Games and Gimmicks are Always Part of the Budget

Charlie Arlinghaus

April 3, 2013

As originally published in the New Hampshire Union Leader

The current state budget is a work in progress that needs a lot more work and some more progress. As with any budget, there are good things and bad. The House version is a step forward from the governor’s but has a few glaring problems that need fixing.

To begin with, while general fund spending is up 9.1% over the two years of the budget, that fact is obscured by a return to accounting gimmicks that serve no real purpose except to hide the increase. Two large categories of spending have been relabeled so that they appear in the old budget totals under general fund but are left out of the new general fund total.

Perhaps Board and Care revenue/spending and plea-by-mail fines should be dedicated funds but the happy political effect of removing them makes it appear at cursory glance that those $71.3 million aren’t being spent. That makes budget writers appear a great deal more frugal than they actually are unless you spot the sleight of hand.

Dedicating a fund brings up a much larger problem – the problem, potentially a legal one, with pretending some funds are dedicated and then raiding them as if they are not. This budget employs another accounting gimmick for the sole purpose of making it easy to “clean out” dedicated funding sources and use the funds for purposes other than state law allows.

Some revenues, particularly some regulatory fees, are “dedicated” by having the revenue from the regulatory fee go into a special account which is meant to be used for the particularly activity. Usually, the dedicated regulatory fee is set at a level to cover the cost of regulation because the cost of regulation is the only excuse for assessing the charge.

Because of the relationship, the money collected stays in the account and doesn’t expire. That ensures the charges are never used to pay for spending outside of the purpose of the fee.

However, because some of these dedicated funds carry a balance, state budget writers routinely cast a covetous eye on those funds. But because spending that money for contrary purposes is of dubious legality, they rarely take the money. This year is shaping up to be one of the exceptions.

The governor’s budget called for her to be given carte blanche to take any money from any fund without permission or accountability. The House budget would allow her that same authority but ask for a report after the fact, In contrast, when Gov. Lynch raided dedicated funds in 2010, legislation spelled out which funds and the amount to be taken.

The House budget calls for $31.7 million to be taken, in theory to balance a probably deficit in the current fiscal year then ends on June 30. One difficulty is that the supposed shortfall is apparently being artificially propped up.

In the next two weeks, the state will receive a $30 million tobacco lawsuit settlement – essentially a refund of amounts due from the previous 7 years that were held in escrow instead of paid. Legislation was rushed through two weeks ago so we could accept the money.

Ordinarily, that money would be booked as 2013 revenue because that’s when it will be received. But the House version of the budget calls for holding onto it and counting $24.1 million in the next budget instead. How does that help?

If the deficit in 2013 is larger by $24 million, budget writers can do the dubious dedicated fund sweep and have $24 million extra to spend in their current budget. It makes balancing the budget easier and saves some decision making.

Sweeping out dedicated funds is of dubious legality and is general only thought of in the most extraordinary circumstances. If the circumstances aren’t extraordinary, we shouldn’t artificially enhance the deficit to make it easier to take that money. Not to mention that propping up some spending on a one-time windfall is generally a bad idea.

The House version of the budget spends almost $42 million less than the Governor’s (after accounting for moving funds offline). It’s a step in the right direction. But this version still relies on a number of sketchy assumptions even beyond the ones detailed above (for example: a small number of tax and fee hikes that won’t pass the Senate, an assumption that more auditors can squeeze $26 million more out of businesses).

The next version of the budget should have fewer gimmicks and changes that hide rather than clarify spending decisions.