Charlie Arlinghaus

September 23, 2015

As originally published in the New Hampshire Union Leader

You’ll forgive me if I don’t care that much about what happened with the budget or the budget deal. The government spent almost three months setting up this giant pitched battle between light and darkness and in the end nothing changed. The governor signed a budget that is more or less what the legislature passed and she vetoed. What was the point exactly?

Remember the irresponsible budget that was so unbalanced that the governor felt she had no choice but to veto it? The business tax cuts were called irresponsible and a threat to our future. They could only go forward if balanced by about $100 million of tax increases. And the rest of the budget was a disaster ignoring critical priorities in at least five different areas, would “present a danger to our state’s future,” and was “unbalanced, dishonest about what it funds.”

Obviously the Republican legislature disagreed with the Democratic governor about her strong rhetoric. But compromise seemed impossible. It also turned out to be unnecessary. The final so-called budget deal included almost no changes of any significance.

The final deal is essentially the legislative budget that was vetoed. The supposedly catastrophic tax cuts are not just included but accelerated. If the last budget was “dishonest about what it funds” — and of course it just plain wasn’t — no changes whatsoever were made to what it funds and how it funds them. If the vetoed budget was a danger to the future so is this because the non-compromise doesn’t change how it funds substance abuse, higher education, or anything else.

Two things happened and only two things — go look at the very very short compromise amendment. First the dreadful tax cuts have a more or less meaningless recession trigger. The first half of the cuts happen no matter what. The second step happens if revenue meets the conservative revenue projections for the whole budget. If we don’t have a recession, we’ll make the revenue estimates. Other than that, they are reduced by the same modest 7% reduction as previously planned — from 8.5% to 7.9% — but in two steps instead of three.

If the old cuts are ridiculous, dangerous, and unpaid for, how is this less so? The simple truth is that no one believed the old modest cut was dangerous, even the politicians writing those words.  This budget battle was really only about words that had no meaning to their author.

The other change was that the 2% state employee pay raise was written into the budget along with language restoring the legislative oversight committee. This compromise was a concession on the part of the governor to the legislature. The raise itself, negotiated at the bargaining table albeit with no legislative input, was always going to happen and was offered almost immediately after the veto. Restoring the legislative committee is a retreat from executive branch authority.

And that’s all that happened. The executive branch ceded back to the legislature some of its traditional authority in exchange for the pre-negotiated pay raise. The supposedly horrible business tax cuts are still there, there are no changes to spending, and whatever might have been dishonest — other than the dishonest charge of dishonesty — remains.

So why did we waste three months of our policy life on nothing? I don’t know and frankly I don’t think they do either.

Policymakers did learn a few important lessons — or at least I hope they did.

The most important lesson is that no one much cares. The budget battle or debacle did not occupy anyone’s mind in the general populace. No one much took any notice. They are to used to politicians squabbling about this and that, battling press releases written by operatives who don’t live in the same world the rest of us do filled with meaningless and exaggerated rhetoric having the same significance as the overuse of exclamation points and semicolon winks in a teenager’s text messages.

The reason no one cares is that people are fundamentally sensible. The boy who cried wolf is background noise and the budget would eventually sort itself out in ways that had as little impact on anyone as the original version would.

The grave “danger to the state’s future” has been magically averted by doing absolutely nothing. Thank goodness I wasn’t paying attention.

Charlie Arlinghaus

September 9, 2015

As originally published in the New Hampshire Union Leader

The state doesn’t have a budget and no one seems to care much. Most of the issues supposedly dividing the sides will be resolved easily or delayed until next year.  The real dispute is over the Republican plan to cut business taxes and the governor’s fictitious criticism of it. Misleading rhetoric is used to cover a philosophical disagreement.

In the absence of a budget both sides will make claims that the other party is delaying critical services or causing uncertainty but in reality there are no crises and no threats to any agency’s funding. In the event of a cash flow issue caused by the general language of the temporary budget resolution, the fiscal committee can meet and make an accommodation as it did a few weeks ago for state parks.

Agencies and local communities know that when the budget is eventually resolved it will look remarkably like what passed the legislature and everyone will be made whole. Because of that there will be virtually no public outcry or angst over the lack of a budget.

Even at political gatherings during the summer season, the groups most likely to care about the subject, no one seems to notice. The lack of even the mildest public concern and the continued unremarkable operation of state government at the same level as last year allows us to recognize the only real issue separating the two parties.

