Flush with revenue, Legislature raises spending while cutting taxes

State appropriations grew substantially this week as legislators passed a $15.2 billion state budget for fiscal years 2024–25. The budget appropriates $6.25 billion in the General and Education Trust Funds.

Crafted by the Senate Finance Committee from a House version that passed earlier in the session, the budget raises total spending by more than 12% from the $13.5 billion FY 2022–23 budget. 

The governor’s proposed FY 24–25 budget spent $15.7 billion and the House’s spent $15.9 billion.

In General Fund and Education Trust Fund spending (the portion financed by state taxes), the FY 24–25 budget appropriates $6.25 billion, a 16% increase from the FY 22–23 budget ($5.39 billion).

By contrast, legislators cut General Fund and Education Trust Fund appropriations by 3.1% between the FY 20–21 and FY 22–23 budgets. Total spending between those budgets grew by a little more than 2%, from $13.2 billion to $13.5 billion. 

So the FY 24–25 budget represents a substantial increase in budgeted state appropriations. It spends about $566 million more in the General Fund and nearly $299 million more in the Education Trust Fund than the previous budget did. In total, the budget allocates nearly $3.8 billion in the General Fund and close to $2.46 billion in the Education Trust Fund.

The governor’s version had $6.29 billion in approved spending in both funds, while the House’s had $6.42 billion. 

Across all the line items, the Senate cut nearly $50 million in approved General Fund and Education Trust Fund spending from the House’s version. After adjustments and lapses are accounted for, the final budget spends $163.7 million less than the House and $33 million less than Gov. Sununu in General and Education Trust Funds.

Combined General and Education Trust Funds
Senate (FY 24–25) $6.25 billion
House (FY 24–25) $6.42 billion
Governor (FY 24–25) $6.29 billion
Current Budget (FY 22–23) $5.39 billion

One-time and off-budget spending

All versions made additional, off-budget appropriations in the current fiscal year. The final budget spends about $80.2 million more than the House and $133.4 million more than the governor proposed in FY 2023.

These current-year allocations make the difference in total spending between the Senate’s and the House’s budgets much closer than the FY 24–25 numbers would suggest. 

The Senate shifted several spending items to FY 23 that the House appropriated for FY 24–25, making it appear that the Senate made larger cuts to the House’s budget. For example, the Senate shifted $1.2 million in moving and fit-up costs to FY 23, as well as $3.6 million in building maintenance funds and $9.2 million in episodic treatment payments in education.

The increases in FY 23 spending were fueled by increased revenues. The budget pegs FY 23 revenue at $3.17 billion, which is $486 million higher than legislators had estimated when writing the FY 23 budget.

As we pointed out here, legislators used higher than anticipated revenues to approve hundreds of millions of dollars in additional FY 22–23 spending. 

Based on budgeted appropriations, the FY 24–25 budget is about 16% larger than its predecessor. But when actual spending is tallied at the end of the current budget, the difference will be much smaller. That’s because legislators spent most of the big budget surpluses accumulated in the last two years. 

Higher revenues 

The budget projects that state revenues over the biennium will be $121.1 million higher than the House’s estimated revenues and $59 million higher than the governor’s. 

The budget’s $6.359 billion in projected revenues are $868.7 million higher than the previous budget’s projected revenues, which explains how legislators were able to raise spending so much without raising taxes.

Some of this extra revenue goes to savings. The final budget ends the biennium with $231.9 million in the Rainy Day Fund, while the House set aside $200.7 million and the governor saved $341.3 million in the fund.

Education funding

Each budget proposal changed the state’s adequate education grant formula. The final budget uses the formula offered by the Senate, which was a compromise between the governor’s and the House’s numbers. 

Per-pupil adequate education grants are set at $4,100 under the Senate’s version, compared to $4,000 in the House’s version and $4,700 in the governor’s draft. 

This represents a $313 increase (8.3%) in base adequacy spending from FY 22–23 ($3,786.66).   

In addition, the Senate’s budget increases funding for differential aid. It includes $2,300 for each student eligible for free or reduced-price meals, $2,100 for each student receiving special education services, and $800 for each student who is an English language learner. 

In the FY 22–23 budget, those levels were $1,893 for students eligible for free or reduced-price meals, $2,037 for students receiving special education services, and $740 for English language learners. 

The following table shows the per-pupil adequacy spending within each proposed budget compared to adequacy spending under the FY 22–23 budget.

