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NH faces financial woes
State budget not as troubled as some, but needs work

04/22/10



At this time last year, legislators were trying to find ways to close a big state budget deficit. The numbers don’t appear to be quite as large now, but there’s a $600 million problem looming after Fiscal Year 2011 stemming from one-time cuts and one-time funding sources legislators used to balance the current biennial budget last June.

Stephen Norton, executive director of the New Hampshire Center for Public Policy Studies, estimated the state is currently facing a $100 million deficit. Charles Arlinghaus, executive director of the Josiah Bartlett Center for Public Policy, has the deficit pegged at about $250 million. Gov. John Lynch has asked department heads to find $140 million worth of cuts.

“I think $140 million is not enough but it’s a good start,” Arlinghaus said.

The House tabled a $47 million package of cuts last month that had been reduced from $77 million.
Lynch was expected to present a list of cuts to the legislative fiscal committee on Monday, April 12. Lynch has said in reports he’s asking department heads to cut 2 percent from the current budget and 8 percent from the Fiscal Year 2011 budget. The state’s general fund for the biennial budget is about $3.2 billion.

“There’s always room to make cuts,” Norton said. “It just depends on your appetite.”

Some are in a holding pattern as they await Sen. Lou D’Allesandro’s proposal for expanded gaming, which, as proposed, would greatly impact the Department of Health and Human Services, which would receive the first $50 million in licensing fees. Proponents say the measure would also provide 2,000 to 4,000 permanent jobs, along with thousands of construction jobs. The Senate approved the gaming proposal. Arlinghaus said it might solve budget problems in the short term, but its longer-term stability is still in question.

“Spending cuts and gambling are dancing together right now and I’m not quite sure who’s leading,” Arlinghaus said.
The things that drove the budget higher last year ? Medicaid, retirement costs, corrections costs and education ? are still doing just that. It makes sense that certain areas of the budget, such as Medicaid, are growing, as those services are in greater demand in times of economic woes. Many of the areas that are driving the budget are also areas the state can’t control as they are eligibility programs, meaning if someone is eligible, the state must provide services.

Norton expects the next round of conversations to center on the Department of Health and Human Services, which has the
biggest chunk of the state’s general fund, about 45 percent.

Arlinghaus said he thought the Department of Revenue Administration presented overly optimistic numbers to legislators right before they passed the current budget. He thought revenue estimates were fairly cautious throughout much of the budget process last year. On the last day of the committee of conference, the Department of Revenue Administration came in with larger estimates, “which conveniently solved the problem of balancing the budget,” Arlinghaus said.

The state also lost out on $100 million from the Joint Underwriting Association when a state Supreme Court justice ruled the money couldn’t be raided to balance the budget.

But things aren’t as bad as they were a year ago. Things also remain not nearly as bad here as they are elsewhere. California, for example, is facing a 36-percent budget deficit, compared to New Hampshire’s 8-percent shortfall. New Hampshire is also one of the lowest-spending states per capita, according to Norton.

There are some unknowns, primarily with the federal government and the enhanced federal matching dollars associated with Medicaid. That could help out quite a bit. Revenues are also up in the air. Officials are playing close attention to the business and profits tax, from which the state drew 21 percent of its revenue in 2008. Revenue from business taxes was down more than 14 percent from December 2008 to December 2009, Norton said. 

Given the tough economic time, Arlinghaus said raising taxes should be off the table. “If you cut spending now, that will also impact the future,” Arlinghaus said. “If you use gimmicks now, it won’t affect the future. We have a long-term problem, not a short-term problem. We do not have the money to pay for our current programs.”

Norton said the elephant in the room is the question of education adequacy and local aid. In the last budget session, legislators reduced expenditures to local communities and increased spending on education.

“I think the question is, will we continue to maintain that spending [on education],” Norton said. “The initial suggestion is that we will not maintain the existing commitment to the law.”

A legislative subcommittee is looking at what to do with school building aid, which is one of the budget drivers. The program, which was created in 1955, provides reimbursement for the share of the cost of construction in new buildings or additions to existing buildings. The state provides 30 to 50 percent of the cost of construction, which includes the purchase of land, planning, design costs and the actual construction.

There is a bill working through the legislature that would suspend all funding for school building projects while the committee studies it. Norton said that program could be re-worked substantially in a number of ways to limit the state’s expense, including targeting low-income schools or limiting aid to certain types of projects. The legislature shifted school building aid into the state’s capital budget last year, which means the state is borrowing money to pay its share. It helped balance the budget last year, but officials say it’s not sustainable.

Officials have also worked to make corrections more efficient and to reduce recidivism. The state’s inmate population has grown considerably, further taxing the budget. The prison system has worked to implement more community-based programs to help keep those leaving jail from having to come back, officials said.

The legislators could, at least theoretically, just hope Fiscal Year 2011 produces big revenue jumps. That wouldn’t be prudent, given the unlikelihood that revenues would have jumped that much and because of the $600 million hole the next biennium will start out with. If the revenue growth returns to normal levels faster than expected, it would still just be a drop in the bucket compared to the hole the next budget will start off facing, officials say.






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