Republicans included a cut in business taxes to be phased in over three years. Democrats would rather the government spend the money. The governor claims, quite nonsensically, that the cut isn’t “paid for.” She’s quite simply wrong and is justly ignored because of it.

Philosophically, Republicans believe tax rates matter. Our corporate income tax (the Business Profits Tax) is among the highest five states in the country at 8.5%. To be in the top 10, we’d need to be at 5%, to be in the top half we’d need to be at 6.5%. Even Massachusetts has gotten below us at 8.0%.

The legislature would phase in a lower rate to move us back below Massachusetts. To make it manageable, they would dedicate the natural increase to rate reduction to keep revenues flat.

The governor has claimed these cuts are not paid for yet the official documents of the respected and bipartisan Legislative Budget Assistant prove conclusively that the budget is in fact balanced. Their “surplus statement” published regularly throughout the budget process is accepted government-wide as the official proof-of-balance document. No one disputes their published numbers.

So the cuts are paid for. What the governor really means is that in the future the government will have less money from the lower rate than they would from the higher rate. The legislature is not as exercised about this fact as she is. She believes the legislature should raise other taxes by around $90 million to make sure government has more money in the future.

The governor is trying her best to create the impression of austerity forced on the state by an eagerness to forego taxes. The real numbers tell a radically different story. Current estimates have the two-year budget that ended June 30 spending $4.42 billion in general and education funds, the operating part of the budget paid for with general taxation. The supposedly austere legislative budget she vetoed would spend $4.67 billion, an increase of $254 million in spending.

The supposedly irresponsible cuts allow for an undeniably balanced budget that allows spending to climb by $254 million. It’s hard to see those as “unpaid for” or as causing holes in our future.

Each side will cite economic research showing their conclusion and ignore research showing the opposite. Those of us who think business taxes are too high are persuaded by Robert Reed’s research in the National Tax Journal on “The Robust Relationship Between Taxes and U.S. State Income Growth” which found “taxes used to fund general expenditures are associated with significant, negative effects on income growth.”

The other side of the debate believes increased government spending will be better for the economy than more competitive rates. This is a philosophical disagreement. At some basic level, this is the fundamental debate policymakers ought to be having for the next few years.

Debate the issue at hand but be honest about what’s happening. The need for fiction suggests you don’t really believe what you’re saying.

Charlie Arlinghaus

September 2, 2015

As originally published in the New Hampshire Union Leader

Political candidates insist on talking about trees and trust you will ignore the forest. The federal budget mess becomes a bigger and bigger problem because they know you don’t care about the big picture and can be counted on to ignore their pathetic record. The federal budget cannot and will not be balanced simply because it doesn’t have to be balanced and you don’t care that your politicians don’t care.

Last week the Congressional Budget Office released its semi-annual budget report and no one particularly noticed. It was a shame because the numbers suggest growing debt and endless deficits don’t have to be the accepted norm and might easily be erased.

Yet did any of the myriad presidential contenders wandering aimlessly about the state take notice and use it as the starting point for a discussion of responsibility? Not a one. Not only that, they didn’t because you don’t want them to because you find discussions of reality boring.

Almost every American and certainly every politician believes in theory that it is a bad idea for the government to spend more than it takes in. We and they accept that growing debt, fueled by deficits are theoretically bad. At that point, we stop talking about it and they do absolutely nothing in Washington about it and we don’t care.

The recent report suggests that the task is not Herculean. In the fiscal year that ends September 30, the federal government will spend $3.7 trillion. Over the next ten years, federal spending is projected to grow at an annual rate of 5%.

If the rate of growth were held to 3.1% instead of 5.0%, the budget would be balanced in ten years. The budget would still grow. It would grow faster than the rate of inflation. Spending would increase by more than $1.3 trillion. This isn’t anything resembling a cut. It isn’t even a freeze. But it is completely beyond the reach of the people we send to Washington.

In the last 45 years, we have run deficits in all but the last four years of the Clinton administration. Actually, I’m a little surprised there hasn’t been at least one presidential candidate mentioning that fact to us.

The budget was balanced then because it became a political fight between a Democratic president and a Republican congress to see who was more serious about living within our means. Today there is a similar bipartisan consensus in the other direction. Neither Republicans nor Democrats want to be forced to do anything in particular. There are no goals and no targets and no requirements to do much of anything about the problem except a small amount of hand wringing at election time.

When politicians are not forced to do something, political forces push them to do nothing. Isaac’s Newton’s first law of motion restated Galileo on inertia finding: every object persists in its state of being unless compelled to change by force impressed. This may be the foundation of classical mechanics but it is in fact all you need to know to understand political mechanics.

