Liz Canada: 00:00
Welcome to New Hampshire Has Issues, the podcast that dares to ask, is there anybody out there who can help us with these property taxes? Uh, it turns out the answer is yes. And we're gonna get into the answer in this episode. Spoiler alert, state lawmakers, that's the answer. Giving it away right at the top. So I brought back a fan favorite, Phil Sletten, the research director at New Hampshire Fiscal Policy Institute. And you know what? Let me just give you all the top lines right now. We're gonna talk about what are property taxes? Where do they come from? Why are we so reliant on them in this state? Who actually even pays them? How do certain communities compare to others? How do we compare to other states? And is there anything that anybody can do? The comment that kept coming up over and over again is how much power resides with the state lawmakers themselves. So I thought maybe it might make sense to read you a little quote from an op-ed that was published on Sunday, April 12th, was co-authored by the Senate Majority Leader, Regina Birdsell, and the House Majority Leader, Jason Osborne. Both Republicans, Republicans, have been in the majority in New Hampshire for a while. Here's their quote from their op-ed. Quote, your local tax bill went up because your local officials voted to spend more of your money. And that's where their quote ends. Now, I don't give out uh levels of Pinocchios on this podcast, but I will say that this sentence needs a lot of context. And thankfully, this episode gives you a lot of context as to why that sentence doesn't actually hold up. Near the end of the episode, Phil and I talk about very quickly an action state lawmakers took back in 2012. For those of you who are longtime granite staters, uh maybe you remember the change in the retirement system and how the state used to pay 35% towards it, and then the state lawmakers changed that to 0%. And that shifted the costs down to the local communities. It's an example from 2012. I thought maybe it'd be helpful to give you a more recent example of a change that state lawmakers have made. In my first episode with Phil in July, we talked about revenues, and he and I talked about the interest and dividends tax and how the state lawmakers, including the two who co-authored that op-ed, voted to eliminate the interest and dividends tax. It was a wealth tax. It was a tax on passive income in CDs and stocks that generated hundreds of thousands of dollars. Was not a tax on your wages, wasn't a tax on if you had a really big, nice house that was worth a lot. It was a tax on passive income that was generating passive income. And so I thought flashing back to that, knowing that very recently, state lawmakers eliminated that wealth tax entirely, while also blaming local communities for what's happening with property taxes would be important context. One piece of context, I should say. There are lots of decisions that state lawmakers make. That one sort of sticks out in my mind right now. So maybe you're a listener who uh does have $10 million in a CD. Please feel free to um go to patreon.com slash NH has issues and become a monthly subscriber. But I'm guessing a lot of you are like me. I don't have that kind of money lying around. And I definitely don't have that kind of money generating that kind of money. That's not happening either. So I'm gonna flash back to Phil's first episode where he describes the interest in dividends tax. We get into the property tax discussion in this episode. And I want to wish you a very merry tax day, everyone. Thank you for listening.

Phil Sletten: 03:38
So the interest in dividends tax was a personal income tax that New Hampshire had. It was a tax on not all forms of income, right? So not wages and salaries, uh, not income that you earn from working. It was a tax on income generated by wealth. To pay this tax, you had to own something that generated money for you. Different from, for example, a capital gains tax would be if you sold something, that would be a capital gain, but that's that's when you have to sell it. This is income generated from holding a stock and, for example, earning dividends or distributions from it. So if you were paying a dollar in interest and dividends tax, then that would be five percent of the amount that you earned in interest and dividends tax. So that would be twenty dollars.

Liz Canada: 04:25
Okay.

Phil Sletten: 04:26
If you earned twenty dollars in taxable income, and let's back out then your twenty four hundred dollar exemption, then you'd have forty-eight thousand four hundred dollars generating that twenty dollars at that five percent, right? Because your first twenty four hundred dollars is free, and then earning five percent, you would have at least forty-eight thousand dollars-ish that would be generating that. Now, there are a lot of people who paid when it existed, a relatively small amount in interest and dividends tax, but more than half of the income from the interest and dividends tax that the state collected came from people filing who had more than two hundred thousand dollars in interest and dividend income alone. So not counting salaries, not counting wages, not counting capital gains.

