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City tax caps back in place as Lynch signs new law

State House Bureau Chief

July 05. 2011 3:37PM

CONCORD - Manchester's tax cap, rejected by the New Hampshire Supreme Court in early 2010, is back in place.

Gov. John Lynch signed a bill Tuesday that clears the way for cities, towns and school districts to adopt caps on local tax increases, and restores caps that may have had legal problems.

Senate Bill 2, which took effect immediately, states that any tax cap that voters elected to make part of their charter is now valid, whether or not it was legal to adopt the cap at the time it passed.

The bill gives communities clear guidelines and greater leeway in adopting the caps. It also allows caps to be exceeded with supermajority votes of the local governing body.

In a city like Manchester, the governing body would be the Board of Mayor and Aldermen. In a small town, it would most often be voters at an annual meeting.

Manchester voters adopted a tax cap in 2009 to limit tax and spending hikes to match the urban consumer price index, but the cap never took effect.

Acting on a court challenge, the state Supreme Court ruled unanimously that the city's cap was in direct conflict with the state law that described how a board of mayor and aldermen should operate. By constraining the board to abide by the cap or seek a two-thirds majority, it conflicted with the law on a board's authority, the court said.

"Part of the driving force behind this bill was to correct the situation in Manchester, but it was also to help taxpayers across the state who wanted to rein in local spending," said Sen. David Boutin, R-Hooksett, prime sponsor of SB 2. "This is a great day for taxpayers."

In the wake of the Supreme Court ruling in Manchester's case, the city of Dover suspended a tax cap it had in place. The suspension set off a lawsuit by a group of taxpayers who said city officials had no right to contradict the will of the voters.

Derry, Franklin, Rochester, Nashua and Laconia also have adopted tax caps.

SB 2 does not set out a specific percentage of votes needed to exceed a cap. Instead, it allows communities and school districts to choose the level, which is most often either a two-thirds majority or of a three-fifths majority.

The new law sets out the wording that a ballot question on a local tax cap must contain. It allows voters to decide whether to cap annual tax increases by a certain percentage or by a dollar amount.

The cap must be adopted by a three-fifths majority -- 60 percent of voters -- to take effect. Manchester's cap passed by a narrower margin, gaining 54.4 percent of the vote.

The bill contains language that leaves the tax cap process in place even if courts overturn the section that goes back in time to convert into legal tax caps those that were illegal when they were first adopted.

Manchester Mayor Ted Gatsas said he is glad to have the cap back, but he thinks it needs work.

"There's nothing that says we can't create another one. I'd rather have a better one in place," Gatsas said as he prepared for a discussion with aldermen tonight.

Gatsas said he thinks city operations like the Manchester-Boston Regional Airport and the Manchester Water Works should be excluded from the cap because of large capital investments they occasionally have to make.

The city budget that took effect on July 1 increased local property taxes by 2.86 percent. That compares with an urban CPI increase in May of 3.6 percent over the previous 12 months.

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