HB 1385

Committee — INEXPEDIENT TO LEGISLATE

Rep. Diane Pauer

This bill would prohibit the Department of Revenue Administration (DRA) from accepting or setting any negative tax rates for municipalities that have minimal or no public education costs but contain taxable property. Prior to the New Hampshire Supreme Court’s decision in Rand vs. State of New Hampshire, when a municipality had minimal or zero local education costs—and therefore no lawful purpose on which to expend Statewide Education Property Tax (SWEPT) revenue—the department would set a negative local education rate to offset the portion of SWEPT that was not needed. The effect was to reduce the municipality’s SWEPT liability to the amount necessary to cover its local education costs, or to zero when those costs were zero. In Rand, the court determined that this practice was unconstitutional. In compliance with that ruling, the DRA ceased setting negative local education rates beginning with the 2025 tax year. As a result, municipalities are now required to assess and collect SWEPT even if they have no local education costs on which to expend those funds. The DRA further testified that, pursuant to Rand, it will not allow any negative rate—municipal or otherwise—to offset SWEPT liability. The committee also learned that negative municipal tax rates may occur in limited circumstances unrelated to education funding. This typically happens when a municipality has excess non-property-tax revenues—such as timber tax receipts, payments in lieu of taxes, or the use of unassigned fund balance—that exceed its appropriations. In such cases, a negative municipal rate allows those excess revenues to reduce the overall tax burden to local taxpayers. Importantly, these negative municipal rates do not offset SWEPT, and under current practice cannot do so. In tax year 2025, only two municipalities received negative municipal tax rates, and in both cases the negative rate did not offset more than a portion of the county tax. If this bill were enacted, those municipalities would be prohibited from using excess revenues to reduce property taxes. Instead, they would be required either to increase municipal appropriations unnecessarily or retain surplus funds as unassigned fund balance. In conclusion, the committee concluded that the constitutional issue identified in Rand has already been addressed by the DRA’s change in practice. This bill would extend beyond the court’s mandate and unnecessarily restrict municipalities’ ability to manage their prudential affairs, removing a lawful mechanism that allows them to reduce the overall tax burden on their residents. For these reasons, the committee finds the bill to be unnecessary and likely to produce unintended and adverse consequences for local fiscal management. Vote 17-0.