Political inertia compels politicians to keep doing what they are doing unless forced to change. The federal government rarely requires any change. Budgets don’t have to be balanced so they aren’t. They can’t be without some external force applied to the amorphous gravitational blobs who serve as politicians.

The 1994 elections served as a bizarre and irresistible force acting on the political universe. A group of Republicans attacked the atrophying Congress for not acting quickly enough to balance the budget. The switch to Republican control was something that hadn’t happened in a few generations and shocked the survivors.

The new legislators thought they had a mandate. That mandate and unexpected victory acted as a force on the incumbent president who figured re-election was only possible by absorbing the new force.

Today, there is no force, just an agreement to not change too much. One possibility is for all of us to force them to talk about slowing down spending growth but voters don’t seem to care too much. A better choice is legislation with forced and declining deficit targets like the old Gramm-Rudman law. If the target isn’t met then everything without exception gets limited proportionately to reach the target.

If we don’t force them to do something, they will keep doing nothing.

Charlie Arlinghaus

July 29, 2015

As originally published in the New Hampshire Union Leader

The ongoing state budget fight is about yesterday not tomorrow. Big government squabbles are never about what the press release claims. This one won’t and can’t be resolved quickly. The press conference phase of the budget that we are currently undergoing amounts to positioning before negotiations which can’t begin until official documents are released at the beginning of the Fall.

Democratic Gov. Hassan vetoed the Republican legislature’s budget last month. The public fights between those two parties have been over tax cuts, tax hikes, state employee raises, and expanding the Medicaid program. The real fight, however, is all about last year.

The governor has charged the legislative budget with being unbalanced because she contends it would move $31 million of money budgeted for last year forward to this year. In her words, the legislature is double counting that money. The legislature counter charge is that nothing is double counted unless the governor and her departments overspent the budgeted authority and are trying to obscure that alarming fact in the budget process.

The charges are confusing and sound both technical and obscure leading the casual observer to dismiss them as largely irrelevant minutiae. In fact, this dispute is the most important part of the squabble and critical to future budgets.

In the budget process, the most important public document released is called the surplus statement. The surplus statement is an explanation of every major change a proposal — the legislature’s or the governor’s makes — and is a summary of the bottom line of the budget showing spending levels, tax estimates, and how the budget is balanced, as required by state law.

Under our state law, the budget proposal does not stand as an island but must take into account the prior year that is ending as the new budget begins. This forces government to clean up messes left behind and encourages good behavior by examining and then living with the outcomes of earlier decisions and statements.

The prior year’s spending must fall within the budget limits established by the prior budget and any adjustments to that spending authority made by other laws and by executive order. In addition, the executive branch as a whole must meet its estimated managerial savings, referred to as “lapses.”

This year, up until the moment of veto, there was remarkable agreement over the outcome of fiscal year 2015. A look at the surplus statement in the budget documents on the legislative budget assistant’s website show’s that the legislature and the governor estimated 2015 spending at precisely the same $1.34 billion and both count on precisely the same $51.9 million lapse adjustment.

Nonetheless, in the current budget squabble, the governor claims the legislature has underestimated spending by $31 million. Her public statements have accused the legislature of double counting revenue and not paying for all the 2015 spending. Yet, they pay for the same spending and count the same lapsed spending.

The only possible way the legislatively passed budget doesn’t pay for the 2015 bills is if the bills are coming in high — if the executive branch is spending more than it said. The legislature has not pressured them to spend less in 2015. Instead it appropriated the same amount and made the same assumptions the governor said she was making.

This is why the budget can’t be fixed anytime soon. In late September or early October, the state will issue official documents detailing how much was actually spent, whether some departments exceeded their authority — overspent their budget — and whether the $51.9 million everyone agreed was going to lapse actually lapsed.

There is no legal penalty if the executive branch spent more than it was supposed to. In fact there will likely be an argument about what the numbers actually mean. If a department spends too much but characterizes it as “not meeting its lapses,” it amounts to the same thing as overspending its authority but amounts to a sort of wiggle room under the law.

Nonetheless, yesterday matters. If spending will exceed $1.34 billion or if lapses won’t be $51.9 million the managers of state government should not allow the fake number to be the basis of a budget.

In about two months, the truth will come out. If spending is not as advertised any compromise budget must include transparent methods to keep a jaundiced eye on unreliable stewards of spending.

