New Hampshire Unemployment Drops to 5.5%

The Unemployment rate in New Hampshire dropped to 5.5% in April, down from 5.7% in March. This drop represents nearly 1700 fewer unemployed in the state. According to the Household Survey, the number of people employed in New Hampshire also grew by over 1000, with the Labor Force contracting by roughly 500.

In contrast, the Establishment Survey data showed a net loss of 400 jobs[i] in New Hampshire over the month. The sectors seeing the biggest losses were Manufacturing   (-500) and Arts, Entertainment and Recreation (-600). Sectors seeing the biggest increases were Retail Trade (+1400) and Professional Scientific and Technical Services (+800).

Looking at the metropolitan areas in the state, Manchester saw a loss of 400 jobs, Nashua shed 500 and Rochester-Dover down 300. Portsmouth, on the other hand, saw a gain of 400.

So what to make of this data? For starters the drop in unemployment is real. In the past, both nationally and at the state level, decreases in the number unemployed have seen corresponding increases in those leaving the labor force. Though there is some evidence of that in the April data, in the contraction of the Labor Force by 500, the majority of those no longer employed found employment. It should be noted that March saw the labor force grow by nearly 2000. While the contraction is not great news, it is not terrible either.

That being said, there are some bright spot. The Household and Establishment survey discrepancies seem to indicate a growth in the number of self-employed. Whether or not this is out of necessity due to a lack of job openings or faith that the economy is going to make a comeback soon remains to be seen. Retail stores seem to be betting on the latter with nearly 1400 jobs in that sector created. Though there is volatile in the month to month figures for this sector, the trend is in the upward direction.

[i] The discrepancy between the Household data showing job gains while the Establishment data showing losses is largely because Household data includes the self-employed, while the Establishment data does not.

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Meet the MET

New Hampshire budget writers grapple with a brand new tax that’s been around for 20 years

By Grant D. Bosse

SUMMARY: New Hampshire adopted the Medicaid Enhancement Tax as a means to leverage federal matching funds without imposing any real tax liability on state hospitals. After two decades, budget writers finally ended the practice of MediScam by turning this phantom tax into a real one. Faced with a new multimillion dollar tax liability, New Hampshire hospitals took the state to court and started paying closer attention to how much they owed.  As the Legislature struggles to understand a huge source of state revenue that went without much oversight for twenty years, how they change the Medicaid Enhancement Tax will have expensive implications for the state budget and state hospitals for years to come. This paper will outline the history of the Medicaid Enhancement Tax in New Hampshire, describe how the complex tax works in conjunction with the Disproportionate Share Hospital Program, and dispel some of the many misunderstandings that trip up budget writers trying to incorporate this brand new, 20-year old tax into the FY14-15 State

Click here to download a copy of  “Meet the MET”

Under the Federal Medicaid program, participating states split the cost for providing health care to low income recipients with the federal government. Most states, including New Hampshire, elect to reimburse hospitals for treatment based on a fee-for-service model. Reimbursement rates are set by state officials, but must be approved by the Centers for Medicare and Medicaid Services.[1]

Reimbursement rates under fee-for-service plans are not sufficient to pay for the hospitals’ costs to treat Medicaid patients. The program relies on hospitals to be an implicit third partner, along with states and the federal government, in financing Medicaid. Losses incurred through treating Medicaid patients are offset by patients paying through private insurance, or in rare cases out of pocket.

Throughout the 1980’s, Congress sought ways to encourage states to provide additional funding to hospitals who served a disproportionate number of low-income patients through Medicaid, and thus had fewer privately funded patients on which to shift costs. Beginning with the Omnibus Budget Reconciliation Act of 1981, Congress established the Disproportionate Share Hospital program.[2] DSH allowed states to provide higher payments to hospitals serving more low-income patients, but states were slow to adopt the program. Congress increased state flexibility throughout the 1980s, and states began turning to DSH as a way to leverage federal matching grants to help balance their general fund budgets.

Under DSH, states could exceed the caps on assistance to hospitals under Medicaid, and receive federal matching funds for every dollar. The matching grants range from 50% for wealthy states such as New Hampshire to 75% for the poorest states. On average, the Federal Medical Assistance Percentage (FMAP) is 57% nationwide.[3]

State budget writers now had great flexibility to increase state assistance to hospitals. In states like New Hampshire, every dollar in DSH payments would receive a matching dollar in federal spending. The program was designed to help reduce the hidden subsidies built into the Medicaid program. But nothing in federal law prevented states from recapturing this new pot of money through taxes on the very hospitals the DSH program was meant to help.