Liz Canada: 05:09
I did not imagine having that much alone, just sitting there.

Phil Sletten: 05:13
But that's not the two hundred thousand dollars that's generating the money. That's two hundred thousand dollars that has been generated by the wealth. Let's say you have five percent return on this. This may be again a stock dividend, right? Or an annuity or something like that.

Liz Canada: 05:29
I'm literally writing it down, Phil. Yes. Okay. I'm loving it. Yes.

Phil Sletten: 05:33
So if you're collecting passive income of $200,000 or more, then at 5%, you're talking about $4 million in assets that are generating that income. But if you're talking about the you know average annual return in terms of dividends and distributions from like the S P 500, so let's use numbers from 2020, I have those in front of me, that dividend average was 1.5%, which means that if you had $200,000 or more in uh taxable dividend income, then you had probably about $13.4 million in the S P 500 average return that year. Those filers who are paying more than half of the revenue collected by the interest in dividends tax, more than half the revenue collected by the interest and dividends tax, probably had millions of dollars in assets that were generating that taxable income. And again, it's not not the whole $200,000 was taxed. $200,000 in taxable interest and dividend income meant that at a 5% rate, you're talking about paying $10,000 in taxes. That was a lot of numbers for a podcast, Liz. I'm sorry. Thank you, Liz. It's very great to be here. Um I really enjoyed our conversation last time, hoping that I can uh help again this time in the ways that I'm best able to help.

Liz Canada: 07:11
Well, we talked on state fiscal year eve last time, and now this episode's going live on tax day eve. And I thought, who better to talk to us about what's going on in New Hampshire when it comes to taxes than our very own Phil Sledton? Phil, let's jump into it. New Hampshire Fiscal Policy Institute has a new report out. And it's about something that I think pretty much everybody in the Granite State has some awareness of, and that is property taxes. Hot topic, somewhat scandalous. Simple question for you, Phil. What are property taxes?

Phil Sletten: 07:47
It's a great question, and one that is, I think, I think it's appropriate that you identified as very salient in New Hampshire, because if we look at the taxes that we pay going about our daily lives in New Hampshire, the property tax is not only the largest tax that we pay on average on a per person basis in New Hampshire, but it is also the one that is least circumnavigable and most directly visible, the combination of those two things. And what I mean by that is if you look at some of our other tax revenue sources in the state, the business profits tax is the one that the the largest one that the state government has. And that's a tax on profits that corporations and proprietorships and partnerships and water's edge combined filers that are operating in the state and have sales in the state, it's a tax on their profits. That's not something that we see directly in the prices of goods and services that we can trace to the business profits tax. Indeed, for multi-state and multinational entities, the New Hampshire business profits tax may not affect their prices that much at all in New Hampshire versus other states. The meals and rentals tax, when you go out to a restaurant and eat a meal out, then you pay a tax, but you've gone out to eat, right? You have decided to engage in that. When you buy or sell a house, you pay real estate transfer tax. When you drive on the road, you pay your motor fuels tax to the state of New Hampshire and the federal government, but those costs are baked into the price, right? They are not shown independently. Property taxes are something that all of us see in the price of housing. And for some of us, it's less visible. For renters, for example, the cost is passed through. But for homeowners, it's either a line in the escrow line in the amount that you're paying in your mortgage, or it's a bill you get separately from your city or town. And that is harder to avoid by activity that you might decide to undertake that's different, because it's not deciding not to go out to eat or deciding not to purchase something at a liquor store from the state lottery for those non-tax revenue sources. It is living in a building in the state, right? And that gets to what the property tax is. The property tax is a tax on the land and the buildings on the land in New Hampshire. Property taxes originally were designed to reflect the productive capacity of, especially an agricultural operation, right? If you had lots of cattle and lots of land and lots of buildings on your property, then in a mostly agricultural society, you had a lot of capacity to make more money. Yeah. Even in some cases, livestock, right, were taxed as well. Or if you had a fuel tank or a water pump, these are the sorts of things that were previously taxed, and a lot of that is collected under what has manifested itself as the modern property tax. And in that way, previously, a lot of a person's wealth was reflected in what they physically owned. Types of wealth could manifest themselves in different ways, but now more wealth is in, say, stock ownership, right? Your ownership of a company or something that is not as tangible of an asset. But we tax property at the local level in part because it reflects what is the property that a municipality has to manage, right? And also what is the amount of local wealth that is reflected in what people own and the physical assets that they have in a community. So if you go back many, many years, its original history was a little bit more oriented around what is your capacity to produce income and wealth for yourself based on the wealth that you have. And now it reflects for many more people, what is the amount of money that your home is worth or the place that you live is worth, and your landlord in that case might pass on to you in cost through property taxes.