Charlie Arlinghaus

July 22, 2015

As originally published in the New Hampshire Union Leader

One of the greatest obstacles to our current crop of politicians getting along with each other is a lack of information or at least a lack of good information. Sharing information and sharing it correctly is important not just for the sake of government transparency but so political squabbles are more constructive. New Hampshire’s state budget process needs more and better information. A just-passed transparency bill comes too late to help this budget but is an important step for the future.

New Hampshire’s government is very transparent in some areas and pathetically opaque in others. We do a terrific job on taxes. Each month’s tax receipts are posted within a day or two of the month ending. That they are posted quickly and completely helps make them a useful analytical tool for policymakers and also for interested parties outside the legislature. But the speed with which they are posted is only a small part of the story.

It would be useless for us to know how much a given tax raised in a month if we had no other information. The way taxes are collected, the reporting requirements, and other economic factors allow tax collectors to establish a budgeted amount for each month against which we can compare the actual receipts.

For example, business tax receipts are much higher some months than others because of the way they are collected. knowing a given month raised $96 million is useless unless we know whether it was a lesser month budgeted for $72 million or a larger month budgeted at $107 million. The one situation is a cause for optimism and the other will require action to avoid a deficit but we have no way of knowing which situation we face unless someone compares the data to the budget.

For taxes we have precisely that information each and every month very quickly. Our spending information by comparison is quite difficult and not useful for analyzing the budget. The lack of information on spending is one of the sources of budget fighting this year.

The state does maintain a transparency site called TransparentNH on the state website. It started some time after the Josiah Bartlett Center launched our NHOpenGov portal. Both transparency sites though are meant to be an encyclopedic disclosure of each transaction of state government rather than a real time analytical tool.

Go to the state website and look at it and you’ll see that it is of very limited utility for resolving the kind of discussions currently at the center of the state budget mess. Are we spending more in general fund dollars than the House, Senate, and Governor all agreed we would end the year having spent? Are department on track to meet their the budgeted amount of lapsed spending required for the budget to balance? That’s not the point of the website and it can’t answer those questions.

Sen. Jeb Bradley with a host of other senators and representatives sponsored and passed this year the first step to create a transparent budget tool. Their law (which was SB32 if you want to go look) would require quarterly spending reports modeled after the tax reports everyone likes so much.

The law requires spending totals and projections so lawmakers and the public will know as soon as possible if spending is unlikely to come in as advertised. Today some department heads have good information but the legislature and the governor — and certainly the public — aren’t always equipped with the same pieces of information.

Following the governor’s budget veto, the level of spending for the year that just ended has turned into a matter of dispute. In Concord there are allegations of underestimating spending, of overspending contrary to legal authority, of incorrect or misleading estimates of lapsed or unspent funds required by law. Most of these disputes are not easily checked because the information is not publicly available.

This is a concern partly because lawmakers can’t resolve a budget impasse until better information is available in September, leaving us fiddling with a temporary budget and much uncertainly for months.

Better information leads to better decisions. Some philosophical or programmatic disputes will remain but they can be debated properly. Competing in the marketplace of ideas requires competitors be equipped with the same information base. Just as important, those of us deciding between competing alternatives need similar access to the information. The Bradley transparency law is a good step I wish we had taken two years ago to help us avoid the current messiness.

Charlie Arlinghaus

July 8, 2015

As originally published in the New Hampshire Union Leader

Fissures over fiscal policy are fed by fanciful fictions that threaten the focus needed to fix the state’s financial budget. Political statements mislead you and indefensible charges are designed to distract you from a simple but philosophical disagreement.

The governor of one party vetoed a budget passed by a legislature controlled by the other political party. Democratic Governor Maggie Hassan wanted to spend more money particularly on social programs and the university system. The Republican legislature would spend less money and phase in a reduction to our high state business taxes.

Instead of focusing on that philosophical fact, too much of the debate has focused on a fiction.  The governor and her allies repeatedly claim — despite proof to the contrary — that the budget is “unbalanced.” The state budget law requires quite specifically that the budget be balanced so any charge of imbalance is quite serious if true. Her charge, however, is silly hogwash.

The governor defined her unbalanced charge in her veto statement: “The legislature double-counted carryforward funds, attempting to take money that has been designated and appropriated to pay for 2015 bills, and instead proposed to use it to balance its 2016 budget.”

A very serious charge indeed. The difficulty with the charge is that it isn’t true. Accompanying each budget and budget proposal is a sheet from the state’s very strictly non-partisan office of Legislative Budget Assistant showing how the state’s budget is balanced. The LBA works for the legislature, is technically tasked by the committee chairmen, and has an unvarnished and unquestioned reputation for neutrality.

