Study finds downshifting weighs heaviest on New Hampshire's 'poorest' towns

LACONIA — As state lawmakers, trying to plug a huge budget gap, weigh withholding revenue and transferring expenses to cities and towns, a report issued this week by the New Hampshire Center for Public Policy Studies indicates that the burden would fall most heavily on municipalities where property values are lowest and poverty rates are highest.

The report measures the increase in local property taxes that would be required to offset the impact of four proposals advanced by Governor John Lynch in his budget address last month. The analysis does not take into account reductions in expenditures that municipalities might make to offset the loss of state funding.

First, the governor recommended reducing school building aid by 60-percent. The state reimburses school districts between 30-percent and 60-percent of the principal costs of construction and renovation in payments over the term of borrowings to finance the project. Most of the annual payments apply to projects, like the renovated elementary schools and new middle school in Laconia, already completed. Therefore, the impact would be greatest on those districts that undertook the most expensive projects in recent years.

Second, Lynch proposed reducing so-called catastrophic aid for special education. Currently, the program applies to those students whose education plan costs are more than three times the state average. He recommended disbursing catastrophic aid only to those students costing more than 10 times the state average.

Third, the governor recommended withholding the state's share of the retirement costs for local school teachers, firefighters and police officers. Between 1977 and 2009, municipalities paid 65-percent of the employer contribution and the state paid the remaining 53-percent. In 2009, the Legislature reduced the state's share to 30-percent and a year later trimmed it to 25-percent. Lynch proposed eliminating the state's share altogether.

Finally, Lynch proposed suspending fixed revenue sharing for the 2012-2013 biennium. Fixed revenue sharing was introduced in 1970 when the Legislature enacted the Business Profits Tax, which replaced several local taxes, including levies on machinery and inventory. Fixed revenue sharing was intended to offset offset the loss of revenue to municipalities, particularly those like Laconia with large commercial and manufacturing operations.

The report tabulates the revenue each city and town would forego if the Legislature accepts the governor's recommendations and calculates the percentage increase in the amount raised by property taxes. Then the property tax increase was matched against property values and poverty rates.

The impact of foregone state funding would be relatively greater on cities than towns. Laconia, with a median household income of $57,102, a poverty rate of 9.8-percent and median home value of $205,700, would forgo $2.4-million in state funding, which represents a 6.3-percent increase in property taxes.

Foregone state funding would represent property tax increases of 14-percent in Berlin, 8.9-percent in Somersworth, 8.8-percent in Franklin, 7.6-percent in Keene, 7.3-percent in Manchester, 6.9-percent in Rochester, 5.9-percent in Nashua and Claremont, 5.7-percent in Concord, 5.2-percent in Portsmouth, 5.1-percent in Lebanon, and 4.7-percent in Dover.

In Belknap County the loss of state funding to Tilton and Belmont, both with relatively low household incomes and home values and high poverty rates, would represent property tax increases of 5.9-percent and 4.7-percent respectively.

Sanbornton, where the median household income and median home value are relatively high and the poverty rate of 0.7-percent is the lowest in the county, foregone revenue of $379,100 — almost half of it school building aid — would represent a property tax increase of 4.6-percent.

Of the remaining towns, foregone revenue would represent property tax increases of 3.6-percent in Gilford, 3.4-percent in Gilmanton, 3.3-percent in Barnstead, 3.2-percent in Alton, 2.5-percent in Center Harbor, 2.4-percent in New Hampton, and 2.1-percent in Meredith.

Of these towns, Barnstead, Gilford, Gilmanton and Meredith have household incomes above the median for the county. Alton, Barnstead, Gilford, Gilmanton, Meredith and New Hampton have poverty rates below the county rate of 5.4-percent. And median home values in Alton,, Center Harbor, Gilford, Gilmanton, Meredith and New Hampton exceed that of the county.

The disparate impacts of across the board reductions in state funding lead the authors of the report to suggest that they are intended to reduce state expenditures, not spread the pain equitably.