Liz Canada: 11:33
Who really pays them in New Hampshire?

Phil Sletten: 11:35
Property taxes are the most directly measurable as being paid by the most people in New Hampshire. But in terms of the fraction of someone's income, property taxes in New Hampshire have the highest effective tax rate on the lowest income households. And then the second highest, if you will, effective tax rate on households that are middle and upper middle income households. So for lower income households, it tends to be passed through in rental costs. If we look at homeowner households, which are the majority of households in the state, homeowner households have twice the median household incomes of renter households in New Hampshire. So disproportionately, renters that are paying that higher effective property tax rate are probably paying it through their rent as opposed to people who are owning their homes and paying that higher effective rate. That being said, for someone who's retired and living in their house and they may have paid it off entirely, but those property taxes still change and often go up depending on what community they're in and what the service needs are in that community, those households may not have very much income and may be homeowners, but still in that lowest income bracket that's paying that higher effective tax rate. Middle income households, we see those higher effective tax rates again, probably for a different constellation of reasons, less associated with renting and more associated with where those households are in the state and what the costs may be for living in those communities based on their property taxes and their property values in those communities. And on the higher end of the scale, if we took a look at the top 1% of families, um, which in 2023 incomes, that's $721,000 a year or more in annual income in 2023. The effective tax rate for property taxes for that income group was about 2%, meaning 2% of income went to property taxes. For the lowest 20% of households, so those are $35,000 a year or less, that effective tax rate was almost 6%. It was 5.9% based on these estimates. So about three times the effective tax rate for lower income households than we see for the highest income households, if we compare that bottom 20% to the top 1%.

Liz Canada: 13:40
Let me see if I can repeat that back to you. Make sure I check for understanding, as we used to say in the teacher space. Generally speaking, folks who have higher incomes in New Hampshire.

Phil Sletten: 13:52
For the highest 1% of the highest 1%.

Liz Canada: 13:55
For the for the granite staters in the top 1% of income in their households.

Phil Sletten: 14:03
Yes. What shows up on their on their uh IRS uh federal tax form, right? That's usually that's how this breakdown happens.

Liz Canada: 14:10
Yep. Yep. The percentage of their income that is paid through property taxes is 2%. And for those who have the lowest incomes in our state, which means they have less money than the people I just said of the 1%, their property tax that they're paying is about 6% of their income. So a much higher proportion of what they make is needing to go to their property taxes.

Phil Sletten: 14:39
Yes. You were talking about percentages, which is appropriate. The dollar amounts are very different when you're talking about six percent of a $30,000 in income household dollar amount in property taxes versus the 2% of a $750,000 year income household, right? We're talking about different dollar amounts there. But as a percentage of income, property taxes are highest for the lowest income households and lowest for the highest income households. In between, it's a little uneven. It actually peaks again for middle and upper middle income households as a percentage of income.

Liz Canada: 15:12
And the other part that I will say, which I heard you say too, is that yes, renters pay property taxes indirectly through their rent. Generally speaking, if I'm a homeowner and I'm renting out an apartment to somebody, I am calculating what the property tax will be when I charge someone rent. So even though they are renting, what a property tax might be in that community will affect the renter. Does that sound about right?

Phil Sletten: 15:41
Yes, and I appreciate your caveat for in that community because the percentage effective tax rates that I just gave you are statewide.

Liz Canada: 15:48
So in this sort of part one, question one to sum up, top 1% paying a much smaller proportion of their income towards property taxes versus the lowest income folks in New Hampshire, generally speaking, are paying three times that amount in terms of proportion of their income towards property taxes. Everyone who lives in New Hampshire in some capacity is paying property taxes, whether you are a homeowner yourself or you are renting, that number is affecting you in some way for your specific community.