State payments under DSH exploded from $1 billion in 1990 to $17.4 billion in 1992, accounting for 15% of total state medical expenditures.[4] New Hampshire quickly became one of the most aggressive states in implementing DSH payments as part of its state Medicaid program. DSH accounted for 35.8% of New Hampshire’s total Medicaid spending by 1992, just two years after adopting it.[5]

ENTER THE MET

New Hampshire began making DSH payments in Fiscal Year 1992, at the same time it imposed a new revenue stream to pay them. The Medicaid Enhancement Tax was a 6% levy on hospitals’ gross patient service revenue, essentially every dollar charged for patient care at all 28 New Hampshire hospitals.[6] The rate is currently 5.5%. The first payments were made in August 1991, and were credited to FY1991, which had ended on June 30th.[7]

Every hospital in the state was designated a Disproportionate Share Hospital, and captured under both MET and DSH. Upon making its MET payment, the State would refund an often identical amount to the hospital under the DSH program. The State would then apply for 50% reimbursement from the federal government.

For example, if a hospital owed $10 million under the MET, it would send its payment to the State, which would send a $10 million DSH payment to the same hospital later that same day. The federal government would soon get an application for a $5 million DSH matching grant, which would be deposited directly into New Hampshire’s General Fund.

Though the DSH program was meant to help narrow the gap between what hospitals spent to treat Medicaid patients and the low reimbursement rates they received, DSH and MET cancelled each other out for New Hampshire hospitals. It resulted in a windfall in unrestricted revenue for the New Hampshire General Fund.[8]

While many states passed new revenue sources like the Medicaid Enhancement Tax to claw back some or most of the new DSH matching grants, New Hampshire was particularly aggressive, recapturing all of its DSH spending through the MET.

The following chart shows DSH and MET payments tracking each other until very recently (Blue and Red Columns), with approximately half that amount making its way into the New Hampshire General Fund (Green Line). Net MET revenues were not always credited in the same Fiscal Year that gross MET revenues were paid.

FIGURE 1

Sources: Office of the NH Treasurer, Department of Administrative Services, Governor’s Budget, HB 1-2013

The Urban Institute’s 1997 paper on the DSH program found that New Hampshire was not alone in using this corner of the federal Medicaid program to shore up its state budget. “In sum, federal DSH payments provided a much needed source of revenue for states.”[9]

Governors and legislative budget writers from both parties have relied on this diversion of DSH funds to help balance the state budget for the past 20 years, in a practice often referred to as “MediScam”.[10]

New Hampshire’s aggressive use of the DSH program to backstop its budget, without providing any additional resources to hospitals serving Medicaid patients earned the attention of federal regulators. In fact, state officials have been fighting a 20-year battle with the Centers for Medicare and Medicaid Services over how much New Hampshire could receive under the DSH program. However, Congress has never stepped in to clarify that federal DSH grants must eventually make their way to Medicaid hospitals, allowing states to continue the practice.

Using Fiscal Year 2006 as an example, the following chart shows how state and federal DSH payments were entirely recaptured by the MET, with federal money eventually making its way into the New Hampshire General Fund. Hospitals were held harmless.

FIGURE 2

 In 2007, the Office of the Inspector General at the federal Department of Health and Human Services ordered the state to reimburse the federal government $35 million in DSH payments based on $70 million in state DSH spending that was deemed ineligible for federal matching funds.[11] The OIG report did not force New Hampshire to end MediScam, but did force state officials to lower their annual DSH payment applications. At issue was New Hampshire’s decision to use gross patient service charges. The OIG report found that the state should have been using net patient service charges, allowing deductions for bad debt, charity care, and patient discounts that never resulted in real revenue to the hospital.

Following the OIG audit, the Legislature amended the MET to apply to net patient service revenue[12], resulting in a $78 million drop in gross MET revenues in FY2006 and a $39 million cut to the amount of MET proceeds transferred to the General Fund.

CMS continued to pressure New Hampshire to end MediScam and use federal DSH funds for their intended purpose. Beginning in FY2010, the Legislature finally decoupled DSH payments from a hospital’s MET liability. No longer would a hospital be guaranteed a full refund of its MET payment through the DSH program. As the New Hampshire Center for Public Policy Studies found in 2011, “This arrangement created ‘winners’ and ‘losers,’ whereas previously the program essentially ensured that hospitals received in return exactly what they provided in taxes.”[13]

The impact was quite substantial for several hospitals. Portsmouth Regional Hospital paid nearly $6 million more in MET than it received under DSH, while Mary Hitchcock Memorial Hospital netted more than $4.7 million from the change.[14] But overall, the state continued to divert about half of its total DSH spending to the General Fund through federal matching grants.