Senate 

(FY 24–25)

 House

(FY 24–25)

 Governor

(FY 24–25)

 Current Budget

(FY 22–23)
Base $4,100 $4,000 $4,700 $3,786.66
Free/Reduced Meals $2,300 $2,100 $2,500 $1,893.32
Special Education $2,100 $2,100 $2,079.89 $2,037.11
English Learner $800 $1,000 $756.43 $740.87
3rd Grade Reading Score* N/A N/A N/A $740.87

*This appropriation was for each 3rd grade pupil whose reading score on the state assessment was below proficiency. It has been cut from all three versions of the FY 24–25 budget.

State aid to public charter schools also gets a boost. The per-pupil adequate education grant for charter school students goes from $3,561 to $4,100, and the additional per-pupil grant (given because charter schools don’t receive local property tax revenue) goes from $3,411 to $4,900, for a combined per-pupil total of $9,000.

In total, the FY 24–25 budget increases state education spending by $169 million in the biennium and a projected $1 billion over 10 years.  

The Senate restored about $187.6 million to the Education Trust Fund that the House had moved to the General Fund (though it would’ve continued to be spent on education). 

Medicaid

The House budget provided for a two-year extension of the Granite Health Care Advantage Program, the state’s expanded Medicaid program. The Senate’s proposal, adopted in the final budget, extends this program for seven years.

In FY 2022, with the federal government funding 90% of the program, the state was responsible for paying the remaining 10% of the Granite Health Care Advantage Program, or $56.2 million. If this total stays relatively steady, this Medicaid program is expected to cost the state roughly $393 million over the next seven years.

The budget increases Medicaid provider payments by $134 million, a $110 million increase from the governor’s proposal.

Interest & Dividends Tax

Despite a razor-thin majority in the House, Republicans were able to include an accelerated repeal of the Interest & Dividends Tax in the budget. The tax was scheduled to phase out by 1 percentage point a year, ending with its elimination in 2027. The FY 24–25 budget pushed the elimination date up to January 1, 2025.

Overall, the FY 24–25 budget ratchets officially budgeted state appropriations up by 16%, which sets a new baseline for state spending, without raising taxes. This was made possible by the relatively steady flood of revenues, particularly from business taxes. Thus, to maintain this new, higher level of spending, the state will need those revenues to solidify into a new baseline too. If they trend downward for more than a brief period, the next Legislature could face some tough choices.

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State budget on track for a large double-digit increase in 2024-25

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The big story of the 2024-25 state budget has lurked just below the surface of most media coverage. It’s not the $99.6 million in employee pay raises, the increase in adequate education aid or the shifting of some Education Trust Fund line items to the General Fund. 

The big story is that lawmakers and the governor have incorporated at least $850 million in new revenues into the budget — and spent it. 

For the last decade, state revenues have exceeded projections in every fiscal year except for the pandemic year of 2020. Gov. Chris Sununu and legislative leaders have tended to categorize most of these annual surpluses as happy accidents (“one-time money”) rather than permanent funds to be counted on for future budgets.

That has changed. 

Legislative leaders and the governor this year incorporated the higher revenues into future revenue projections, and into the budget. 

The governor’s 2024-2025 budget projects revenues that are $912 million higher than those in the 2022-2023 budget. The House Finance Committee projects revenues $850 million above the previous budget. 

In Fiscal Year 2022, revenues were $435 million above budget. So far in Fiscal Year 2023 (through March), they are $323.7 million above budget. Lawmakers made quite conservative revenue estimates for the 2022-2023 budget. When the large surpluses materialized, most of the money found its way into appropriations.

Based on actual spending levels, then, the final 2024-2025 budget might not be that much bigger than the one before it. But measuring from one official budget to the next, the increase is very large. In practice, the main difference between the two budgets is the increase in baseline revenue assumptions, which are then used to fund ongoing spending. 

The question is not whether budget writers should accept, with caution, a higher baseline budget. It’s whether to spend that money or cut taxes. The follow-up question is how to prioritize those dollars if spending is the chosen option. 

Both the governor’s proposal and the House Finance Committee budget opt primarily for spending, though both contain some additional tax relief.

There are clear inflation-related reasons to raise state spending in some areas. The Department of Administrative Services notes, for example, that since 2018, state employee cost of living raises have totaled 5.4% while inflation has totaled 20.7%. With large vacancy rates in many departments (51% for entry-level positions at the Department of Corrections, according to the department), the market is sending a signal that state employee pay is too low. 

