New Hampshire collected a record $430.1 million budget surplus in the 2022 fiscal year, which ended June 30th. Most of it is already gone.
From January to June, legislators spent $261.7 million — or 60% — of the surplus.
For context, the amount of new spending in 2022 was just a bit larger than the $257.8 million stored in the state’s Rainy Day Fund (also a record).
The $430.1 million surplus is not what the state saved in the last fiscal year. It’s the amount by which state revenues exceeded budgeted spending. Lawmakers didn’t save even half of it.
Legislators passed 29 bills this year that appropriated money from the state budget surplus, according to a tally compiled by the Office of the Legislative Budget Assistant (see the list here: Appropriation Bills 6-30-22).
The spending ranged from $60,000 over two years to fight cyanobacteria blooms to $71.1 million over two years to fund road and bridge work as well as body and dashboard cameras for law enforcement.
The next largest allocation came from House Bill 1587, which spent $42.9 million to increase retirement pay for 1,824 police officers and firefighters.
Another $21 million was put toward funding a dental benefit for Medicaid recipients, and $9.4 million went toward construction of a legislative parking garage.
Smaller items included $150,000 for a Hampton Beach pier feasibility study and $250,000 in capital improvement funds for state fairs and agricultural fairs.
The total appropriations of $261.7 million, per the Legislative Budget Assistant’s count, does not include the effects of tax law revisions approved this year.
The Office of Legislative Budget Assistant counts tax cuts as revenue reductions based on a simple static scoring of tax rate changes. We did not include these in the spending tally because (a) they aren’t spending, and (b) past calculations have been wildly off.
For example, the LBA in 2017 projected that business tax cuts passed that year would reduce state revenues by $11 million. Instead, business tax revenues shot up, ending the year $151.6 million over budget rather than $11 million under budget.
The LBA estimated a total revenue reduction of $59.5 million through fiscal year 2024 due to tax law changes.
Of those revenue reductions, $17.5 million through FY 2024 is projected to come from a tiny reduction in the Business Profits Tax. That’s the type of projection that has proven incorrect in the past.
The remaining $42 million, however, represents losses through FY 2024 that come from a change in the way the state requires businesses to apportion net operating losses. This projected loss is more likely to materialize because it eliminates what is effectively a double taxation of business.
If this $42 million is included, then legislators can be said to have reduced the budget surplus by $303.7 million.
That would leave only $126.4 million of the $430.1 million surplus in state coffers.
The total could be even lower, as the LBA was unable to determine a cost for a few bills.
This is not to condemn all of this spending as wasteful or unnecessary. Financing delayed bridge repairs, for example, can be a very good use of unexpected revenues. The spending was focused on one-time uses that won’t be written into the baseline budget going forward, which was also responsible.
But the spending is haphazard, with money thrown to various projects that proved politically popular, rather than focused on, say, a priority list of state needs.
With a 424-member legislative body, it might be unfair to expect a more focused approach to spending a massive one-time windfall. But the chaotic nature of governing with such a large Legislature doesn’t negate the wisdom of trying to impose a strategic focus on state spending.
In May, we recommended dedicating a large portion of the surplus to cover unfunded state pension liabilities, which would pay down an existing state obligation and save taxpayers money in the long run. That’s the kind of strategic planning that didn’t shape this $261.7 million in spending.
However, the record $257.8 million Rainy Day Fund was the result of strategic planning, and it remains untouched. Legislators deserve credit for filling that fund and leaving it alone. As recently as 2014, the Rainy Day Fund held just $9.3 million.
The current fiscal year started in July, and although revenues were $13.9 million above budget, they were $4.2 million lower than last July.
The next Legislature needs to keep a careful watch on revenues. If another surplus materializes, it would be wise to have a priority list of state needs ready to go. If one doesn’t materialize, it might not take long to burn through what’s left of 2022’s record windfall.