It wasn’t until the next budget cycle that the Legislature truly dismantled MediScam.

THE 2011 BUDGET- ENDING MEDISCAM

The Fiscal Year 2012-2013 State Budget, passed by the Legislature as House Bill 1, contained the largest revision of New Hampshire’s DSH and MET programs since they were established in 1992.

In the 20 years since its enactment, the Medicaid Enhancement Tax had existed only on paper, with little economic effect on New Hampshire hospitals. The 2010 changes meant that hospitals were no longer guaranteed a refund of their full MET payments, but all revenues were distributed among New Hampshire’s 28 hospitals. Federal matching funds, and not the MET itself, fueled the transfer to the General Fund. The 2012-13 budget decoupled MET revenues from DSH payments entirely. For the first time, the MET was a real tax, and not just a way to leverage federal matching funds. Legislative leaders could legitimately claim that their budget contained no new taxes, without mentioning the new tax burden on hospitals that had previously been borne only in theory.

In Fiscal Year 2012 for example, gross MET revenues were no longer twice the state’s annual DSH distribution to hospitals, but nine times as much. The federal match brought total DSH payments to just under $50 million, while MET payments totaled more than $175 million.

Additionally, the Legislature dedicated a significant portion of MET revenues to cover some of the state’s Medicaid provider payments. These are the normal payments outside of the DSH program that the state’s pays to reimburse hospitals for treating patients under Medicaid.

Since state funding for Medicaid provider payments comes from the General Fund, it makes no economic difference to dedicate MET revenues directly to them. In effect, the state was now using the MET to pay for standard Medicaid expenses, rather than for the DSH payments it had been making since 1992.

Dedicating MET revenues to provider payments did have one political advantage. It shielded the effect of decoupling DSH from the MET. Using the MET to cover a General Fund cost that had been paid with other revenues, lowered the apparent transfer to the General Fund. The state budget acknowledged a $75 million transfer from the MET to the General Fund in FY2012, but if the newly dedicated provider payments were still considered as part of the General Fund, the actual transfer topped $150 million.

FIGURE 3

The dark blue line on Figure 1 shows how shifting provider payments turned a large increase in the amount of MET used to balance the state budget into an apparent cut. Both Governor Maggie Hassan’s budget and the budget approved by the New Hampshire House continue to dedicate MET revenues to Medicaid provider payments rather than the General Fund.

Faced with a huge pending deficit, the Legislature was already on pace to cutting a billion dollars from the state’s two year budget. The MET, conceived as a creative way to leverage federal money to balance the state budget, would again help budget writers close the gap. Turning the MET from a tax paid entirely on paper to a real source of state revenue presented the Legislature with a unique opportunity. It could tap into a new source of state revenue not by raising taxes, but by declining to refund an old one.

DARTMOUTH-HITCHCOCK V. TOUMPAS

The 2011 changes to the state’s tax code prompted some big changes in taxpayer behavior. When the full amount of a hospital’s MET payment would be deposited back in their bank account later the same day through the DSH program, hospitals didn’t spend a lot of time examining their tax bill. They had no incentive to lower their liability, and state officials had every incentive to make the tax bills as large as possible, in order to maximize DSH payments and the 50% federal match.

For years, New Hampshire hospitals had gone along with the MET/DSH swap, even though they received no additional money from the arrangement. At least they weren’t paying anything. At the time of its inception, state Health and Human Services Commissioner Harry Bird assured New Hampshire Hospital Association President Gary Carter that the state wasn’t targeting his group under the MET, but merely looking for a new way to qualify for DSH matching funds.

“It is our intent that, should Federal Disproportionate Share funds become unavailable, we would no longer require the State revenue and we would recommend that the rate of taxation drop to zero,” Bird wrote.[15]

But now that the MET was a tax in deed as well as word, hospitals started taking a closer look at their multimillion dollar tax bills.  Several filed amended returns seeking $50 million in refunds for past overpayments.[16] And they withheld $34 million from their FY2013 MET payments as they appeal the current year’s tax bill.[17] That shortfall led Governor Hassan and House budget writers to assume the current budget would end with a deficit on June 30th, but strong business taxes have since made up for lower than expected MET receipts.[18]

A group of ten New Hampshire hospitals is also challenging the new tax law in court. In Dartmouth-Hitchcock v. Toumpas, the hospitals claim that the state significantly altered the DSH section of its Medicaid program without filing a state plan amendment with CMS, as is required by New Hampshire’s long-standing Medicaid agreement with the federal government. But the heart of the lawsuit is a series of cuts to the state’s Medicaid reimbursement rates over the past several years.[19]

