By KATHARINE WEBSTER, InDepthNH.org
The thorniest issue facing the Democrats who will take control of the state Legislature next month might be education funding – because the same voters who fueled Tuesday’s “blue wave” also voted in favor of a Republican measure to cap school property taxes.
“Granite State voters sent an unmistakable message to Concord: They want a fundamental shift in how the state of New Hampshire supports our public schools and our students,” said Deb Howes, president of the American Federation of Teachers-NH, one of the state’s two largest teachers’ unions.
“The vote on Question 2 should not be read as a rejection of public education,” Howe said in a statement. “Rather, it reflects increasing frustration with a school funding system that relies far too heavily on local property taxpayers and provides too little from other state sources.”
Rep. Ross Berry, R-Weare, credited as the author of the school property tax cap, Question 2, and chair of the House Election Law Committee, said in an email that while Republicans need to examine why they failed to connect with voters, it’s clear that state residents want lower taxes – and Democrats should heed that warning.
“I see no evidence that voters issued a mandate for higher taxes, nor do I believe Republicans should abandon the principles of fiscal restraint and educational freedom that we’ve consistently advocated,” wrote Berry, who lost his own bid for reelection.
“I believe the Legislature should focus on meaningful spending controls, greater transparency, and giving taxpayers more influence over school budgets,” he said, noting that far more people vote in general elections than in local school meetings and elections.
New Hampshire is last in the nation for its share of state versus local spending on public education. Property taxes have risen over the past two decades to cover 72 percent of public education costs, according to the most recent analysis by the New Hampshire Fiscal Policy Institute, while the state’s share has dropped from 34.9 to 25.6 percent.
Question 2, which was on the ballot Tuesday for every community, asked voters if they wanted to cap the growth in school property taxes at the rate of inflation and cap school district administrative spending at 6 percent for the next two years.
Many school districts will now be operating under the caps, which do not apply to capital spending, including: Derry Cooperative; Timberlane Regional; Merrimack Valley; the district that includes Hooksett, Auburn and Candia; Hampton; Laconia; Pelham; Rochester; and Berlin.
Others fell just short of the 60 percent supermajority needed to pass Question 2, and in multi-town districts and school administrative units (SAUs), Question 2 had to get 60 percent of the vote overall to take effect for the next two years. The Secretary of State’s Office had not posted official election results on Question 2 by Saturday morning.
House Majority Leader Jason Osborne, R-Auburn, said in a statement Friday that statewide, 59 percent of voters, “more than (for) any candidate,” voted for the local property tax and administrative spending caps, and that the caps passed in a majority of school districts.
The measure said the administrative spending cap applies only to central SAU operations “and do not affect classroom instruction (or) school-based services.” However, school district officials have said they will have no choice but to cut instructional staff, given that other costs such as heating, electricity and school buses are greatly outpacing the rate of inflation.
Some opponents of Question 2 sued, claiming Question 2 was confusing and misleading because of that. However, they failed to keep it off the ballot.
The question now is: What will Democrats in the legislature do to provide some relief for both schools and property taxpayers?
While they have a supermajority in the House, they do not have enough votes in the state Senate, which they won 15-9, to override a veto by Republican Gov. Kelly Ayotte.
Democratic Options, Republican Cuts
One thing that House and Senate Democratic leaders agree on, according to the ranking Democrat on the House Education Funding Committee, Rep. David Luneau, D-Hopkinton, is that they will not pursue a state income tax – at least not yet, because state residents don’t want one.
“An overwhelming number of us in the House and Senate have said it’s a nonstarter,” said Luneau, who chaired the Commission to Study School Funding in 2020, the last time Democrats controlled the legislature.
Andru Volinsky, lead lawyer for the plaintiffs in a pair of landmark cases from the 1990s that affirmed the state’s constitutional obligation to provide every student the resources for an “adequate” public education and pay for it with a fair and equitable state tax, said the Democrats should not take an income tax off the table.
“We have a court ruling from the summer of 2025 that shows the state has downshifted half a billion dollars in base adequacy costs” onto local property taxpayers, Volinsky said. “Relieving that burden from the local property taxpayer should be everyone’s target, and it involves tough choices, and leaders need to lead.”
“To be clear, I don’t think you jump to the income tax as a magic solution automatically, and by the same token, I don’t think you take it off the table automatically,” he said.
Instead, Volinsky and some others advocate paying for public education with the 3-3 Tax Savings Plan: a 3 percent flat state income tax, with deductions, and a 3 percent flat state property tax with an exemption for the first $250,000 of a primary home’s value. That would better equalize the impact of taxes across communities – and reduce overall taxes for the vast majority of state residents, he said.
But Luneau says that Democratic leadership will be evaluating other potential sources of state revenues first, including reversing cuts made by Republicans to the business profits and business enterprise taxes and their elimination of the dividend and interest tax on investments that are not in tax-deferred retirement accounts such as IRAs and 401(k)s.
Dropping the business tax rates instead of keeping them at their 2015 levels cost the state $162 million and $239 million in 2024 alone, according to Phil Sletten, research director at the New Hampshire Fiscal Policy Institute.
Luneau said some of the world’s largest companies, including Apple, Amazon and Walmart, pay the majority of business profit taxes in New Hampshire – and they benefitted most from the cuts.
“That’s where these sweetheart deals have gone,” Luneau said. “And who pays the price? It’s local property taxpayers.”
Legislators could also restore the dividend and interest tax. The tax, which did not apply to the most common retirement savings vehicles, including IRAs and 401(k)s, brought in $184.6 million in fiscal 2024, the last year before it was repealed, Sletten said. He said it could generate less revenue in other years, depending on market performance.
