In 2022, New Hampshire cities and towns relied on property taxes for 61% of their total revenues, the highest proportion of all 50 states, the analysis found. While the state is often cited for providing the lowest proportion of public school funding in the country, it also ranks 48th on overall per-person state aid to cities and towns.
The takeaway, the report concludes, is that New Hampshire cities and towns are uniquely dependent on local revenues to fund services compared with other states. And because the state has offered municipalities few other options for collecting revenues, property taxes are their primary lever.
That single-track solution makes where one lives in New Hampshire — and the strength of that town’s property values — a major determinant of not just the quality of their schools but the strength of all local services, the report concludes.
Meanwhile, the property tax burden falls higher on lower-income residents, according to the NHFPI. Statewide, property taxes make up a much bigger percentage of annual spending for households with the bottom 20% of income than they do in other income brackets, the report notes, citing state-by-state analysis by the Washington-based Institute on Taxation and Economic Policy.
“The design and structures of the revenue-raising methods in New Hampshire make funding for public services disproportionately reliant on local property taxes,” the report concludes. “That reliance results in upward pressure on property taxes whenever costs outpace revenues for local governments in New Hampshire.”
The report comes as state lawmakers appear especially attuned to the issue of high property taxes this year. Democrats argue more state funds should be shared with cities and towns to offset rising costs. But Republicans, who dismissed the NHFPI report, say the problem lies with the cities and towns themselves, and that the solution is to curb local tax hikes.
(New Hampshire Fiscal Policy Institute screenshot)
Higher Tax Tevenue; Less Revenue Overall
The report reveals a seeming paradox: New Hampshire taxpayers pay — in sheer dollar amounts — more local property tax per person each year than almost all other states, and yet New Hampshire cities and towns receive some of the lowest revenues per person.
In fiscal year 2022, New Hampshire property-tax payers paid $3,388 on average per person for the year. Only New Jersey had a higher dollar number per person, at $3,617. The national average was $1,943 in property tax per person; taxpayers in the lowest paying state, Alabama, paid $697 per person.
Yet despite those high taxes, the amount of overall revenue collected by New Hampshire cities and towns per capita — from all sources including property taxes — was $5,076 per person, ranking New Hampshire 40th and well below the national average of $7,021. Cities and town governments in New York State raked in the most, according to the report: $11,169 per person.
That discrepancy has several explanations, the report suggests. For one, state governments in high-property-tax, Democratic-run states like New Jersey and Connecticut are simply raising much more in state taxes and sharing that revenue with their cities and towns at much higher proportions. That boosts those states’ local government budgets despite New Hampshire’s high-dollar property tax burden.
In New Hampshire, 23% of local government spending is provided by the state, the 44th highest percentage in the country.
And secondly, New Hampshire cities and towns have fewer revenue raising mechanisms. As a “Dillon’s Rule” state, cities and towns in New Hampshire may only take actions expressly allowed to them by the Legislature. And because the Legislature has not authorized individual city or town sales taxes, gas taxes, or restaurant and lodging taxes, any spending by municipalities not picked up by the state must be funded by property taxes.
The Property Wealth Divide
The divide between “property-rich” towns — those with high property valuations — and “property-poor” ones has long affected local property taxes for school funding; towns with more valuable properties can raise more revenue with lower tax rates, while those with low values must use high rates to pay for services.
The NHFPI report suggests that those discrepancies create other budget gaps between towns, affecting salaries for local police, firefighters, and other municipal employees; infrastructure and public parks and amenities; and advanced programming in schools.
The disparities also mean families living in similarly priced homes in two different towns will likely pay much different levels of property taxes in one town than the other. Those living in a $500,000 home in a wealthy town with generous municipal services will pay less per year than those in a $500,000 home in a poorer town receiving fewer services.
The property tax divides affect businesses, too. The vast majority of taxes paid by New Hampshire businesses — 45.2% — are local property taxes, according to the report. The state business profits and business enterprise taxes, in comparison, make up 29.1% of companies’ tax bills on average.
Debate Over Conclusions
Included in the New Hampshire report are a number of structural recommendations the NHFPI argues would improve that property-tax burden, including increasing the state’s share of local funding; targeting more property-tax relief options to lower-income households; and better distributing town-by-town aid to municipalities with low property values.
“This reliance on local property taxes is a policy choice New Hampshire has repeatedly made,” the report states.
Those conclusions have prompted pushback from New Hampshire House Republicans, who accused the NHFPI of advocating for an income tax. The report does not recommend an income tax.
“If your property tax bill looks like a ransom note, don’t let the NHFPI lie to your face. They want you to believe your town has a ‘revenue problem,’” said House Majority Leader Jason Osborne, an Auburn Republican, in a statement Friday. “In simple terms, that means: ‘We want an income tax.’ Our towns don’t have a revenue problem; they have a spending problem.”
Osborne said Republicans are well aware of high local property taxes and have presented legislative solutions that don’t require raising more statewide taxes. He cited House Bill 1300, the “Property Tax Protection Act,” which passed the House in March and would require a question on each town’s November general election ballot, every two years, asking whether voters want to adopt a school district property tax cap.
That bill, which is awaiting a hearing in the Senate Election Law and Municipal Affairs Committee, has been opposed by Democrats who say it would violate local control over what appears on the ballot and that tax caps could hurt school budgets.
“This will irresponsibly disproportionately reduce revenue when compared to costs,” said Rep. James Newsom, a Hopkinton Democrat, in a written opposition to the bill in March.
This story first appeared in the New Hampshire Bulletin. Read the original here.