MET REVENUE PROJECTIONS

Despite MET revenues underperforming by $34 million in the current Fiscal Year, and a pending lawsuit in U.S. Superior Court, budget writers are counting on big things from the MET in the FY2014-15 Budget. Governor Hassan’s budget proposal and the version of HB1 approved by the New Hampshire House assume that gross MET revenues will top $482 million over two years, which would fuel the restoration of the previous budget’s cuts to the DSH program.[20]

But state hospitals doubt that their patient revenues will grow quickly enough to satisfy the optimistic revenue projections adopted by the House, with current NHHA President Steve Ahnen calling them “overly aggressive.”[21] Senate Finance Chairman Chuck Morse believes the House MET estimates may be $100 million too high. If that revenue fails to arrive, and prevents the state from increasing its DSH payments as Governor Hassan suggests, that could mean a $200 million shortfall.[22] In her March presentation to the House Finance Committee, State Medicaid Director Katie Dunn testified that these estimates need to be lowered.

“SFY 2014/2015 projected MET revenues needs (sic) adjustment downward, consistent with actual collections in SFY 2013, which will impact amounts available for distribution.”[23]

Now that the MET has been decoupled from the DSH program, federal matching funds are not entirely dependent on MET revenues. DSH payments, and the 50% match from Washington, could be made from any revenue stream. A shortfall in the MET would only double its impact on the upcoming budget if lawmakers fail to provide a contingency to ensure that DSH payments are made. It would be difficult to find another way to pay for the 287% DSH increase sought by Governor Hassan.[24]

CONCLUSIONS

The Medicaid Enhancement Tax is likely to remain a key revenue stream in the New Hampshire. And the state is unlikely to resurrect MediScam. The current Legislature could take two important steps to bring stability and transparency to the Medicaid program, the Medicaid Enhancement Tax, and the state’s Disproportionate Share Hospital program.

First, the Legislature should stop thinking of the MET as the primary source for DSH matching funds. If the Legislature wants to impose a tax on net patient service revenue, it should do so independent of the DSH program. If it would like to apply for federal DSH matching funds, it should do so independent of the taxes those hospitals pay. Since DSH payments are matched, it is doubly important that they have a dependable funding source.

Secondly, the Legislature should end the fiscal fiction of dedicating MET revenues for provider payments, rather than depositing MET receipts into the General Fund, and paying for Medicaid from the General Fund as it always had. This may mask the true size of the MET’s contribution to balancing the state budget, but it is absurd to continue to tax hospitals to pay for their own Medicaid reimbursement.

These two small steps won’t end the political and legal wrangling over the Medicaid Enhancement Tax. But after over two decades of gimmickry, budget writers could finally deal with the MET as a transparent and legitimate part of New Hampshire’s tax code.

Click here to download a copy of  “Meet the MET”

[2] Mitchell, Alison, Medicaid Disproportionate Share Hospital Payments, Congressional Research Service, December 18, 2012, https://www.fas.org/sgp/crs/misc/R42865.pdf

[3] Ibid, Mitchell.

[4] Coughlin, Teresa A. and Liska, David, The Medicaid Disproportionate Share Hospital Payment Program: Background and Issues, The Urban Institute, October 1997, http://www.urban.org/pdf/anf_14.pdf

[5] Ibid, Coughlin.

[6] New Hampshire Legislature, HB 1, 1991, http://www.gencourt.state.nh.us/legislation/1991/HB0001.html

[7] NH Department of Administrative Services, 1991-Current Year Trend-General & Education Funds Unrestricted Revenue, http://admin.state.nh.us/accounting/interim_reports.asp

[8] Letter from Levinson, Daniel R, Inspector General, Department of Health and Human Services, July 2, 2007, http://oig.hhs.gov/oas/reports/region1/10500001.pdf

[9] Ibid, Coughlin.

[10] Medicaid politics: New Hampshire taxpayers lost, New Hampshire Union Leader, September 24, 2011, http://www.unionleader.com/article/20110925/OPINION01/709259991/-1/NEWS

[11] Ibid, Levinson.

[13] Understanding the Impacts of Changes in New Hampshire’s Disproportionate Share (DSH) Program, New Hampshire Center for Public Policy Studies, 2011.

[14] Ibid.