Berry said that hiking those taxes is the wrong approach. Reducing business taxes and eliminating the dividend and interest tax have helped make New Hampshire more economically competitive, he said.
“Reversing them would mean taking more money from residents and businesses without any guarantee that local property taxes would actually decrease,” Berry said. “Taxpayers deserve a better solution than simply being handed the same bill by a different level of government.”
Another option for Democrats, according to Luneau, is phasing out or eliminating school vouchers, known as Education Freedom Accounts (EFAs), for homeschooling families and those who send their children to private and religious schools. The money for vouchers comes out of the state’s Education Trust Fund, the same pot of money used for the state’s share of spending on public schools.
“This is costing almost $100 million a year,” Luneau said. “When we take a look at the state’s needs and the priorities to address those needs, paying for private school and homeschooling for families that were already sending their kids there is not a high priority.”
Berry said that EFAs account for only 1.2 percent of total education spending, with an average per pupil grant of about $4,500 compared to a state average of nearly $28,000 for those attending traditional public schools.
“Suggesting that restricting access to a comparatively small program will meaningfully solve New Hampshire’s property tax problem ignores the overwhelming majority of education spending,” he said.
Sletten and Luneau also said that legislators could reform the statewide education property tax, or SWEPT. Right now, of the 72 percent of public education costs paid by property taxpayers, only 8.5 percent comes from the SWEPT, with the rest – 63.5 percent – coming from local property taxes.
Local school property tax rates can vary from $1.85 per $1,000 of assessed value in Moultonborough to $23.34 per $1,000 in Charlestown, according to state Department of Revenue Administration figures from 2025.
In addition, high property-value towns that raise more from the SWEPT than they need to meet the baseline, per-pupil “adequacy amount” set by the Legislature can keep it and use it to provide extra help to their own schools.
Sletten said that the legislature could raise the SWEPT and set a uniform rate for all communities, making it a true statewide tax. The legislature could also change the SWEPT so that all revenues are collected by the state and redistributed equitably to school districts, instead of having local communities collect and keep it.
Luneau said reforming the SWEPT – plus enacting a homestead exemption for the first $300,000 of a primary residence’s value – would provide much-needed property tax relief to people living in towns and cities with the lowest property values, where overall property tax rates for schools and other municipal services can be 40 or 50 times higher than the rates for those living in high property value communities.
Republicans Fight Back
Republicans aren’t giving up the fight for lower state spending on education, though.
Ayotte is seeking to overturn the state Supreme Court decisions from the 1990s that found the state constitution guarantees every child the opportunity for an adequate education – and that the state is obligated to fund that education through a fair and equitable state tax.
The Claremont decisions grew out of a lawsuit filed by Claremont, Pittsfield, Allenstown, Franklin and Lisbon, all communities with low property values that struggle to pay for schools and other basic services. On Tuesday, all five towns passed Question 2.
More recently, the Contoocook Valley, or ConVal, School District brought the state back to court, arguing that the per-pupil “adequacy amount” set by the state legislature falls far short of the actual cost of providing a public school education.
And in another lawsuit, a group of property taxpayers from several towns sued over the state’s use of widely varying property tax rates to pay for education.
A judge ruled in the plaintiffs’ favor in both cases. In the ConVal case, Judge David Ruoff set a bare minimum guideline for the state’s base, per-pupil obligation to fund an adequate education – before extra funding for special education and low-income students and English language learners – that is nearly twice what it currently provides.
Although the state Supreme Court upheld that ruling last year, the other branches of state government have yet to comply. Sletten said that had Ayotte and the legislature done so, the state would have sent $448 million more in school aid to districts this school year.
Ayotte has appealed Ruoff’s ruling in the statewide education property tax case, named for lead plaintiff Steven Rand. In the state’s brief, Attorney General John Formella asked the current court to overturn its own previous decisions affirming the state’s constitutional obligation to define and pay for an adequate education through an equitable statewide tax.
Alternatively, he asked the court to count local property taxes toward the state’s contribution to public education, or else to rule that the courts do not have a constitutional right to review the legislature’s spending decisions.
This year, Republicans passed and Ayotte signed bills making substantially the same arguments. They redefined the state’s obligation to fund public schools as a “shared responsibility” between the state and towns and declared that courts cannot review how the Legislature determines the cost of an adequate education and funds it.
The plaintiffs filed their response to the state’s Rand argument on Election Day, a coincidence, Volinsky said.
“Judge Ruoff found that doubling all of adequacy would not meet all of the adequacy costs that schools face,” Volinsky said. “The state should be considering (adding) between one half and $1 billion in education aid. Relieving that burden from the local property taxpayer should be everyone’s target, and it involves tough choices.”
Instead, he said, Republicans are trying to “obliterate” three decades of state Supreme Court rulings and laws the Legislature passed to comply with those rulings. He also said that nearly 100 pages of the state argument targeted issues that were never litigated at trial and therefore cannot be considered on appeal.
The state’s case is “anchored in a sprawling, often misleading narrative, that cherry-picks New Hampshire education history and that was never tested at trial,” the plaintiffs’ response says.
“The case that the parties tried and the trial court decided … (is) treated as an afterthought to the state’s real project: evading responsibility for following the trial court’s order by persuading this court to discard 33 years of settled precedent it affirmed as recently as last year.”
Ayotte’s office did not respond to an email sent Thursday seeking comment. In a New Hampshire Journal podcast, state Sen. Daryl Abbas, R-Salem, who retained his seat, said Republicans will stand together to uphold the governor’s vetoes.
But Luneau says that Ayotte will have little choice but to negotiate, given that 2027 is a budget year.
“The governor is going to have to work across the aisle to get anything done,” he said. “I think we can find productive ways to move forward an agenda that’s good for Granite Staters.”