The state’s rates for medical providers who offer services through Medicaid also have been eroded by inflation, as has state adequate education aid. 

But both budget proposals raise General Fund and Education Trust Fund spending (money that comes from state taxes) above the rate of inflation.

The governor’s budget increases General Fund and Education Trust Fund spending by $889 million over the biennium, or 16.6%. General and Education Trust Fund spending under the governor’s plan totals $6.285 billion.

The House Finance Committee budget increases General Fund and Education Trust Fund spending by $981.4 million, or 18%. General Fund and Education Trust Fund spending under the House Finance Committee budget totals $6.37 billion. (Again, those represent increases from the approved 2022-2023 budget, rather than from actual appropriations.)

House Finance Committee Chairman Ken Weyler said during a budget presentation on Tuesday that the committee strives to keep spending below the combination of the inflation rate and population growth, which is best practice. The current budget, he acknowledged, exceeds that combined growth.  

The House Finance Committee used an inflation rate of 12.7% and a population growth rate of 1.5% to reach an optimal maximum budget growth rate of 14.2%, Weyler said. 

Had the committee kept spending to that level, the growth would be approximately $765 million. Instead, the committee proposes increasing spending by $981.4 million, which is $216.4 million above the combined inflation and population growth rate. 

The final percentage increase over the current state budget remains subject to negotiation. But the big takeaway is that a decade-long growth in state revenues plus a huge inflation spike have combined to ratchet state General Fund and Education Trust Fund spending to a level in excess of $3 billion a year. 

Going forward, this will be considered the new normal. Experience suggests that once a new baseline budget level is reached, returning below that level is extraordinarily difficult. 

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Medicaid can’t continue expanding forever

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As legislators consider more proposals to expand Medicaid eligibility or services to specific populations, they ought to consider that Medicaid is both like and unlike the universe.

Like the universe, Medicaid is expanding faster than it should be. Unlike the universe, there’s no scientific possibility of Medicaid expanding forever. (Maybe the universe can’t either.)

Two bills moving through the Legislature this session are based on increasingly questionable assumptions about federal spending commitments. House Bill 282 would end the five-year waiting period for Medicaid eligibility for “lawfully residing” children and pregnant immigrants. House Bill 565 would extend Medicaid benefits for new mothers from two months after birth to a full year. 

These expansions come as New Hampshire enjoys a temporary, pandemic-related increase in its Federal Medical Assistance Percentage (FMAP), which is the share of Medicaid spending the federal government covers. For the duration of the federally declared COVID-19 emergency, 56.2% of New Hampshire Medicaid spending is covered by the federal government. When the emergency declaration ends on May 11, New Hampshire’s FMAP rate reverts to its normal level of 50%. 

(Incidentally, the additional 6.2 percentage points of additional federal funding during the pandemic emergency was given on the condition that the state not conduct eligibility determinations. That waiver of eligibility requirements will end when the emergency ends, which will affect an estimated 72,500 current enrollees. The pandemic enrollment increase has been so costly to the state that it has pumped additional federal funds into the Medicaid program.)

Legislators tend to assume that the default 50% rate will continue indefinitely. But the federal budget situation could prompt reductions in the federal contribution, something the Congressional Budget Office (CBO) recently suggested. 

The CBO this month projected that the federal deficit will nearly double from $1.4 trillion to $2.7 trillion in the next decade, and the federal debt held by the public would reach a record 118% of Gross Domestic Product. 

This record debt is driven by historically high federal spending, which is projected to increase from 23.7% of GDP to 24.9% of GDP by 2033. Federal spending has exceeded 24% of GDP only during World War II, the 2008 financial crisis, and the COVID pandemic. The CBO projects it to reach this level again within the next decade simply due to regular budget outlays. 

Federal revenues, meanwhile, are projected to remain around 18% of GDP through 2033. 

That unsustainable course will put pressure on Congress to cut costs or raise taxes or both. Anticipating this, the CBO in December offered suggestions for reducing the federal deficit. In the area of health care spending, the CBO suggested that Congress “establish caps on federal spending for Medicaid” and “reduce federal Medicaid matching rates.” 

Such actions are not out of the question. As the Congressional Research Service puts it, “Medicaid was designed to provide coverage to groups with a wide range of health care needs that historically were excluded from the private health insurance market.” But the program has grown over the years to cover people who could find coverage in the private market. 