[15] Fleisher, Chris, Why Big Hospitals Are Suing N.H., Valley News, August 6, 2011, http://www.nhpolicy.org/news/valley_news__why_big_hospitals_are_suing_n.h..pdf

[16] New Hampshire Hospital Association, April 1, 2011, http://www.nhha.org/files/whatsnew/DSH_NHHA%20backgrounder_updated_080111.pdf

[17] State of New Hampshire Monthly Revenue Focus, April 2013, http://admin.state.nh.us/accounting/FY%2013/Monthly%20Rev%20April.pdf

[18] Leubsdorf, Ben, Strong April revenues put N.H. on track to finish fiscal 2013 with a surplus, not deficit, Concord Monitor, May 3, 2013, http://www.concordmonitor.com/news/5937229-95/strong-april-revenues-put-nh-on-track-to-finish-fiscal-2013-with-a-surplus

[19] Bosse, Grant, Lawsuit complicates budget picture, Concord Monitor, October 7, 2013, http://www.concordmonitor.com/article/359790/lawsuit-complicates-budget-picture

[20] Leubsdorf, Ben, With revenue down, Medicaid Enhancement Tax creates headaches, Concord Monitor, April 14, 2013, http://www.concordmonitor.com/news/politics/5546218-95/with-revenue-down-medicaid-enhancement-tax-creates-headaches

[21] Devil in details? Hospitals move to scuttle House budget, Laconia Citizen, April 2, 2013, http://www.laconiadailysun.com/index.php/newsx/local-news/66961-hospitals-challenge-hosue-budget

[22] Rogers, Josh, Morse Says Senate Budget Will Be “A Whole Lot Different”, New Hampshire Public Radio, May7, 2013, http://www.nhpr.org/post/morse-says-senate-budget-will-be-whole-lot-different

[23] Dunn, Katie, SFY 2014/2015 Budget Worksession, House Finance Division III, NH Department of Health and Human Services, Office of Medicaid Business and Policy, March 4, 2013, http://www.dhhs.nh.gov/ocom/documents/diviii-03042013.pdf

[24] Ibid, Dunn.

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A Look at the April Jobs Report

Josh Elliott-Traficante

According to the Bureau of Labor Statistics, the national unemployment rate dropped to 7.5% in April, a decrease of .1 percentage points over the previous month. The number of unemployed fell by 83,000 while the Labor Force grew by 210,000.

After slipping for several months, the Labor Force Participation Rate, which I have highlighted in previous jobs report analyses, held firm at 63.3. Whether or not this is just brief pause or the beginning of a turnaround remains to be seen. However, it is encouraging that the number of people ‘Not in the Labor Force’ dropped by 31,000 at the same time as a drop in the unemployment rate.

This means that the drop in unemployment is real, not just a shift of unemployed people out of the workforce. While one month’s worth of data does not a trend make, it is a good sign. It is important to note that a net 1.6 million people have dropped out of the labor force over the past year, so there is still a long way to go to return all of these people to the work force.

Turning to the Establishment Survey Data, 176,000 non-farm, private jobs were created. Sectors seeing the biggest gains were Retail Trade (+29.3k) Food Service (+37.9k) Healthcare (+19k) Temporary Help Services (+30.8k).

Seeing the largest losses were Federal (-8k), Information (-9k) and Nonresidential Specialty Trade Contractors (-11.1k) [Though Residential Specialty Trade Contractors and Residential Contractors were up a combined 13k, a good sign for the housing recovery]

The Atlanta Fed recently put out an unemployment calculator where you can calculate what the monthly job creation numbers would have to be to hit certain targets. For example, if you wanted to reach 5.5% unemployment and a Labor Force Participation Rate of 66%, which it was before the recession, it would take nearly 12 years to get there based on April’s job creation numbers of 179,000 per month.

Put another way, to get to 5.5% unemployment in 2 years, with a pre-recession labor force participation rate of 66%, the country would need to see job creation rates of an unheard of 475,000 a month.

(Click here to try the calculator yourself: http://www.frbatlanta.org/chcs/calculator/index.cfm)

While April’s data does offer encouraging signs of growth and reasons to be cautiously optimistic, it remains to be seen if this is a blip or the start of a growth trend. By mid-summer we should have an idea

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Maybe NH should check its bank account

Charlie Arlinghaus

May 3, 2013

As originally published in the New Hampshire Union Leader

The word “budget” comes from an old Middle English word used to describe a wallet or purse that held one’s available money. The state’s budget negotiation ultimately will harken back to the original meaning of the word. Lawmakers of both houses of the Legislature will be unable to begin a negotiation over policy choices until they can agree on how much is contained in the state’s purse.

The House has already passed its version of the state’s two-year budget. The House has already acknowledged that there will be many disagreements that have to be negotiated after the Senate passed its certain-to-be-different version of the budget.

In anticipation of those differences, the House kept a few political hostages. When Rep. Dan Eaton, House Finance Committee vice chairman, took the governor’s proposed funding for charter schools out of the budget, some of us claimed he was holding schools hostage as part of a budget negotiation. In response, he told public radio that it happens all the time and is based on the belief that Senate Republicans will want that funding enough to give House Democrats something in exchange.