The balance document is called a surplus statement and is the chief point of reference for everyone in the executive branch, legislative branch, and general public for deciphering the budget.

To begin with, it shows a balanced budget without any question. The estimates of revenue are accepted by everyone involved in the process and they balance the budget spending authority granted.

The governor hasn’t produced her own surplus statement because she doesn’t allege inaccuracies in that document itself. Instead, she claims something quite specific: she believes money is being double counted — it was spent in the budget that ended June 30 and is being carried forward as if unspent so it can be spent again next year.

If true, this would show up in the surplus statement as the legislature artificially deflating FY2015 spending below what the governor knows will be spent. Actual spending would then come in high, the extra money would be unavailable, and we suddenly have a deficit.

State documents however show no such thing. The surplus statement shows the governor and legislature both planned on general fund appropriations of $1.34 billion.

Sometimes governors or legislatures can play games with what are called lapses — the planned management difference between what is technically authorized and what will actually be spent. Most line items are caps on spending authority and we know the agencies will spend just a bit less. That difference is included in the budget and each department manages its spending — under the watchful of the governor as CEO — to meet its requirement.

But here too the governor and legislature show no difference. They each budget 4% of authorized to spending to lapse, or remain unused — the exact same $51.2 million. You might argue that the legislature basically just accepted the governor’s claims about 2015 spending and adopted them.

So the ridiculous “unbalanced” rhetoric is just a political canard and should be ignored as just so much silliness.

The real disagreement is over cutting business taxes. If we have some of the highest business taxes in the country — and we do — should we start reducing them to gradually improve our competitiveness? Or are we better off having the government spend the money on priorities it determines will be the most helpful?

The proposed cut doesn’t reduce revenue below current levels. Rather it uses the natural growth to reduce rates — business tax revenues will be the same next year as this year. No one presumes one change will suddenly improve our anemic job growth but many things need to change and we need to start changing them gradually so we can afford to improve our position without disruption.

Budget imbalance is a fiction. The philosophical differences between the legislature and the governor are real and should be the focus of debate.

Charlie Arlinghaus

July 1, 2015

As originally published in the New Hampshire Union Leader

Today’s politics are a model of civility and decorum compared to the budget debates of the recent past. The remarkably mild name calling associated with the current governor’s veto of the budget pales in comparison to the rancor and high drama of budget debates just a few decades ago.

People obsessed with today bereft of any memory of yesterday are fond of pretending that partisan rancor is worse today than it has ever been. We are routinely told that politicians today are angrier and less civil than just a few years ago. In fact, the opposite is true.

Today’s discourse is dramatically more civil. Disagreements are more likely to be painted as bad politics. The brutal budget debates of thirty years ago were much more personal and the rhetoric significantly less forgiving.

The first budget veto in New Hampshire didn’t happen until 1981. Gov. Hugh Gallen vetoed the state budget after two days of an illegal strike masquerading as a sick out by state employees. They were demanding Gallen stand up for a 9% raise instead of the 6% being offered by the legislature. So he vetoed the budget he didn’t like anyway.

One of the evening papers was happy that Gallen “rejected the utter stupidity of the House and Senate leadership.” In their mind of course it wasn’t the budget that had fallen short but that the leaders were utterly stupid.

The House Speaker had described the veto itself as “an irresponsible act as well as one that was irrational.” And things deteriorated from there.  After a series of parliamentary games, the House Democrats walked out and boycotted the vote on a second budget late at night on the last day. Democratic leader Chris Spirou called the majority liars and they called him childish in the press.

The legislature rejected Gallen’s request for a six month continuing budget resolution at the prior year’s levels (something the current legislature and governor agreed to last week). Instead they passed a budget with the exact same spending totals but rejiggered to include the 9% raise and an offsetting $10 million cut to personnel that the governor asked for. Those workers not let go received the raise.

In true brinksmanship, Gallen was sent the budget at the last minute before it expired and he signed it reluctantly at 12:02 a.m.

These angry games pale by comparison to the mess of four years prior. The 1977 budget debates were a mess and included two weeks of the government operating without legal authority. Lawmakers couldn’t agree on anything that year. The midnight deadline came and went until lawmakers retired at 5:00 a.m. without agreement or authority for the government to operate.

The state treasurer had issued the July 1 paychecks on June 30 (for the prior two weeks) because agreement seemed so remote. Agreement on even a temporary budget resolution only came after the Attorney General ruled that the state could not issue any checks to anyone without some legal authority.

