A new legislative committee, designed to improve the soundness of the Granite State’s tax system, began meeting earlier this week and, thanks to the New Hampshire Supreme Court, will now likely have one more item on its long-term agenda.
The Joint Committee on Tax Expenditure Review, created by HB 1531, will evaluate various exemptions, deductions, credits, and other features of the taxes New Hampshire levies to ensure that they are achieving the goals set for them in a cost-effective manner and to recommend any needed changes in law. Such a practice is becoming more common among states – and for good reason. While regular expenditures are routinely assessed through the appropriations process, tax expenditures – that is, spending achieved through the tax code, often in the form of tax credits – can often continue with little scrutiny, even though they can represent the use of millions of dollars of public resources.
Ironically, just an hour before the Joint Committee held its first meeting on Thursday, the New Hampshire Supreme Court issued its ruling on one of the more controversial tax expenditures the state has enacted in recent years – a credit for the contributions businesses make to organizations offering scholarships to attend private and home schools. An earlier Superior Court decision had found major portions of the tax credit program to be unconstitutional, as it diverted public funds to support religious schools. (Part II, Article 83 of New Hampshire’s Constitution specifies that “no money raised by taxation shall ever be granted or applied for the use of the schools or institutions of any religious sect or denomination.”) The Supreme Court, however, effectively overturned the lower court’s ruling and has allowed the credit to continue in its original form.
Perhaps most disappointing, as others have observed, is that, in so doing, the Supreme Court did not answer critical substantive questions about education or fiscal policy, but, rather decided the case by determining that the plaintiffs did not have the necessary legal standing to bring the suit.
Barring a future suit from parties with such standing, the Supreme Court’s decision puts the fate of the program back in the hands of elected officials. At minimum, the education tax credit will be subject to the same sort of evaluation that the Joint Committee will conduct for other tax expenditures. However, given the fiscal challenges ahead of New Hampshire and the potential revenue loss associated with the credit – as much as $5 million – policymakers should also consider more immediate action.
Indeed, in the aftermath of the Court’s decision, Governor Maggie Hassan, who had called for the repeal of the credit in her FY 2014-2015 budget proposal, reiterated the case for termination. In a statement, she argues, “The voucher tax credit is bad public policy for public education in New Hampshire and our taxpayers, diverting millions of dollars in taxpayer money with no accountability or oversight to religious and private schools at the expense of public schools and property taxpayers across the across the state … I believe the legislature should repeal this misguided law in order to dedicate more of our limited resources to ensuring access to quality public education for all of our young people.”