That deal-making will happen during three weeks in June. In addition to the programs politicians may want to swap back and forth will be some structural questions that tell lawmakers just how much money they have available to spend.

For example, the House has a line item assuming that increased advertising will lead to an additional $4.5 million of net revenue. The Senate is likely to regard that as more hopeful than realistic. In addition, the House and governor both presume that more aggressive tax audits will yield $26 million in new revenue that current auditors can’t find. Even to people who want more audits, that number seems a little high.

The House wanted to delay booking the revenue from a tobacco settlement so that as much as $24 million might help support new spending. We received much less than that, and it has to be counted in the year it was received, so that’s another hole.

Those may all seem small and negotiable. The Department of Health and Human Services is counting on the transition to managed care for Medicaid to save $47.4 million. But the transition isn’t going well, and those savings are decreasingly likely. That bad experience makes an expansion of Medicaid also a political football. It seems odd to expand a program that is in turmoil until that turmoil is resolved.

Part of the problem relates to the state’s Medicaid Enhancement Tax on hospitals. Part of that tax goes into the general fund, and part is distributed to health care providers. The receipts in the last budget fell well short of estimates and created a problem so this year we should be going in with our eyes open.

According to an HHS presentation last month, receipts for the last two years will total $349 million, so the next budget estimate of $480 million must be curtailed. Good clear advice from the program’s administrator. But the budget writers chose to ignore her.

The problem with her suggestion was that it was hard. It’s easier to put the number we all know is wrong into the budget and hope for the best. Maybe the Senate will fix it so we don’t look like the bad guy. Maybe no one will notice, and it won’t be a problem until a year or two from now.

But a real budget will recognize that revenue is exaggerated by more than $100 million and be forced to reduce spending in those areas by the same amount.

So before the negotiated committee of conference phase of the budget even begins, lawmakers will have their hands full deciding the parameters of the budget. Dan Eaton’s political bargaining chips are irrelevant until we have some idea how much money we’re talking about.

Some disagreements will stand on their own. The gas tax and the spending it supports are part of the same package. The program won’t exist without the money, and the money pays only for those projects. Similarly, at this point, gambling will rise and fall the same way.

Earlier, we were told that some general gambling money would support the budget in general. But the House didn’t include it in its budget, and the Senate won’t include it in its budget unless the gambling bill is adopted – and it won’t even be voted on before a Senate budget is due.

The general budget itself will also correspond to spending. Lawmakers cannot and will not know what is possible to compromise on and negotiate over until they resolve a handful of difficult and technical issues that tell them how much money is available. After all, that’s what the word “budget” means.

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Unemployment Rate Falls in New Hampshire, but Not for the Right Reasons

Josh Elliott-Traficante

April 2013

Sound familiar? New Hampshire’s unemployment rate dropped from 5.8% to 5.7% in March, but not due to increased employment. According to the Household Survey Data, the number of unemployed fell by 360 people, resulting in the .1 percentage point drop. However, the number of employed residents increased only by 20, while the labor force shrank by 340.[i]

While drop is small, it does mark the second month in a row of labor force contraction in the state.

Looking at the historical data over the past three years, we see that something similar happened just last year: a strong steady increase in the size of the labor force, followed by a short contraction. However, the current situation differs in terms of the abruptness, as well as the severity of the contraction. It remains to be seen if this is a part of a longer term trend seen nationally since October, or if growth will resume.

Turning to the Establishment Data, the state saw 900 non-farm jobs created. Seeing the largest gains were Professional and Business Services (+1200), Retail Trade (+600) and Construction (+600). The areas seeing the largest losses were Durable Goods (-800), Government (-600) and Leisure and Hospitality (-500)

The Nashua and Rochester-Dover Areas each saw 200 new jobs, Portsmouth saw 900, while Manchester lost 200.

[i] While the numbers do match up they represent net movement, not gross movement. For example, of the 20 newly employed people, not all of them may have been previously unemployed; some may have been new entrants.

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Sometimes a Monopoly is Not Enough

,

Charlie Arlinghaus

April 11, 2013

As originally published in the New Hampshire Union Leader

Every problem does not demand government action. Every business relationship doesn’t need micromanaging intervention by legislators. Yet in this day and age the first course of action for many businesses is to turn to their elected friends for a little help.

A classic example of crony capitalism at work is the legislature’s intervention on behalf of auto dealers in their relationship with manufacturers. Everyone likes auto dealers. They’re nice guys, big donors to a variety of civic and political interests, even think tanks on occasion. They tend to be among the largest employers in many political districts and a very visible part of the community.