Phil Sletten: 16:23
Even if your landlord, if that person has paid off the property entirely, then they may not have principal or interest costs, right? They may not have a mortgage payment to do anymore, but they still have property taxes. And that could be a key driver of how much they calculate that they should charge in rent. Even if you are no longer working, you lose your job, you still have the property taxes. And to layer on to that, if you are working. Yes, go for it. If you are working and you have a rough idea of what your income is going to be, and you buy a property and you have a 30-year fixed-rate mortgage, then you have a high degree of certainty as to how much you're going to be paying each month. Property taxes vary from year to year. And that you do not have as much certainty about as to what that is going to cost you in the future. Even if you still have that income, you have less certainty about that cost than you do about your principal and interest payments in your mortgage.

Liz Canada: 17:17
All right. Good groundwork here. I have heard a rumor that New Hampshire relies a lot on those property taxes. Uh number one, is that true? And if so, why is New Hampshire so dang reliant on property taxes?

Phil Sletten: 17:35
The rumor is correct, Liz.

Liz Canada: 17:38
Rumor is right. Okay. Yes.

Phil Sletten: 17:40
If we compare the amount of property taxes collected by state and local governments in New Hampshire as a percentage of all state and local revenue, then New Hampshire is the highest of any state in the country. If we look at the amount of taxes collected by state and local governments in New Hampshire as a percentage of all tax revenue, New Hampshire is the highest in the country. About 63% of all state and local tax revenue collected in New Hampshire is in some form of property tax that is raised at the local level by local governments. A portion of that is the statewide education property tax, but the majority, the vast majority, and the majority of all state and local taxes, not federal, but state and local taxes raised in New Hampshire are property taxes. If we look at all local revenue, uh, this is counting property taxes, but also state aid sent to local governments, federal aid sent to local governments, school lunch payments when kids are paying for their lunches in line.

Liz Canada: 18:39
Or if their parent has forgotten and then has to pay three months later because they forgot to do the online portal. Hypothetically speaking, Phil, I don't know anybody who's done that.

Phil Sletten: 18:48
I you know, whether or not you know someone who has done or not, it still counts as revenue, right? Still in the in the pie chart of what revenue looks like. Parking fees, right? You know, I I don't know anyone who's ever forgotten to pay a parking meter, for example, right? And you ticketed associated with that. The ticket or the payment to the meter also is part of the local government revenue picture, right? New Hampshire has, on average, local government in New Hampshire is more reliant on property taxes for local revenue than any other set of local governments in any other state in the country. 61% of all revenue, including state aid, including federal aid, including those parking fees and tickets and school lunches, 61% of all local government revenue in New Hampshire is from property taxes. And when I say local governments, I mean cities, towns, school districts, and county governments, right? All together here. That 61% is higher than any other state in the country, not by a big margin. Connecticut's right at 60%, but still our local governments are more reliant than any other state in the country. And if you look at our state and local governments combined, we are also more reliant. And that's including federal aid, that's including turnpike tolls in that state and local picture. We are more reliant than any other state in the country.

Liz Canada: 20:10
Is that what you just said to me, Phil?

Phil Sletten: 20:11
Yes. And it is the portion that local governments often have the most control over if they have an unexpected increase in costs to provide services. Local governments always have the option of reducing services as well. But if there's a combination of reducing services and increasing revenue, and you still need to increase revenue on the revenue side, well, there's only so much you're gonna charge for school lunches. There's only so much you're gonna charge for parking, there's only so much revenue you're gonna collect from those sources. And you don't have, as a local school board or a local city or town official, you don't have control over the amount of money that comes to you from the state or from the federal government. The one that you have the most direct control over, the revenue source that you have the most direct control over, is your property tax rate. And that is the effectively the only tax revenue source that local governments have in New Hampshire, because local governments in New Hampshire can only do what the state permits them to do in statute. We are not a home rule state in that we don't, you know, our local governments can only be so creative in the policies that they decide to come up with. And that's particularly true on the revenue raising side. It's true relative to taxes. And almost all local government tax revenue, as uh counted by the U.S. Census Bureau, is through property taxes because there are other revenue sources, but there really aren't any other large tax revenue sources that most local governments have as an option.

