Who Owns NH's Cities?

Property taxes are a third rail in NH politics, sparking high intensity debate every time they are raised. It's not hard to find folks who think they are unfair, too high and tied to assessments that are either inaccurate or artificially inflated (or deflated) depending on the scenario. Ironically, the people having these conversations are NH residents, but the people paying the majority of property taxes usually call somewhere else home. And some of the most valuable land is owned by entities that don't pay anywhere near the full property tax rate.

About 80 percent of total land and building value statewide is residential, and from the Lakes Region north, much of that is second homes, says Economist Russell Thibeault of Applied Economic Research in Laconia. An analysis of the five most valuable properties in NH's 13 cities-in total worth $2.5 billion-revealed that 31.3 percent of top properties are hospitals or nursing homes, most of which are nonprofits and therefore negotiate payments in lieu of taxes (called PILOT payments), a sum much lower than the tax rate. The second biggest group is retailers (24.9 percent), whose owners hail from eight states other than NH.

All told, of the most valuable properties in NH's 13 cities, hospitals and health care accounted for $774.31 million in land and building value, which is not reflected in the tax base. Consider the case in Lebanon: A 2010 study by the Lincoln Institute of Land Policy in Massachusetts reported that PILOT payments to Lebanon in Fiscal Year 2010 totaled $1.28 million, or 3.03 percent of the city budget. Yet if taxed at its full value, Mary Hitchcock Memorial Hospital alone would generate $3.22 million in taxes, or 7.6 percent of city revenues in 2010 and it is not the only nonprofit hospital in the city. The study of selected major cities found that Lebanon should consider itself lucky. PILOT payments accounted for, on average, less than 1 percent of city budgets.

I don't think honestly that people have a full appreciation of how much of the property tax burden is borne by residential folks, says Dennis Delay, an economist with the NH Center for Public Policy Studies. I think what you've uncovered is one of the myths about New Hampshire and the true burden property taxes are on business. By and large, it's the residential side of the ledger, rather than the industrial side, that is paying most.

Among the smallest group of large property-owning taxpayers in NH's cities are manufacturers, which make up 6.2 percent of all top five most valued properties. Add together the value of top properties that are commercial (excluding retail) and manufacturing, and it's still less than the property owned by utilities. What stands out to me is how few manufacturers there are. Most people probably think the biggest taxpayers are manufacturers, but they're not, says Thibeault. For this reason, he says, talk at town meetings to increase the tax base by increasing commercial real estate is somewhat misguided. The fact is a 10 percent increase in the value of residential property will generate significantly more taxes than a 10 percent increase in the value of commercial property.

When the question of where taxes are being generated is raised, it's not, for the most part, from land. In NH's cities, between 8 and 67 percent of land is nontaxable, Delay says. And of the taxable land, it is not uncommon for 40 percent or more to be in current use, meaning it is taxed at a rate significantly lower than its market value.

Taken at a policy level, this data begs the question: Is the property tax system we have in place the best one for our economic future? There's also a question of fairness. Property taxes are regressive (meaning poorer people pay a larger percent of their wealth than richer people), but in NH many people paying those taxes are out-of-staters, Thibeault says. And while Delay says taxes as a percent of net property valuation are higher than in other states, the total cost of business goes well beyond property taxes.

Note: The lists of the top five most valuable properties in NH cities excludes government properties and utility poles and other distribution equipment, but includes utility land and generating plants. The data was compiled from Business NH Magazine analysis of records from Real Data Corp. in Manchester, a firm that summarizes and publishes real estate data in NH and Vermont (www.real-data.com). Other data came from NH Secretary of State; and the Cities of Keene and Somersworth. Information reflects 2011 data, except Concord (2010) and Somersworth (2012).