It’s natural that our elected officials want to lend them a helping hand. The auto dealers managed to convince almost the entire state senate to intervene in their franchise agreements. Auto manufacturers insist, as part of the franchise agreements, on many things. The franchisees believe that some of these things just cost money and do not actually sell any more cars.

No one would suggest that McDonald’s or Dunkin Donuts can’t insist on anything it wants in its franchise agreements. It would be great if I could get a hot dog at McDonald’s. It is just silly that they won’t let their franchisees sell hot dogs. It probably costs them sales. But any suggestion government intervene in that relationship would be dismissed out of hand.

Cars are different. They’re bigger, cost more, and go fast. Apparently that means micromanaging is on the table. The state currently has 34 pages of rules and regulations about car franchise agreements and the retailers want many more.

Cars really are different from most consumer products. There is no other consumer product that you can not buy direct from the manufacturer. None. It is in fact illegal – an unfair business practice punishable by law – for Buick to sell you a car directly.

The sales monopoly provided by law to dealers is intended to protect them in two ways. First it shields them and their investment from the internet competition that is allowed in every other business (think about bookstores and competition from Amazon). This is a concern every business has but no others are allowed to shield themselves from.

Second, we are giving them leverage in their relationship with the supposedly all-powerful manufacturers. They must granted exclusive rights or the manufacturers could ruin them. This is also the supposed reason for 34 pages of current state laws that regulate this franchise system and no other.

A recent paper by the economic analysis group of the Department of Justice found potential savings of as much as $3,000 per vehicle from the currently-prohibited direct-to-consumer sales of vehicles. In recent years, direct sales have been promoted by groups as diverse as the libertarian Cato Institute, the moderate Democratic Progressive policy Institute, and the liberal Consumer Federation of America.

 

But to protect auto dealers – and we all like the local guys – we are asked to forego those potential savings and maintain a dealer sales monopoly. We are also asked to support the current 34 page set of laws that regulate this one set of franchise agreements. Now that’s not enough. Apparently the government needs to step in and pick sides yet again.

Now it’s not just cars but lawn mowers. Farm equipment and lawn mowers are being redefined as motor vehicles for the purposes of franchise regulation (I’m not making that up – your lawn mower is now a car). You can’t blame the mower guys for wanting to get in on a good deal. The only question is which product will be next.

 

In addition, we are told horror stories of franchisees forced to use non-local suppliers or do things that cost too much money (the biggest complaint is expensive remodeling too often). I’m sure any franchisee in any business can tell stories of the dumb things that “corporate” makes them do, cost them money, and don’t apparently help anyone. But in this case the dealers get to write their complaints into law.

 

I’m not about to defend any stupid decision that some auto manufacturer makes. But they are a private business and their stupidity is not the government’s business. Every stupid decision does not demand government action.

 

It is inconsistent to insist on the government protecting your exclusive franchise monopoly and then complain that the monopoly comes with annoying strings attached.

 

Rather than micromanaging a private agreement between a business and a franchisee, perhaps the government ought to eliminate the restrictions that make this the only consumer product in America that I can’t buy direct from the factory.

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Unemployment Falls in March, but not for the Right Reasons

According to the BLS, the national unemployment rate fell in March to 7.6%, from 7.7% in February. On the surface it would appear that the labor is recovering, however the data contained within the report shows the opposite to be true.

Labor Force Participation Rate drops to Lowest Level since 1979

The Labor Force Participation Rate fell to 63.3%. The last time the ratio was at this level was in May of 1979. After falling precipitously during the recession, the rate had essentially leveled off in 2012, ranging between 63.5% and 63.9%. However, there has been a downward trend since October of last year, slipping from 63.8% to 63.6%. After three months of holding steady at that rate, it fell in February to 63.5% and now down to 63.3% in March.

 

 This drop in the rate since October translates into a loss of more than 1.5 million people from the labor force. March alone saw more than 650,000 leave the labor force.

While one may be tempted to chalk up this decline to the first wave of baby-boomer retirements, however, the data shows that rather than retiring, many of them are staying in the labor force.

The way unemployment is calculated (click here for a full explanation) does not include people who have left the workforce. From the point of view of calculating unemployment, these people do not exist. However, if they were unemployed and stopped looking for work, they no longer count as unemployed, driving the rate down.

Only 88,000 Jobs were Created

The general rule of thumb used by economists is that roughly 150,000 jobs need to be created every month just to keep up with the natural growth in population, while March saw a paltry 88,000 created. For comparison, January saw 148,000 and February saw 268,000.