Liz Canada: 21:29
So we're not a home rule state, which means local communities can do some things, but otherwise the state, meaning the state lawmakers, they they make those decisions. The state decides what they are allowed or not allowed to do.

Phil Sletten: 21:43
Aaron Powell Yep. The state very much dictates what local governments can and cannot do to raise revenue. In some other states, local governments are allowed to have very significant revenue generators outside of property taxes. An ongoing conversation here in New Hampshire is sometimes whether local governments could add a $2 fee, for example, onto hotel rooms that the state would collect as part of the meals and rentals tax, but those dollars would stay local.

Liz Canada: 22:08
Okay.

Phil Sletten: 22:08
There are other states that allow local governments to have sales taxes or even income taxes that are broad-based, a general sales tax or a broad-based income tax, or corporate taxes. So those are tax revenue options that other local governments have in other states, not all other states and not all local governments, just to be clear. But there are, in terms of points of comparison, there are more flexibilities offered to some local governments around the country than we offer to our local governments here in New Hampshire on the revenue raising side.

Liz Canada: 22:37
Aaron Powell The Meals and Rooms tax, am I saying that correctly? Meals and rooms?

Phil Sletten: 22:42
Aaron Ross Powell It is both meals and rooms and meals and rentals in state law. The only reason I say meals and rentals is because it also includes rental cars. So if you rented a car in New Hampshire, that would be taxed under the meals and rentals tax. And rentals captures that, whereas rooms doesn't. So I call it meals and rentals.

Liz Canada: 22:60
Trevor Burrus, And in New Hampshire, we have that tax. That is a tax from the state, meals and rentals. So other states give the flexibility or the local control to the local communities to say if you wanted to do a 50 cent additional meals and rentals tax to be able to cover things in your community, you would be allowed to do that. We do not have that ability in New Hampshire. Is that correct?

Phil Sletten: 23:25
I mean, state policymakers could decide to put it in if they put it in state law.

Liz Canada: 23:28
Oh, the state policymakers. Yes, yes.

Phil Sletten: 23:31
Yes, they could, but state law doesn't allow it now, so that's not allowed currently for local governments. It's not an option for them.

Liz Canada: 23:37
Okay. We rely a lot on property taxes because that is the major lever that New Hampshire has and local communities have to raise revenue to cover what is needed to function as a community. So you have a study that just came out. It is called Property Taxes in New Hampshire, How They Work and How They Compare. So how do property taxes work and follow-up? How do they compare?

Phil Sletten: 24:03
So in New Hampshire, they rely on not just that property that is in the land and the buildings on the land, as we discussed, how valuable is the land and how valuable are the old term would be improvements on that land. But property taxes also vary substantially from community to community based on what is in their taxable property value per capita. And what I mean by that is what is their property tax base and how does that compare to the number of people that that community serves? And that taxable property value per capita varies substantially. The median community has about a quarter million dollars in taxable property value per each person that lives in the community. So if we think about a the median single-family home sale or single-family house sale price in New Hampshire is about $500,000, that's about half a house per person, right? If we take that median community. However, if you take a community like Berlin, that is the lowest taxable property value per capita, which is a community that has had several major industries come and go and go more often than arrive in the last uh several decades, and is relatively both geographically compact in terms of the properties are uh a lot of the properties where people live are around the city center. And then there's a lot of land that is not taxable or is taxed at a lower assessed value because it's either in current use or in the White Mountain National Forest. So Berlin has about $113,000 in taxable property value per capita, right? So think about it as about half of where that median community is. And then there are 18 communities in the state that have more than $900,000 in taxable property value per capita. And about 10% of all communities in the state have three-quarters of a million dollars in taxable property value per capita or higher. And what that results in is very different tax bases that require very different property tax rates to raise a similar amount of money for a similar set of services. And that may not be a surprise if you're comparing southeastern New Hampshire to the north country and saying, what is the value of a house and what is the tax rate that's on it, and how does the community compare, right? There's very different economies in different parts of the state. But if we look at neighboring communities, let's take Lee and Nottingham, for example, two towns next to each other over in the uh in the Seacoast region of the of the state.