By routinely expanding Medicaid benefits and eligibility, lawmakers have grown the program’s outlays from $206.2 billion at the turn of this century to $748 billion in federal fiscal year 2021. Medicaid accounts for 17% of U.S. health care expenditures. 

These expansions are unsustainable for both the state and federal governments. Eventually, some level of financial discipline, however small or limited, will have to be imposed. Clawing back Medicaid spending is politically easier than touching Social Security or Medicare. That is especially true after Medicaid has grown to cover people who could find alternative insurance coverage. Given those realities, current levels of federal Medicaid spending cannot be taken for granted.

Any discussion of expanding Medicaid coverage or eligibility should start with the understanding that current spending levels are unsustainable, and increasing those levels just accelerates the date of reckoning.

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With electricity rebate, legislators could spend more than 75% of the 2022 budget surplus

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Gov. Chris Sununu has proposed tapping $60 million of the state budget surplus to give $100 rebates to electricity ratepayers. The plan requires approval by the Legislature and could come up for a vote this Thursday when legislators return to take up bills vetoed by the governor.

In the spring, a gas tax holiday was floated by both Republicans and Democrats. At the time, we wrote that a gas tax holiday was just a holiday from reality. A state-funded rebate on customer electricity bills is reminiscent of a gas tax holiday. Both offer a small dose of relief for individuals without addressing the underlying cause of rising prices, and both come with substantial opportunity costs.

The opportunity cost is best seen in context of the state surplus from which the spending would be drawn.

Legislators have already spent 60% of the state’s record $430.1 million budget surplus. 

A change in the way businesses apportion net operating losses, also passed this year, could consume another $42 million of the surplus.

With $261.7 million of the state budget surplus spent, the proposed $60 million in electricity rebates would bring the total to $321.7 million. That would represent 75% of the total surplus.

If the $42 million from the apportionment change is included, the sum rises to $363.7 million, or 85%.

So, after boasting that their frugality left the state with a record budget surplus, Republicans would have to explain to voters how they spent 75%-85% of that surplus in nine months. 

By any measure, that would be an impressive spending spree. 

If legislators simply want to transfer a portion of the state surplus to consumers, electric utility rebates represent one way to do that. We’re certainly not against returning money to the private sector. 

However, the state does have obligations, and surplus revenue can be used in a way that returns money to taxpayers in the long run while simultaneously reducing the cost of state government. 

As we pointed out in May, the state’s unfunded pension obligations cost taxpayers money. Using the surplus to pay down those obligations reduces state debt service, saves taxpayers money, lowers the overall cost of government, and reduces a debt owed by taxpayers.

That’s not as politically attractive as a utility bill rebate. But it would achieve several conservative goals while leaving the state in a better financial position. 

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Legislators have spent (at least) 60% of the state’s record budget surplus

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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.

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Legislators push student loan forgiveness for one industry

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As Republicans in Washington fight Democratic efforts to forgive federal student loans, GOP legislators in New Hampshire are promoting $1 million in tax-funded student loan forgiveness for graduates in one high-tech industry — human organ manufacturing.

In 2018, legislators passed a package of subsidies and tax breaks sought by the Advanced Regenerative Manufacturing Institute, a Manchester organization founded to develop synthetic human organs in partnership with other companies, including new local startups. 

That package, Senate Bill 564, granted companies engaged in advanced regenerative manufacturing a 10-year exemption from state business taxes. At the time, ARMI was the only organization that qualified for the tax exemption. The Department of Revenue Administration’s most recent annual tax expenditure report states that multiple companies have filed paperwork to be deemed eligible for the credit, but there are so few that disclosing details of the filings would violate their privacy under state tax information disclosure laws. 

Included in the law was a Regenerative Manufacturing Workforce Development Program, through which the state would finance the repayment or forgiveness of student loans for qualified graduates. To be eligible, the graduates would have to work for a qualifying manufacturer in New Hampshire for at least five years. 

In the four years since its authorization, the Regenerative Manufacturing Workforce Development Program has never been funded. Lawmakers tasked the New Hampshire Business Finance Authority (NHBFA) with designing and administering the program, but made no appropriation. 

Legislators learned of the program’s unfunded status earlier in the legislative session, and Republican leaders took steps to find money for it. A $1 million appropriation was attached to House Bill 1256, a bill dealing with the Department of Military Affairs and Veterans Services. 

In the HB 1256 conference committee last Wednesday, the funding drew bipartisan support, with legislators noting that the $1 million was a fraction of what had been intended for the program. 

“This is a test run to see how much they actually need for this,’ Rep. Al Baldasaro, R-Londonderry, said.

Need is an interesting choice of words. ARMI initially received an $80 million Department of Defense grant for its regenerative manufacturing work and $214 million in other investment, according to a DOD press release from 2016. It has attracted other companies to Manchester’s Millyard, where work on human tissue generation is expanding — without the student loan subsidy.

It is not known how much of an employee’s student loans the program would repay or forgive, as the program has been on hold pending funding. A draft proposal the NHBFA gave to legislators in 2019, assuming full funding, stated that employees would have their student loans entirely paid off over five years. 

In general, loan repayments are considered taxable income unless otherwise exempted from taxation by law (as is the case with many federal student loan repayment and forgiveness programs). The NHBFA’s draft proposal stated that under federal income tax laws as of 2019, the forgiveness “would result in taxable income” to the employee.

The local forgiveness for regenerative manufacturing employees is supposed to help keep the industry in New Hampshire and facilitate hiring. But such favoritism hurts other employers who compete for the same workforce, and it transfers wealth from some businesses to others, based purely on which ones are politically favored.

And such subsidies clearly aren’t needed in an industry that has proven capable of raising hundreds of millions of dollars in startup capital.

In Washington, Republicans are moving in the opposite direction. U.S. Senate Republicans in April introduced the “Stop Reckless Student Loans Action Act” to end the Biden administration’s pause on student loan repayments and block future loan forgiveness. 

One stated reason for opposing federal student loan forgiveness is that most Americans don’t have college degrees, and they would wind up subsidizing the degrees of the roughly one third of Americans who graduated from college.

In New Hampshire, 35.4% of men and 38.4% of women have a bachelor’s degree, according to a state report issued in 2019. 

For years, Republicans in Concord have been divided on the issue of student loan forgiveness.

Earlier in the session, legislators blocked a Sununu administration effort to create a larger-scale loan forgiveness program. The Joint Fiscal Committee tabled a proposal to use $17 million in federal American Rescue Plan funds to forgive the loans of students who agreed to work for at least four years in New Hampshire after graduating college. 

Gov. Sununu in 2019 proposed a $32 million student loan assistance program to be financed with revenue from the state’s 529 college savings program. Legislators rejected the idea in favor a smaller Graduate Retention Incentive Program. 

That program offers free job postings and marketing for companies that agree to give a $1,000 bonus or student debt payment to employees who agree to workin the state for four years.

New Hampshire has an established loan repayment program for medical professionals who agree to work in underserved areas of the state. It cost $766,783 in the current budget.

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Businesses are raining cash on the state budget

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With two months left in the fiscal year, state business tax collections are $217.2 million above budget. For context, business tax revenues came in $649.9 million over budget during the entire previous decade. 

So surplus business tax collections during the last 10 months have equaled 33% of the total surplus in business tax revenues collected from 2012-2021. 

To put it another way, business taxes have generated about three years’ worth of above-budget revenue in just 10 months. 

To get an idea of just how big that $217.2 million figure is, consider that business tax revenues for the first six months of FY 2012 totaled $231.7 million. 

The state’s collected almost as much in surplus business tax revenues during the 2022 fiscal year (so far) as it collected in total business tax revenues in the first half of 2012.

Total revenues from all state taxes for the current fiscal year are $382.2 million above budget. 

That’s a tremendous amount of surplus revenue for New Hampshire. Predictably, lawmakers have been busy allocating it to various priorities. (We’ll have more on this soon.) 

The good news is that they’ve been treating it as one-time revenue, and therefore not rolling it into permanent spending. The bad news is that they’re not dedicating any significant portion of it to state pensions, which would be the most fiscally responsible thing to do and would save the state money in the long run, as we outline here. 

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Moving some of the state surplus to pensions would save taxpayers money

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The state’s tremendous budget surplus is a windfall that should be used wisely. The last budget restored funding to the Rainy Day Fund. This year, policymakers would be wise to shift a large portion of the ($252 million so far) budget surplus to the state’s pension fund. This would save taxpayers money in the long run and be a responsible use of these unexpected revenues.

The Josiah Bartlett Center for Public Policy teamed up with the Reason Foundation’s Pension Integrity Project to create an explainer (posted below) outlining why this move makes good financial sense this year. (You can download a pdf copy here: REASON_BARTLETT_PENSION_EXPLAINER.)

