Coming out of 2020, New Hampshire is in better financial shape that many other states thanks to a sound revenue structure, relatively restrained spending, a strong economy, and good management, concludes a new report from the Josiah Bartlett Center for Public Policy and the Economic Research Center at The Buckeye Institute.
“Restrained state spending, a stable tax base and a strong economy let New Hampshire weather the pandemic better than many other states did,” Josiah Bartlett Center President Andrew Cline said. “Going forward, it’s important that New Hampshire maintains this fundamentally sound position.”
While some other states had to take drastic measures to balance their budgets, New Hampshire appears likely to end the current budget cycle with a surplus while avoiding tax rate increases or large cuts to core programs.
The state’s projected budget deficit for the current fiscal year fell from $319 million in May of 2020 to just $29.8 million in February of 2021.
Because New Hampshire does not rely on relatively unstable sales and income taxes, it did not suffer the scale of revenue loss seen in many other states. For the pandemic-affected months, state revenue was down only $31 million, or 1.3%, from the prior year.
The majority of that decline occurred during the economic shutdown last spring. Once restrictions were lifted and people felt safer going out, the economy began to recover. State revenues have come in ahead of budget projections every month since August of 2020.
On the spending side, New Hampshire was already in a good financial position when the pandemic hit. The state entered the pandemic with a projected a budget surplus of $27.1 million for the end of the 2020 fiscal year, and $115 million in its rainy day fund.
The governor’s imposition of cost savings measures in response to projected revenue losses, and his vetoes of tax and spending increases that would have weakened the state’s economy, helped the state’s recovery.
As legislators get to work on the next state budget, New Hampshire is in an enviable position. A combination of spending restraint, a reliable tax base, and a strong economy limited the damage done to the state budget by the pandemic.
The current projected budget deficit of $29.8 million is easily covered by savings wisely socked away in the state’s rainy day fund over the past few budget cycles. But that probably won’t be necessary. Revenue trends suggest that the gap is likely to be covered entirely by additional revenues.
New Hampshire’s experience during the pandemic showed the value of budgetary restraint and sound financial management. State officials should continue to find ways to cut government spending or make it more efficient so that New Hampshire can avoid debilitating tax increases and maintain its low-tax environment moving forward, the report concludes.
The report was written by Logan Kolas, an economic policy analyst with the Economic Research Center at The Buckeye Institute. The full report can be read here: New Hampshire’s Economic Recovery-Better Than Expected.