Liz Canada: 26:15
I'm glad you told me where Lee and Nottingham were, because like I thought I knew, but I appreciate that you clarified Seacoast area for the year.

Phil Sletten: 26:22
Well, I've got two more towns coming after that, too. Okay. Okay, great. So in Lee, if you have a house assessed at $500,000 in Lee, the annual property tax that you would pay over the course of 2025 would be about $13,800. If you go to Nottingham, next door, one town over west, effectively. Yes. That same value house would have a property tax payment, an annual property tax payment of $6,600.

Liz Canada: 26:50
Wait, what was Lee's?

Phil Sletten: 26:52
$13,800. And then you cross that invisible, in most places, municipal boundary, and that same value house would have a tax of six thousand six hundred dollars.

Liz Canada: 27:02
So half of what they're paying in Lee?

Phil Sletten: 27:05
Uh yes, a little less than half. And let's go to the western part of the state. Let's go to Ackworth. Ackworth, New Hampshire. I definitely don't know where that is. Small towns in Sullivan County, west central part of New Hampshire. Ackworth, a $500,000 house, would pay about $8,000 in property taxes in 2025. That $500,000 taxable value. If you go one town west to Charleston, which is on the Connecticut River, the same value house would pay $18,300 in property taxes.

Liz Canada: 27:36
Wait, what did you just say? Ackworth's you tell me the second number and it boggles my mind because I remember generally speaking, but hit me with the numbers again.

Phil Sletten: 27:44
Ackworth was about $8,000. Charleston was about $1,8,300.

Liz Canada: 27:50
Just one town over.

Phil Sletten: 27:52
Same value house.

Liz Canada: 27:53
Oh my God.

Phil Sletten: 27:55
And this reflects a lot of things, right? The answer is why is this the case? This reflects a lot of things, including what is the property tax base in that town, what's the service needs in that town, what are the spending decisions that are made in those towns, like what are the investments that they're making? That could be school districts, that could be municipal. People are having input as to what the community is spending money on. And also these communities will be spending money and investing in themselves to, for example, try to attract businesses, try to attract more residents, have better services for the residents who are already in those communities. So there is incentives for them to invest in themselves. But the ability for these communities to invest in themselves is very largely informed by the amount of taxable property value within those communities' borders. And if you have a lower amount of taxable property value, you have less fiscal capacity to raise the money to invest in your community. And in New Hampshire, we are disproportionately reliant on local property tax bases. And those local property tax bases are in our municipal borders, right? Because the municipalities are the ones that do the revenue raising through uh even for we're talking about school districts and counties, you get your municipal property tax bill, which has the state portion for the statewide education property tax, the county portion, the school district portion, and the city or town portion, right? And if you're in a village district, that might be in there too. Those are all raised based on what is in that town's or city's borders. And that can be dependent on whether there's a desirable lake to live on, right, that boosts property values, whether you have second homes that are near a ski area or some other natural amenity, um, not that a ski area is natural, but that you had to have a mountain to be able to build a ski area, right? Yes. Are you on the seacoast, right, and live and have property on ocean front that is more valuable? Um, do you have a large commercial facility in your community? That can have an effect on what you are able to have as your fiscal capacity in your community, what you're able to raise in property taxes. The income of a community also matters. If people are bringing home more dollars, then even if they are getting taxed more in their property taxes, it may be a smaller percentage of their income and they're more willing to pay it to enable those community investments.

Liz Canada: 30:10
That gets back to part one, where if you have a higher income, proportionally speaking, you might not feel it in the same way as you would feel it if you have the lowest income generally speaking across the state for for your property taxes. Like how you feel individually would be different depending on what your income is. But you talked about spending decisions, Phil, and how these local communities, one town is $8,000, one town is $18,000. The communities, the money that they are bringing in through revenue is almost entirely based on what properties are within their own individual borders. So, like if you live in Ackworth, it's all dependent on what's in the boundaries of Ackworth for how that revenue is being raised and how they're able to cover the costs of their services, of their fire departments, of their schools, of their department of public works. Like that is all dependent on within their own individual borders, right? It's all about your own individual town or city.

