FEATURED ARTICLE

Students board a school bus outside of Frisbee Elementary School in Kittery, Maine. Photo by Rich Beauchesne

State property taxes aside, businesses are the ones footing the bill when it comes to public education in New Hampshire. And on the eve of another rough-and-tumble legislative year, with politicians scrambling to fix education funding under threat of a court-imposed solution, the biggest revenue sources may be under the most pressure.

The Business Profits Tax and Business Enterprise Tax will generate $299 million and $225 million, respectively, for the fiscal year that ends June 30, 2007. Of that projected $524 million, $203 million will be kicked into the Education Trust Fund. The combined tax transfer is second only to the state property tax, which raises $363 million of the total $852 million school-funding pie.

Political winds being as they are, New Hampshire’s tax structure is unlikely to see a sea change. There is limited wiggle room, too, to consider new revenue sources.

“There’s obviously a mantra out there — no income tax and no sales tax,” said state Rep. Sheila Francoeur, R-Hampton, the retiring chairwoman of the House Commerce Committee.

N.H. Gov. John Lynch has also promised to veto either tax, should such a bill ever survive the Senate and House.

Business leaders understand there’s a storm coming, and they are starting to pay closer attention to the perennial subject, said Charles Arlinghaus, president of the Josiah Bartlett Center for Public Policy Studies, a think tank based in Concord.

Charles Arlinghaus, president of the Josiah Bartlett Center for Public Policy Studies, a think tank based in Concord. Courtesy photo

“I think everyone realizes business taxes in New Hampshire are higher than they should be,” he said. “The business community’s New Year’s resolution ought to be to pay attention this time to the education-funding debate. They’re only an easy target if they don’t pay attention.”

Make no mistake: School funding has for a decade been a tax debate first and education-funding fairness second. Acknowledging such, Francoeur thinks there will be greater emphasis on a proposed constitutional amendment and renewed focus on the defining and delivery of a quality education.

Because a sales tax and income tax are unlikely, Arlinghaus is worried the business community will be asked to shoulder more of the bill.

The 2007 debate will rekindle discussions for a research and development tax credit and a proposed Taxpayer Bill of Rights, aka TABOR. Arlinghaus hopes the state extends the BET credit against the BPT, as well as adjusting the net operating loss, to help businesses.

The taxpayer rights’ issue, essentially the reins on what the Legislature and governor could spend, failed in the past. A similar effort was before voters in Maine last month, where it was rejected by about 9 percentage points. It will become more of an issue if Maine continues to pursue it, Arlinghaus predicts, because the “New Hampshire Advantage” motto is based on the state having an edge over its neighboring states.

Former Gov. Craig Benson, who fought for a TABOR in New Hampshire when he was governor from 2003-05, is urging the Legislature to give it another go as a way to protect the state’s traditional economic advantage. In newspaper commentaries last month, he warned Maine would lure jobs away with the mechanism designed to force the state to live within its means.

The Coalition of New Hampshire Taxpayers and Granite State Taxpayers are circulating a petition to head off a court-ordered plan for school funding. The petition seeks support for a “New Hampshire Advantage Pledge” to oppose new taxes or tax increases and to thwart what it believes is additional and unwarranted court meddling.

Besides business and property taxes, other revenue sources making up the state’s Education Trust Fund include $73 million from the tobacco tax, $60 million from the real estate transfer tax, $78 million from the Lottery and Pari-Mutuel funding, and $8 million from Meals and Rooms tax. The Meals and Rooms tax, which includes rentals, will generate $218 million in fiscal year 2007. The real estate transfer tax will raise $181 million.

The revenue package does not include licenses and fees — often referred to as “the small taxes.” Kenneth Weyler, the deputy speaker of the House from Kingston, said New Hampshire’s revenue stream is diversified enough to help the state weather potential economic downturns and avoid a reliance on major tax increases to fund schools. The need for education reform and accountability will be the star in next year’s debate, he said. He rejects any notion that throwing more money at education, as it puts it, would magically resolve the issue once and for all.

Still, Weyler is bracing for the inevitable fight, countered by the undeniable conclusion: there’s never enough money to go around in a budget year.

“The challenge will be to make it fit within the available revenue,” said Weyler.

Businesses Pay the Bill

Major NH state tax revenues FY 2007:
Business Profits Tax: $299 million
Business Enterprise Tax: $225 million
Meals and rentals tax: $218 million
Real estate transfer tax: $181 million
Tobacco tax: $145 million
Liquor sales and distribution: $129 million
Beer tax: $13 million
Insurance tax: $95 million
Net Medicaid Enhancement Rev (from 6 percent hospital tax): $75.8 million
Communications Tax: $74 million
Interest & Dividends tax: $73 million
Securities revenue: $32 million

Total NH Education Fund
BPT/BET: $202.9 million
Meals & Rooms: $7.7 million
Tobacco tax: $72.7 million
Real estate transfer tax: $60.3 million
Lottery/Pari-mutuel transfer: $78 million
Tobacco settlement: $43 million
Utility property tax: $24.1 million
State Property tax: $363 million
Total: $851.7 million