October 8, 2014
As originally published in the New Hampshire Union Leader
The state budget is a mess and it keeps getting worse. What’s worse is that this budget mess isn’t caused by a recession but by poor management and political gamesmanship. The first year of the budget significantly overspent. The second year, which we are in the middle of, is significantly out of balance. All of this will make the next budget a significant problem.
This budget was supposed to be a transition budget. The earlier 2011 budget was a crisis budget. An $800 million imbalance forced significant budget cuts to bring spending roughly in line with regular revenues.
The 2013 budget relied on a significant surplus generated by its predecessor to include budget growth that was almost but not quite supported by revenue. The budget counted on spending $29.5 million of the surplus in the first year and $26.7 million in the second.
With the release of an unaudited budget summary last week we discovered that the budget situation is in fact quite bad. We also know now that there is no revenue problem at all but a significant spending problem.
In the first year of the current budget, revenues were one tenth of 1% higher than estimates – about as perfect as any revenue estimate ever gets. The first three months of the second year have produced $420.8 million – less than 1% higher than $418.4 million projected. Finally, the surplus carried forward from the prior legislature was $72.2 million – an extra $15.3 million the budget hadn’t spent. So if we spend what we budgeted all should be well.
But spending is a real problem. The current budget is a disaster by almost every measure. Notably, the first year of the budget spent $52 million more than it raised. But because it was bequeathed the $72.2 million, the governor was able to claim last week “the year ended in surplus.” A more appropriate, if longer, press release headline might have been “we lost control of spending, spent money we weren’t supposed to, spent the $15.3 million extra the legislature specifically refused to let us spend, deficit spent $52 million, but had our bacon saved by the last legislature’s prudent surplus even though we hate them.” Very accurate but it may not be the message they want to send.
By the way, it gets worse. As horrible as FY14 looks – and a $52 million current year deficit isn’t pretty – the next year is even worse. First of all, the overspending carries forward as a baseline. Second, there isn’t enough of the surplus left to deficit spend at budgeted amounts much less the nightmare of last year. Third, we know there is a huge problem at Health and Human Services – half of state government.
Revenues are right where they were supposed to be but spending is not. To make matters worse, everyone in the cesspool of Concord has known for at least five months that there is a problem but politics prevented action. Though Sen. President Morse and Finance Chairman Sen. Forrester spent five months asking for department by department updates, the executive branch refused. You see the governor and the senate are of different political parties so talking is apparently bad.
Last week, admitting reality, the governor announced that every department other than HHS is asked to cut a total of $30 million from the last eight months of their budgets. HHS, the other half of government reported that as of July 31 they have a shortfall of $42.5 million. It is likely that some of the $30 million saved elsewhere will be diverted to HHS but they still need additional cuts.
It’s worth pointing out that politics delayed admitting cuts were needed and is forcing them to be made over eight months instead of the fifteen months remaining when this shortfall was first discussed.
As of last fiscal year, the imbalance between spending and revenues was $52 million per year. Additional changes that include mental health settlements, Medicaid caseload increases from federal law changes, and a restructuring of the MET and hospital payments will add significantly to that tab – some budget writers have estimated as much as a 10% problem (that would be more than $400 million over two years in the operating part of the budget)
Small problems compound themselves if not dealt with responsibly and immediately. The compounding of errors has made a mess. The next budget will be very difficult and has been made all the worse by refusing to share information and tackling problems when they occur.