Phil Sletten: 31:16
Yes. The statewide education property tax used to raise revenue that was then collected at the state level and redistributed, a portion of it was redistributed among communities. That has not been the case for a decade and a half. That stopped in 2011. So local property taxes stay at the local level, including the statewide education property tax. When it comes to the amount of money that local governments in New Hampshire raise on a per capita basis, if you look at all state and local government revenue combined, so everything the state government collects, everything local governments collect, and divide it by the number of people in each state and rank all the states, from New York at the highest, which is about $22,400 per person, down to Georgia at the lowest, which is about $10,300 per person, New Hampshire ranks 45th at about $11,100 per person. So what does that mean? It means that New Hampshire is on the low end of the amount of state and local revenue raised for public services. And that includes federal grants coming into the state and local governments too. That's all revenue. If we count just local governments, so take out the state portion, just local governments, how much do local governments in each state raise per person in the state? New Hampshire ranks 40th there. But if you count just local revenue, then New Hampshire ranks 40th, meaning that in 39 other states, local governments collect more revenue per capita than we see in New Hampshire. And the where the place that the state plays a role is the state government. State governments in all states contribute money to local governments, provide aid to local governments. And in New Hampshire, that amount is a little under, or in fiscal year 2022, was a little under $1,200 per person in state money going to local governments. That amount was 48th in the country relative to all the other states. So what do I mean by that? If you take all the money that goes from a state government and goes to local governments in that state, and divide it by the number of people in that state, and rank it for one, the highest, which is California, at about $3,600 per person, and all the way at the bottom is the lowest, which is Hawaii, at $256 per person, New Hampshire ranks 48th. The only states lower than us are Florida and Hawaii. So New Hampshire is effectively at the bottom in terms of state aid provided to local governments on a per person basis. I gave you a lot of numbers, Liz. I know this is a podcast. I know that's not the easiest way for folks to digest it, but I think it's important context for why we rely so much on local property taxes and what our local governments are raising money for and spending money on. I can't tell you what every individual local government is making decisions on, but I can tell you that if you look at the amount of revenue our local governments raise on a per person basis, we're relatively low in New Hampshire. And in the amount of money that the state provides to local governments on a per person basis, we are almost at the bottom in New Hampshire. And if the state provided more money for local governments that would reduce the upward pressure on property taxes in most cases, doesn't mean they'd go down. But it does mean that there would be less pressure to push property taxes higher to fund services.

Liz Canada: 34:31
What influences property taxes? Who's doing this to us, Phil? You know, I this this quote pointing the finger at select boards and school boards. And I don't know that I agree with that and saying it's their fault about property taxes, but I do want to blame someone, Phil. So who's doing this to us? How do we how are we in this position that we're in?

Phil Sletten: 34:57
Structurally, New Hampshire is reliant on property taxes to the extent that it is, because the state doesn't provide as much money as some other states do to local governments, as most other states do on a per capita basis. And the state also does not provide as many revenue options as some other states do to some other governments. That interacts with the decisions that we all make through our local policymakers and our local elected officials or ourselves at our local town or school district meetings, and results in us leaning on property taxes, particularly for our local property tax basis, what's in our community, more than we see most everywhere else in the country.

Liz Canada: 35:38
So if I'm hearing you correctly, Phil, it's the state lawmakers who have the ability to make this change for what we're feeling in terms of the pressure in property taxes. They could change how we do things because they're the ones who hold that power in New Hampshire specifically, since in many ways local communities can't add a new revenue stream, for example, that state lawmakers could influence how we're feeling in terms of property taxes. If the state lawmakers made the decision to make sure that more state aid was being sent to local communities, that's something that they could do if they so chose. Say that again, Phil. What did you just say? When we had more money coming in from the federal government, our property taxes didn't go up as much?