 

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Should N.H. pay people to move here?

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New Hampshire attracts residents with its high quality of life and exceptional level of economic opportunity. Though located in remote northern New England, the state has posted population and economic growth rates superior to its Canada-bordering neighbors, both of whom are in serious danger of slipping into population decline this decade.

The biggest constraint on New Hampshire’s population growth is not a natural deficit in the state’s attractiveness, but a government-imposed housing shortage. 

So it’s interesting that legislators are considering a bill to spend $750,000 worth of taxpayer money to pay people to live here. 

House Bill 1524 would create a state National Service Alumni Attraction and Retention Fund. 

The money would finance “grants to New Hampshire-based employers and institutions of higher education for the purpose of providing financial assistance, workforce development, and education to AmeriCorps alumni and returned Peace Corps volunteers” interested in pursuing post-graduate education or work in the state.

The plan differs from an existing program in Vermont in scope, but not concept.

Vermont in 2018 created a remote worker relocation program that offered $10,000 to anyone who would commit to moving to Vermont and working remotely. It was followed by another program to pay people $7,500 to live and work in economically distressed parts of the state. 

Vermont’s treasurer reviewed the remote worker program in 2019 and concluded that it was impossible to determine whether people moved for the money or claimed the money for moves they’d previously planned. 

When a consultant used questionable multipliers to conclude last year that the programs paid for themselves, the treasurer publicly criticized the findings. 

In any case, the programs enrolled just 307 people, which comes to 0.047% of Vermont’s population of 645,570. From 2018-2019, a total of 14,915 people moved to Vermont voluntarily (who knows why?), and another 16.337 moved out. 

Maine is getting into the cash bait game too. The Senate just passed a bill intended to keep Mainers from leaving the state by forgiving up to $40,000 in student loan debt for first-time home buyers. The taxpayer cost would be $10 million. 

Now some New Hampshire legislators want to use taxpayer money to recruit national service volunteers to live or study in the state.

It’s not clear why these particular individuals would be more worthy of taxpayer-funded recruitment than, say, angel investors, construction workers, clergy, nurses or any other non-profit volunteers. But it’s certain that a program created to lure one group favored by politicians will be expanded to include other groups favored by other politicians.

And that gets to the heart of the problem. Any such program would open the state coffers for giveaways to whichever groups can gain the attention and admiration of politicians. A new program to bestow state favors on politically popular groups would create additional perverse incentives for politicians.

Politicians would have a strong incentive to add politically popular subgroups to the list of people eligible for taxpayer subsidies. Individuals, no matter how worthy, who can’t gain the favor of legislators would wind up subsidizing the groups who have. 

Taxpayer money is a finite resource to be used with restraint and discretion for public purposes only. The gifting of tax money to people who have performed a service favored by politicians runs against the spirit, if not the letter, of the state constitution. 

Part I, Article 31 states that the Legislature shall assemble for two reasons only, to redress public grievances and to make “such laws as the public good may require.” New Hampshire would have to be in a dire state of cultural decay for the public good to require taxpayer-funded recruitment of national service volunteers.

Part I, Article 36, limits the granting of public pensions under the principle that “economy” is “a most essential virtue in all states” and therefore “no pension shall be granted, but in consideration of actual services; and such pensions ought to be granted with great caution, by the Legislature, and never for more than one year at a time.”

The grants to be funded in HB 1524 aren’t pensions precisely, but they are similar. They are taxpayer grants to individuals in recognition for services rendered to the public. However, the public is not necessarily the taxpayers of New Hampshire, but rather the people of any place where the volunteers served. 

That makes the National Service Alumni Attraction and Retention Fund a payment by New Hampshire taxpayers for services rendered to any people on Earth. Why it’s in New Hampshire taxpayers’ vital interests to make cash payments to people for services rendered anywhere is a mystery. 

Finally, as the fund is designed to recruit these specific volunteers to New Hampshire, it is about more than just rewarding this service. Its goal is to improve the state by paying those volunteers to live here temporarily. 

The use of taxpayer money to create a custom-designed state population is questionable enough. But to recruit people with no specific economic assets for a year or two of work or study is of no discernible long-term value to the state. 

Good public policy in a republic avoids creating favored classes of citizens by bestowing tax money on politically preferred groups.

