State Education Property Tax: Locally raised, locally kept

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On every New Hampshire property tax bill, there are two line items that fund the local school district: the statewide education property tax (SWEPT), and the local education tax. Since 1999, every town and city in New Hampshire has been required to apply SWEPT to eligible properties in their municipalities. Because the state doesn’t cover the entire cost of our public schools, most towns and cities must raise additional funds through a local education tax to make up the difference.

Here’s what you need to know:

  • SWEPT is part of a home or business property tax bill, which means it is remitted to the home or business owner’s town or city. The town or city does not give SWEPT money to the state, despite being called a “state tax.”
  • Since it is a “state tax,” it appears on the state budget as a part of the education trust fund. In practice and for accounting purposes, SWEPT money is counted as state funds. In reality, these funds are all locally raised dollars.
  • State law has required NH property owners to raise $363 million per year in SWEPT funds since 2005.
  • Whatever a town raises in SWEPT, is deducted from what the state would pay the town in adequate education grants and stabilization grants for their schools.
  • Most communities have additional local education taxes, since SWEPT funding and state funding (including adequate education grants and stabilization grants) do not cover the total cost for their local schools.
  • There is a legislative proposal this year to eliminate SWEPT all together.

The education trust fund

The education trust fund was created as a separate account for the state to pay for adequate education grants to districts. It is separate from the general fund, which pays for other government services like the state’s mental health services, fish and game, transportation, and some veterans services. In 2018, adequate education grants totaled about $750 million.

According to state law, adequate education grants have to be taken from the education trust fund. Towns raise a total of $363 million in SWEPT, which the state counts against towns’ adequate education grants. So, instead of the state having to pay  $750 million in adequate education grants in 2018, they really only paid $413 million.

The remaining funds are taken from the formal education trust fund (which includes sources like the lottery, business taxes, and utility property taxes). Since it is a “state tax,” it also appears as part of the state budget. As the money never actually moves from the town to Concord and back again, it is sometimes referred to as a “phantom” tax.

In 2018, the education trust fund totaled roughly $950 million, and at the end of the year, had a $28 million surplus.

What happens when SWEPT does not cover a town or city’s educational expenses entirely?

Though SWEPT is called a state tax, it is raised and kept locally. Towns and cities keep the money in their own accounts. They don’t send the money raised from SWEPT to Concord to send back the way many traditional state taxes are collected. Instead, the amount raised through SWEPT is subtracted from the annual adequate education grant that the town or city would get every year.

Since SWEPT is deducted from the adequate education grants and stabilization grants towns receive from the state, and what remains only covers a portion of what a town or city may spend on their schools, most NH communities also have a local education tax on their property tax bills to make up the difference needed to cover the full cost of each town or city’s local school system.

What happens when SWEPT does cover a town or city’s educational expenses entirely?

If a town raises more than it would be awarded in adequate education grants, it keeps the extra money. It does not send the excess to the state.

17% of NH communities collect more SWEPT than the state provides in adequate education grants for their city or town. These towns were previously known as “donor towns” because they sent their SWEPT surplus to the state to be put in the education trust fund. However, “donor towns” were eliminated in 2011.

The comparison chart above illustrates the complications with relying on property taxes to fund education. Though both Town A and B receive the same amount of money in adequacy education grants, their ability to raise funds to pay for their schools through property taxes is very different. Towns with higher property values, like Town A, can raise more money with a single tax (SWEPT), and can keep the surplus money that is raised. But Town B, which has lower total property values, has to depend on other sources of revenue to make up the difference.

2019 Legislative Proposals

HB 676  has been proposed to repeal SWEPT, and transfer the $363 million directly from the general fund to the education trust fund to pay for public education.

Follow Reaching Higher NH on Facebook and Twitter, and sign up for our newsletter, to stay informed about the many proposals regarding the way we pay for our schools, including changes to stabilization grants. Next week, we will explain another component to school funding: school building aid!

Check our five-part series breaking down education funding in New Hampshire and stay tuned to learn more about how we are paying for school in New Hampshire: