taxpayers.

New Hampshire families cannot afford another round of “downshifting” and the renewed pressure on local property taxes that would come with it.

  • The property tax is already the single largest tax in New Hampshire – by far. In 2018, property taxes in New Hampshire totaled nearly $3.7 billion, almost five times the amount of revenue the state’s two business taxes produced.
  • Taxes in New Hampshire are quite low overall, but property taxes are already the highest in the country. US Census Bureau data indicate that state and local taxes in New Hampshire amounted to 8.4 percent of personal income in 2017; only five states had a lower overall level of taxation. Yet, state and local property taxes equaled 5.57 percent of personal income; no other state exceeded that figure.
  • In a recent survey of its member cities and towns, the New Hampshire Municipal Association (NHMA) found that “the financial impact of the COVID-19 pandemic is of grave concern to municipalities,” due, in part, to the likelihood of delayed property tax payments.
  • Higher property taxes would make existing economic inequalities even worse. Research from the Institute on Taxation and Economic Policy suggests that middle-income taxpayers in New Hampshire have an effective property tax rate of 6.3 percent, while the very richest 1 percent of taxpayers face a rate of just 1.9 percent.

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