When a final budget came to pass, the governor ridiculed it as “rifled throughout with mean, vindictive, and dangerous political ploys.” He let it become law without his signature. House Speaker George Roberts suggested the governor hadn’t bothered to read the budget, adding “if he did read it then he is either a liar or does not understand the budget.” I suppose if they hadn’t both been in the same political party they might have been less guarded in their speech.

The budget debate this year resembles none of that. Both sides agree, more or less, about the substance of the dispute and neither Gov. Hassan nor Sen. Morse nor Speaker Jasper has started name calling. Instead, each side is trying to win an argument about the issues in dispute.

There is tremendous hostility behind the scenes but in public everyone is behaving like an adult for now. However, there is still time for that to change. A six-month temporary budget took the wind out of everyone’s sails and will probably lead to a 6-8 week cooling off period in which nothing happens.

The new compromise budget will be fairly similar to the old one just as it was in 1981. Will the cooling off period keep the frustrations of compromise from boiling over or will we be treated to accusations of lying and stupidity?

Charlie Arlinghaus

June 24, 2015

As originally published in the New Hampshire Union Leader

The juvenile rhetoric that dominates so much of politics today makes it hard to sort out the looming budget veto and the issues beneath it. The first step to understanding is to ignore everything every politician says. Vetoes are not radical, the budget differences in almost but not quite all areas are tiny, and there is absolutely no chance whatsoever that New Hampshire’s government will shut down.

With a governor of one party and a legislature of the other, disagreements over policy are inevitable. But on the budget they are not particularly stark. For example, the governor hoped to increase the two-year, all-inclusive budget by 6.4% to $11.49 billion. The legislature is proposing a 5.1% increase to $11.35 billion. On each side, the Health and Human Services half of the budget would increase more than twice as fast as everything else. For example, the legislature proposes increasing HHS 8.4% and everything else by 3.2%.

Nonetheless, the governor has announced she will veto the budget after it passes today. Is a veto reckless or radical or extreme in some way? Of course not. Budgets are rarely vetoed – Republican Craig Benson vetoed a budget in 2003 and Democrat Hugh Gallen did so in 1981 — but the state constitution grants the governor that authority and there is no reason not to use it if things are that horrible.

However, to find the disagreements we have to start by ignoring the governor’s very silly rhetoric. The governor insists on saying the budget is not balanced. In reality,  all the official documents show not only balance but that it also adds surplus money to the state’s rainy day fund.

I would prefer the budget balance regular spending with regular revenue but it so very rarely does quite that. This year, the legislature carries forward some of the surplus from the current year to spend next year but then so did the governor. The legislature uses one-time tax amnesty revenue but then so did the governor. So go ahead and dismiss nonsensical claims of imbalance. Both the governor and the legislature do the same things in this area.

The governor would prefer to reauthorize Medicaid Expansion but the House and Senate can’t agree themselves and are postponing the debate until next year. Here the legislature and governor disagree but the outcome has been known for four months and can’t be changed by a veto. This is a real disagreement but not the source of the veto.

There are only two significant disputes. The governor’s team negotiated a pay raise for state workers which the legislature doesn’t fund. This is a more direct action than six years ago when then-Gov. Lynch asked the then-Democratic legislature for and received a directive to cut $25 million out of state paychecks (the current dispute is about $12 million). Because the current legislative decision is more direct than the Lynch end around of six years ago it is more controversial. Interestingly, Gov. Gallen vetoed the 1981 budget over the legislature granting 6% raises instead of the 9% he wanted.

The second issue is cuts to New Hampshire’s very high business taxes. The governor would prefer to spend the money and claims the cuts benefit only a small minority. As I documented four months ago, this is wrong. About 75% of “businesses” are paper businesses with no employees. The firms with more than five employees, the rough number that pay the profits tax, account for 95% of the jobs.

This is a real, philosophical difference. One side would lower the price of doing business in the state, the other believes the money could be better spent by government.

The worst political rhetoric involves each side accusing the other of shutting down government. That simply won’t happen. My organization, the Josiah Bartlett Center, published “Off Budget”, a paper detailing what has happened each time government has approached June 30 without a budget.

The legislature will pass a temporary “continuing resolution” to temporarily fund government at its current level. The last time this happened, in 2003, the legislature adopted a three month budget at 3/12 of the year that ended. The current legislature will pass a six month version.

