How a ‘balanced’ state budget created an $800 million deficit

Charlie Arlinghaus

October 24, 2012

As originally published in the New Hampshire Union Leader

Starting in 2008, the governor and Legislature adopted a series of unusual practices that obscured spending decisions. As a result, the two gubernatorial candidates this year fight over what the facts really are.

Republican Ovide Lamontagne claims that Democrat Maggie Hassan raised spending when she was Senate majority leader and left the state with an $800 million deficit. She claims she balanced the budget and spending went down. A careful look behind the curtain shows that significant spending increases without the money to pay for them caused a huge deficit that forced the most recent Legislature to pass a significant correction.

The source of the problem is a series of very unusual measures that hid some spending, relabeled other spending and made apples-to-apples comparisons difficult. During the recession and its aftermath, the state didn’t have the revenues to support the amount of money it wanted to spend. Rather than reducing spending, the state borrowed money to support regular spending.

The state used to pay for school building aid (not the building itself, but state support of local annual debt service payments) out of its general operating fund. But from 2008 through 2010, we paid with borrowed money. In addition, we borrowed money to pay for a year’s worth of regular debt service payments. Under the state’s accounting system, because these expenditures ($170 million over three years) were paid for with borrowed money instead of taxes, they don’t show up as general-fund spending. That is not a spending cut, but if you did not know how our budget works you might be misled into thinking it was.

Similarly, the budget for 2010 and 2011 included large payments from the federal government for state fiscal stabilization. These were essentially one-time windfalls to bail out state spending. Because the money used for some general operating expenses came from Washington, it was not counted as state general or education-fund spending. If you didn’t understand how our budget works, you might be misled into thinking it was a $167 million spending cut.

Thirdly, the 2010-11 budget renamed spending on the liquor commission as liquor-fund spending, moving it out of the general fund. Again, if you didn’t understand how our budget works, you might be misled into thinking that $90 million was cut. It was not; it was relabeled.

An apples-to-apples comparison is easy if you add the comparable lines back in. Doing so, we find that the 2010-11 budget was 14.2 percent higher than two budgets prior — definitely not a cut.

The unusual shifting around also explains why critics like to say that the budget from all funds (including highways, turnpikes, dedicated funds and all federal money) increased 24 percent since 2008. That 24 percent is based on budgeted rather than actual amounts because of some different rules, but the actual spending is at least 21 percent higher, with some spending authority not lapsing.

The fiscal gimmicks and the need for more borrowed money also explain why state general obligation debt increased by 43 percent over those same four years after having increased by only 8 percent in the prior four years and 4 percent in the four years prior to that. As a state, we borrowed a lot of money officially and used federal borrowed money to prop up spending that we formerly paid for with state taxes.

That created a deficit. Budget observers right and left all agreed that because of the unusual measures — whether you supported them or not — the Legislature’s budget in 2011 faced a structural deficit of $800 million.

In New Hampshire terms, that means that the state would have to decrease spending or increase revenues by $800 million to balance the budget. The previous years had been balanced by the legislative tricks, but the borrowing and the bailouts would disappear from the next budget, creating an $800 million hole the next Legislature would have to close.

Regardless of whether you supported those unusual budgetary measures, it is unquestionably true that we used unprecedented borrowing and bailouts to delay some decisions and create an $800 million problem that had to be fixed (and was fixed by the current Legislature through spending cuts).

1 reply
  1. K. Holmes says:

    wow…. Thank you for that clear explanation. Where else could a person get this???? Certainly not the Concord Monitor!

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