Of the jobs that were created, the two biggest gainers were Healthcare and Social Services (+27,900), Construction (+18,000) and Temporary Help Services (+20,300). Given that it is tax season, a large portion of the Temporary Help Services hires are likely related to tax preparation.

The sectors seeing the biggest losses were Retail Trade (-24,100), Government (-7,000), and Non-durable Goods (-7,000). Some have attributed the large decline in retail trade jobs to the increase in the Social Security Payroll Tax, which effectively reduced take home pay by 2% across the board. With less disposable income, people buy less and retail jobs are lost.

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New Hampshire’s Unemployment Rate Drops to 5.3%

New Hampshire’s unemployment rate dropped to 5.3% in February from 5.8% in January. This drop represents 290 fewer unemployed persons in the state, leaving 43,000 total people unemployed.

At the same time however, the total labor force shrank by 660. This decline in the labor force actually accounts for a larger percentage of the fall in the unemployment rate, than the decline in unemployed persons does. In other words, while the unemployment rate did go down, most of the drop was not because of increased employment.

In comparison to February of 2012, there are 3570 more unemployed people but the workforce has also grown by 3110.

State wide 1,400 nonfarm jobs were added in February. The sectors seeing the biggest gains were Profession and Business Services (+700), Education and Health Services (+900) and State Government (+600)

Sectors seeing the largest losses were Retail Trade (-1,200), Accommodation and Food Services (-600) and Wholesale Trade (-400).

Turning to the cities, Manchester lost 200 jobs, Nashua gained 100, Portsmouth lost 900 and Rochester-Dover gained 300. Despite some short-term losses, each city has shown growth over the past year.

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February Jobs Report Mixed

Josh Elliott-Traficante

February saw the national unemployment rate decrease from 7.9% to 7.7% with the Establishment Survey Data showing 236,000 jobs added over the month. Looking further into the data there are a few signs of growth but there are some discouraging ones as well.

The Good News:

Establishment Data shows 236,000 jobs added-

Economists generally agree that roughly 150,000 jobs need to be created every month just to keep up with the natural growth in population. With 236,000 jobs created in February, it means actual improvement was made in reducing the number of unemployed, rather than just enough jobs being created to tread water. However, one data point does not a trend make. While adding 236,000 jobs is an encouraging sign, it does not mean that a true recovery is under way.

Sectors seeing the biggest gains were Retail Sale: +23.7k, Information: +20k, and Health Care and Social Assistance: +39.1k.

The Bad News:

Workforce Participation Rate Dropped to 63.5

The workforce participation rate, which measures the percentage of the total civilian labor force in the workforce, dropped from 63.6 to 63.5, continuing a streak of record lows. The hallmark of this economic downturn has been the millions of people leaving the workforce, depressing this indicator. If a full recovery were underway, this number would be increasing, not decreasing, as those who have left, seeing their employment prospects brighten, return to the workforce.

Those ‘Not in the Labor Force, but Want a Job’ Jumps by 190,000

Like the Work Force Participation Rate, the total number of those Not in the Labor Force is a good metric to gauge worker confidence in the labor market. Granted, the entire 300,000 drop seen last month isn’t due to economic discouragement, but the fact that unemployment dipped by the same number seems to indicate that there is still a widespread and genuine concern over job prospects. The BLS also tracks those ‘Not in the Labor Force, but Would Like a Job’ which jumped by 190,000. This data point gives a better idea of the number who have left the workforce for economic reasons, rather than by choice.

The Real Unemployment Rate, Calculated to Count Those Who Left the Workforce: 9.0% (unchanged) Click here to see methodology.

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The NH Housing Market in January: Slight Uptick in Foreclosures, a Drop in Sales

According to the foreclosure tracking firm RealtyTrac, 512 New Hampshire residential properties received foreclosure notices in January. While this is an increase from the 405 in December, the number of filings seen last month is substantially lower than the 2012 monthly average.

Statewide, 1 in 1175 units received a notice in January. The national average for the month was 1 in 869, with heavy hit Florida seeing the worst ratio of 1 in 300.

Of the properties receiving a notice, half were destined for the auction block, while the remaining half reverted to bank ownership.

There are currently 3840 foreclosure properties in the state with 140 sold in January. The average selling price was $150,372.

Turning to the traditional housing market, according to the New Hampshire Association of Realtors, 800 houses were sold in January, a drop from 1037 sold in December, but up from the 660 sold in January 2012.

Only Sullivan County did not report an increase in sales over the January 2012 figures.

The median sale price increased in Coos, Grafton, Stafford and Carroll counties and fell in the remaining 6 counties.

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