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Requiring U.S. steel in N.H. public projects would hurt taxpayers and workers

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With inflation at a 40-year high and March approaching the highest one-month gas price increase on record, this would be a strange moment for legislators to purposefully inflate public works costs for taxpayers. But that could happen, started by a Senate vote this week. 

Senate Bill 438 would raise costs on New Hampshire taxpayers for the sole purpose of protecting jobs in Pennsylvania, Michigan, Ohio, Illinois, Indiana and New York. It has 14 co-sponsors, 58% of the Senate. 

The bill would require all state-administered public works projects of $1 million or more to use American-made steel. Similar bills are being pushed by the steel industry in state legislatures around the country. It is a classic example of protectionism masquerading as patriotism.

The effect would be a politician-imposed transfer of wealth from New Hampshire taxpayers to the $100 billion American steel industry. 

The bill’s fiscal note states that the cost is indeterminable “due to wide-ranging price fluctuations for these goods, supply-chain shortages, and US imposed tariffs.” 

But it’s well-established that the effect of such protectionist laws is to increase prices. 

“Buy America rules prohibit customers from buying less expensive steel from overseas suppliers for use in public works projects,” the Congressional Research Service concluded in 2015. 

Compliance costs for “buy America” laws also raise end prices, the Congressional Research Service pointed out.

“Other direct costs associated with Buy America are mainly related to administering and enforcing its requirements, costs that are mostly absorbed by state and local government project sponsors. These costs include the effort required by contractors to document the national origin of iron, steel, and manufactured products and agency administration of the certification process. Extra work may also be required of contractors to put together two bids for a given project, one incorporating domestic products and one with foreign products. Waiver requests, another cost, may be prepared by the state or local government project sponsor alone or in cooperation with the contractor.”

Then there are the project delays, which also increase costs.

“Buy America may make it more time-consuming to complete transportation projects, ultimately causing higher project costs. Delays can arise from domestic supply problems and the waiver application process.”

Federal “buy America” requirements for rail cars led to municipal rail systems providing commuters with inferior cars at inflated prices.

It’s also well-established that industry protectionism costs more jobs than it saves and hurts domestic industries in the long run.

A 2017 study by Australian economists found that buy America requirements protected 57,000 U.S. manufacturing jobs while reducing overall U.S. employment by 363,000. According to that study, ending federal Buy America provisions would increase employment in New Hampshire by more than 800 jobs. 

Studies have detailed how protections for specific industries at the national level just transfer wealth from consumers to politically favored industries, sometimes costing consumers millions of dollars per job saved. 

They do so in the name of protecting manufacturing jobs from foreign competition, when in fact manufacturing job losses are primarily the result of productivity gains. 

That is particularly true for the steel industry. In 1980, it took 10.1 man hours to produce a ton of steel. By 2017, it took just 1.5 man hours.

U.S. steel industry productivity since the 1960s has been driven by two primary factors: technological gains and competition. Contrary to protectionist dogma, competition helps U.S. industries by making them more productive and more competitive. 

The U.S. steel industry is no exception, having been helped by imports.

The bill anticipates increased costs. It allows a waiver for the following conditions:

(1)  Application of the project would be inconsistent with the public interest;

(2)  The product is not produced or fabricated in the United States and that it would be in the public interest to provide a waiver;

(3)  The item for which a waiver is being requested is not produced and fabricated in the United States in sufficient and reasonably available quantities and of satisfactory quality; or

(4)  Alternate bidding procedures were used and the lowest overall total bid based on using domestic fabricated structural steel was at least 25 percent more than the lowest overall total bid based on using foreign steel.

Exception No. 4 indicates clearly that costs are expected to rise. It would write into law the presumption that cost increases of up to 24.99% are acceptable to legislators. That’s remarkable. 

If that weren’t enough, SB 438 could lower employment in New Hampshire for the purpose of increasing it in Pennsylvania. 

The effect of the law would be to raise the price of raw materials for public works projects. If those costs are large, contractors could seek to recoup them by hiring fewer employees. The result would lower employment in New Hampshire. 

American industries grow strong through competition, not coddling. If American steel is competitive, New Hampshire contractors will use it. If it isn’t, then forcing them to use it only raises costs and lowers quality. 

If other countries subsidize their industries, that should be addressed at the federal level. Preventing New Hampshire public works projects from using Canadian steel won’t have any effect on China’s state industrial policies. It will just make it harder for New Hampshire projects to be completed on time and at the best possible price. 

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