Given the level of hostility and lack of trust between legislative leaders and the governor, this seems sensible. After the verbal and symbolic fisticuffs dominating the last month, a cooling off period is certainly required. A three month delay is simply not enough time for the heat to dissipate and then honest negotiations to begin. Everyone involved could use a time out.

Who want to spends where? These charts compares the actual and adjusted spending for the current budget, to the Governor’s proposed budget, the House budget, the Senate budget, and the Committee of Conference budget, broken out by to highlight the larger line items contained within each section, making the budget slightly less cumbersome to understand.

Click here to download a pdf version of the charts below

By Line Items

(Click on the images to enlarge)

General Government

General Government

Justice & Public Protection. Resource Protection & Economic Development, and Transportation

Justice & Public Protection. Resource Protection & Economic Development, and Transportation

Health & Social Services, and Education

Health & Social Services, and Education

Difference between Budgets by Line Items

General Government

General Government

Justice & Public Protection. Resource Protection & Economic Development, and Transportation

Justice & Public Protection. Resource Protection & Economic Development, and Transportation

Health & Social Services, and Education

Health & Social Services, and Education

June 2015

Joshua Elliott-Traficante

(Note: This is a revision of a paper originally published during the 2013 budget negotiations)

(Correction: A previous version of this paper incorrectly stated that the 2003 continuing resolution was for 3/12ths of the FY2003 budget. It was set at a rate of 3/12ths of the budget passed, but vetoed in 2003.) 

What happens if there is no state budget by June 30? With the Legislature and Governor at such odds on the matter, it is a distinct possibility. It would not be that unusual either. New Hampshire has resorted to temporary budget six times since the end of World War II: 1949, 1955, 1959, 1971, 1977, and 2003.

The state’s budget is not designed to be perpetual; rather it requires reauthorization every two years. As a result, the state’s legal authority to spend money expires at the end of the last day of the second fiscal year of the biennium: June 30.

If a traditional two year budget has not passed, to keep the state functioning and allow more time for negotiations, the legislature instead passes a temporary budget, called a Continuing Resolution. The funding level of the last four continuing resolution have been a fraction of the budget about to expire. For example a 3 month resolution would be 3/12ths of the funds spent in the just ended fiscal year.

Given the historical precedent, if the Legislature and Governor are unable to agree on a budget and instead opt for a continuing resolution, the most likely scenario would be a 3 month continuing resolution for 3/12ths of the expenditures made in Fiscal Year 2015. However, the legislature has the discretion to set the duration of a continuing resolution for whatever they see fit.

 

Q: When is the Deadline for a Budget to Pass?

A: June 30. Spending authorization ends on June 30 of the second year of the biennial budget. To avoid a break in authorization, some type of measure must become law by the end of that day. There is a little room for maneuvering however. In 1993 a budget deal was reached on the 30th but a vote was not possible until the next day (i.e. July 1).  Sitting Attorney General Jeffery Howard saw no legal issue, as long as work was finished “at any time on July 1.”[1] Of course the underlying assumption in this instance was that the measure would without question, pass both chambers and be signed into law.

 

Q: How does a Continuing Resolution Work?

A: Continuing resolutions provide spending authorization for a set period of time. Historically, they last anywhere from a week to three months. There is no required length for continuing resolutions, so the legislature can set them for however long they view as reasonable. The most recent continuing resolution, passed in 2003, was for three months.

 

Q: How is the funding level of a Continuing Resolution determined?

A: Earlier resolutions (1949[2] and 1955[3]) were specific dollar amounts, while the three month long resolutions passed in 1959[4] were each 1/12 of the Governor’s recommended budget. Most of the resolutions passed in the last forty years (1971[5], 1977 [i][6] a and 1977 [ii][7]) have been fractions of the just expired budget, based on their durations. For example, the 3 month resolutions of 1977[ii] was 3/12ths of the previous fiscal year’s appropriations. The exception is the 2003 continuing resolution, with spending levels set at 3/12ths of the budget that had been just vetoed.[8]

 

Q: Is there a companion bill (an HB 2 equivalent) that has all of the legal language?

A: No. The most recent continuing resolutions have contained a clause that keeps the laws that were part of the last budget in effect for the duration.

 

Q: Will a Continuing Resolution force the state to underpay our debt service obligations?

A: No. There is statutory language that allows the Treasurer to make bond payments from “…funds not otherwise appropriated.”[9] This would allow the Treasurer to make debt payments beyond what a continuing resolution provides. Payments would continue to be made in full with no risk for default.