Phil Sletten: 37:03
They didn't go up faster than inflation. So they were outpaced by inflation that consumers generally faced in the New Hampshire economy. They didn't outpace inflation. Most years they do. If you look from 2009 to 2025, in most years, aggregate property taxes raised by local governments go up faster than inflation. And that's what relative to what consumers face, not necessarily what governments face. Governments tend to employ a lot of people, especially school districts, and those people have uh healthcare insurance premiums, for example, that may go up faster than inflation. Local governments also work on road construction, which is not something most households do. And those costs may change over time as well, um, in a way that's faster than what we see for households. But there were three years where local govern where local government property taxes did not outpace inflation. One was 2011, which is about flat with 2010, one was 2021, and one was 2022. In those two years, property tax increases were outpaced by inflation. Inflation was fast during that time period, inflation was fast during those periods, and there was additional state aid, but the biggest shift was federal aid that went right to local governments. And that was probably the factor that led to local government property taxes not rising faster than inflation in those years in aggregate statewide. So for property taxes to go down or to not go up as quickly, there are definitely levers, policy levers, that state policymakers could pull that would reduce upward pressure on property taxes. Policymakers could also, you know, they have direct control uh in many ways over what communities can and can't do. They could also find ways to either provide targeted tax relief or limit property tax growth for either certain populations or entire populations in certain ways. Policymakers at the state level have a lot of authority that they could bring to bear to tackle property tax growth in one way or another. Just providing more aid does not guarantee that property taxes go down or that they don't go up as fast. Providing more aid, however, to local governments is another way that governments at the local level could have additional revenue that doesn't require them to raise property taxes while keeping the same level of services.

Liz Canada: 39:20
I'm gonna say something that you do not need to respond to, Phil, but I'm just gonna say it out loud for myself. What I just heard you say is that state lawmakers have a lot of levers they could pull. They could do a lot of different things to support communities, targeted relief, things that would actually mean that local communities were to get more state aid. So what are the consequences of relying so heavily on property taxes? Whether it's you know, New Hampshire as the state or the local communities, or like me, an individual taxpayer, what are the consequences when New Hampshire relies so heavily on property taxes?

Phil Sletten: 39:57
Whether it's plowing roads or uh, you know, keeping parks clean or recreation areas uh you know available for public use, educating students, providing police, firefighter, emergency medical services, these are all services that are funded by and large through local property taxes, which means that those local property tax bases, what happens to be the property and the value of the property in your community, matter a lot and are in many ways deterministic for what you as a municipality or a resident in a municipality can raise or expect to have from the community you live in in terms of services.

Liz Canada: 40:36
It is fascinating to me how much New Hampshire relies on the individual communities within their border. Like you are sort of on your own out there in New Hampshire, yet without a lot of the local control that we seem to pride ourselves on, that the communities are sort of left without a lot of levers and tools and ability to do the things that might be needed to make the big changes and to help uh help taxpayers. Well, the things I wish we talked about, Phil, that I know we don't have time for, uh the 2012 change in retirement from the state. Uh the state's right, like that feels like such a big thing that I haven't talked about on any of my episodes, but my God, that seems like such a clear example of the state saying we're not paying this anymore and it getting pushed down to the local communities. You have to pick it up.

Phil Sletten: 41:22
So the state previously paid 35% of teacher, police, and firefighter retirement costs for local governments, covered 35% of those costs. That percentage dropped to 30 and then dropped to zero because state policymakers during the Great Recession and immediately following the Great Recession had less state revenue, right? And they said this is something we're going to pause and we wish we could do this, but we don't have the money to do this at this time. That contribution, that 35% of police, firefighter, and teacher costs, which are significant costs for local governments, that only returned once with a 7.5% coverage of those costs in state fiscal year 2023 for one time. So that is, I don't have the math for you specifically as to how much amount of what amount of money that would have been, but that's been a significant amount of money over 15 years that the state previously funded and no longer does.

Liz Canada: 42:15
State lawmakers, they have the power to make changes. And when they point at local elected officials, uh, I would encourage them to stop looking out the window and start looking in the mirror and what changes they can make. Phil, thank you so much for everything that you do. New report, linked in the show notes, and I hope you will come back maybe in the summer and tell me how things are going for the fiscal year one year in.

Phil Sletten: 42:40
I'd be happy to do it, Liz. Thanks for the opportunity to talk today. And uh please, I encourage folks to look at the report. There are a lot of tables in the report, a lot of the numbers that I said on the podcast today that's harder to see an audio. It helps to see it at a chart. Encourage folks to look at that. 

Liz Canada:

You're an all-star, Phil.