By Charlie Arlinghaus

April 6, 2011

As originally published in the New Hampshire Union Leader

The draft of the state budget that passed the House last week is a significant cut to state government but much of the political hype about it from both sides is slightly different from the reality of the numbers.

Faced with the worst budget shortfall in recent history, budget writers were forced to either make significant cuts to state spending or to raise taxes. In the midst of a precarious economic recovery, neither the governor nor the House was willing to raise taxes and hurt job growth even a little bit. That left spending cuts.

Everyone agreed going in that cuts would involve more than just eliminating elusive waste and inefficiency or making small cuts for everyone. The government would actually have to stop doing some things that we might think were a good idea in better economic times. The budget that passed the House is without question the biggest cut in modern state history. On apples to apples terms, the proposed budget would spend 11.3% less in general and education funds, the state operating budget, than we will spend in the current two-year budget. That amounts to an actual cut of $564 million.

The budget can be divided into three parts. Debt service is only 5% of the budget but comprises payments for money we already borrowed in previous years and therefore must pay for. It went up 9% and we had no choice. The remainder of the budget can be divided into two halves: local aid and the operations of state government.

The current budget cuts local aid but by only about 4% to $2.2 billion; most of which is for schools. The governor would have cut local aid a bit more but the House added back in $28 million for special education and $29 million for building aid. Otherwise, they were broadly in agreement, notably on eliminating the state subsidy of local government retirement costs.

The biggest disagreement comes over the state government portion of the budget which the House budget writers reduced by 19% or $481 million. In the current two-year budget ending in June, the state government portion can be divided into Health & Human Services (HHS) and the rest of government, each about half.

The House budget writers did not cut those two chunks equally. In fact, spending on HHS functions was essentially flat, dropping $19 million or 1.5% not counting stimulus money. The other half of government declines in this draft of the budget by 29%.

This isn’t meant to minimize the cuts to HHS. Certainly caseloads are still rising and health care inflation is much higher than price and wage inflation. A 1% cut without significant economic recovery to reduce the pressure is difficult. But in setting a smaller cut for HHS budget writers set clear priorities.

Programs for those who most need help were almost level funded. The rest of government was cut by 29%. Most of us would probably lean toward that sort of priority setting if we had to find a way to reduce the budget.

Having said that, I don’t think the priority setting in the current draft of the budget was all well placed. Because House leadership has been focused on a misplaced downshifting argument, local aid has emerged somehow as a sacrosanct part of the state budget.

The argument is that while cuts to state government operations are fine, any reduction in local aid is a “downshift” and will result in higher property taxes. This argument wrongly presumes that state government has the ability to reduce its expenditures 29% in some areas but local governments can’t ever reduce anything even in budget crises.

It would seem more rational that if state government and local aid are each half of the state operating budget, the part funded by regular taxes, then each half could be reduced by a similar percentage without one side claiming the other is shifting its burdens. In contrast, the current House draft cuts local aid by 4% and the rest of state government by 19%.

I think an 11% cut to each half would be equitable. Without question it would require difficult choices to be made at the town and school level but no more difficult than the choices being made in Concord.

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