By Charlie Arlinghaus

June 16, 2010

As originally published in the New Hampshire Union Leader

New Hampshire’s financial crisis is worse than at anytime in its history not because of outside forces but because of an internal refusal to admit it has a problem and to change its behavior as a result. The only two courses open to our future are to take responsibility for our own situation or hope desperately that a bankrupt federal government will bailout the big states and leave us a few scraps to finance our deficit spending.

The failure of New Hampshire to manage its own finances isn’t difficult to chart. Just two budgets ago, we raised what we spent and had a balanced budget with a modest surplus. In fiscal years 2006 and 2007, we raised $4.47 billion and spent $4.42 billion. We ended that fiscal year with reserves of $150 million and were in great shape financially.

Then the recession hit and New Hampshire didn’t manage well. Revenues over the four years of the next two budgets declined from $4.57 billion to the current official projection of $4.37 billion, a decline of $100 million. This decline is not dramatically different from most states.

According to the National Association of State Budget Officers (NASBO), tax collections were down in states across the country. What was different in New Hampshire was our reaction to the crisis.

In the fifty states as a whole, expenditures declined as revenues declined. Dramatic reductions mean that projected spending in the fiscal year starting July 1 (FY 2011) will be 3.1% less than four years earlier. This average reduction would have suited New Hampshire well. Revenues in the current budget will be just 2.3% less than in 2006-2007, the last balanced budget.

Yet we didn’t respond that way. Spending in the current budget will be approximately $470 million higher than four years ago. In addition, another $91 million is still being spent but is paid for not with revenue but by borrowing the money. As I said above, in the same period revenues will decline $100 million.

You can’t balance a budget by spending $561 million more and collecting $100 million less. That would be common sense to the average fourth grader but seems to be beyond the understanding of our state government.

There are some who would object and claim that reducing spending is impossible for a government. They simply ignore the experience of other states around the country. There aren’t just one or two states around the country that managed to magically reduce spending. Thirty-seven states managed to reduce spending. We weren’t one of them. Taken together, all fifty states reduced spending by a combined 6.8% in FY2010. We didn’t.

Nor did every state spend down its reserves. In New Hampshire our reserves declined from $150 million to $3 million in just three years. Across the rest of the country, 36 states have maintained reserves of at least 1% of their operating budget. We aren’t one of them.

Just ten years ago, the Federal Reserve Bank of Boston declared New Hampshire’s fiscal order to be the envy of its neighbors. That was then and this is now.

In a few short years, we’ve gone from envy to basket case. Old fashioned yankee frugality meant that whatever else we might debate, common sense would prevail on fiscal matters. You don’t spend more than you have. If revenues decline, spending must follow. The rest of the country figured this out but New Hampshire has the common sense of a teenager with a credit card. Our neighbors don’t envy us any longer, they giggle about us.

Once a fiscal beacon, we are now at the head of the bailout line. Recent spending is financed by borrowing and a bailout from the federal government but it’s still not enough. The recent budget “fix” included $65 million more in borrowing but even that wasn’t enough.

Despite hundreds of millions in federal bailout money, the state decided to budget another $48 million bailout with a catch. This extra money hasn’t been budgeted by Washington but we hope it might be. The president asked for it but the House rejected it. Sen. Reid wants it in the Senate bill but says he doesn’t have the votes for it.  So our budget writers have decided to count as revenue a bailout that they hope federal lawmakers might change their mind about.

Not too long ago we believed in balanced budgets. But that’s all changed. Other states made the tough decisions. We did not. Today the State of New Hampshire is just another failed enterprise hoping the federal government will cut them a check before the debt capsizes that ship.

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