In addition, the State’s bond payments are not paid in uniform allotments over the year. For example, the debt service paid in the first quarter of the fiscal year does not equal 25% of the total paid for the year. This repayment schedule provides an additional buffer against the threat of default under a continuing resolution.

 

Q: Once a Continuing Resolution has passed, can state agencies get emergency funding above and beyond what has been authorized?

A: Under a normal budget, if a state agency needs additional funds, they ask the Joint Fiscal Committee of the legislature, which has the authority to approve additional expenditures. Under past continuing resolutions, any additional spending must not only be approved by the Fiscal Committee, but by the Governor and Council as well.[10]

 

Q: Could the State’s Bond Rating be affected by a Continuing Resolution?

A: Credit rating agencies would undoubtedly view the state’s inability to pass a regular two year budget and the use of a continuing resolution negatively.[11]

However, as long as there is no break in budget authorization on July 1, the likelihood of a rating downgrade on these grounds alone is very small.

 

Q: Will the state lose Federal funds under a Continuing Resolution?

A: Past resolutions have included a clause that accepts all of the federals funds that the state is qualified to receive. Essentially it allows the state to continue receiving all of the Federal funds it did in the previous year for established programs.

 

Q: Will the state still be able to collect taxes?

A: Yes. The state’s authority to tax is derived from statutes independent of the budget. Regardless of what is in place on July 1, the state will not lose the ability to collect existing taxes at their current statutory rates.[12]

 

Q: What happens when a biennial budget eventually passes?

A: As soon as a two year budget passes, the continuing resolution is no longer in effect. In addition, the newly passed budget is retroactive to July 1.   

 

Over the Edge

Q: What happens if a Continuing Resolution does not pass on or before June 30th?

A: Ideally continuing resolutions are passed before the previous budget authorization runs out. While there is some room for maneuver on July 1, that only applies in cases where a deal has already been made and there is no question that it will pass.

However, the state has been without any type budget authorization in place twice: in 1959 for two days, in 1977 for 12 days.

1959: A continuing resolution was delayed over a dispute whether or not to include funding for the controversial Department of Commerce. As a result, the state began fiscal year 1960 with no legal spending authority in place. The State Treasurer was forced to stop all certifying all payments, road contracts were held up and paychecks were delayed among other things. The Legislature put their differences aside and passed a month long resolution on July 2, retroactive to July 1. It took two additional month long resolutions before a budget was finalized.

1977: Budget troubles were caused by the inability of the House and Senate to agree on which taxes to increase. July 1 came and went with no action. The Attorney General issued a memo stating that the state be forced to shut down sometime between July 15 and July 22, unless some type of spending authorization was passed. A continuing resolution was finally passed on the 12th, retroactive to the 1st and continuing through to the 19th. The State Treasurer told the Legislature that if neither a budget nor continuing resolution were passed by the 19th, then the state’s credit rating would be in jeopardy. A deal on a two year budget was reached by July 19, but a 3 month continuing resolution passed instead. A final budget was not passed until late October.

 

Q: Would state employees still get paid when there is no budget authorization?

A: Historically, when a continuing resolution is eventually passed, it is retroactive to whenever the last authorization ran out, so the employees still receive their pay and any other expenses incurred are paid. In 1977, the Attorney General ruled that state employees did not have to report to work when there was no spending authorization in place, but when some form of budget was eventually passed, they would not be compensated for the time they were not at work.[13]

 

Q: Would the State’s Bond Rating be affected by a lack of Budget Authorization?

A: If neither a budget nor a continuing resolution passes by July 1, there is the very real risk for a credit rating downgrade. During the 12 days in 1977 while the state was without authorization, there were threats of downgrades from the rating agencies.[14]

 

2015?

Q: If Legislature and Governor cannot agree on a budget by June 30, 2015, what happens next?

A: If the Legislature and Governor cannot come to an agreement by the deadline, there are two options. If nothing is done, the state’s authority to spend would lapse, causing a government shutdown and alarming credit rating agencies.

The other option is to pass a continuing resolution, which would allow the government to continue to function as a new budget continues to be worked on. Given the historical precedent, the most likely scenario would be a 3 month continuing resolution for 3/12ths of the expenditures made in Fiscal Year 2015.

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[1]Landrigan, Kevin, “All Sides Take Credit for Budget”, Nashua Telegraph, July, 1 1993.

[2] Laws of 1949, Chapter 275

[3] Laws of 1955, Chapters 229 and 274

[4] Laws of 1959, Chapters 174 & 203, 211 and 249

[5] Laws of 1971, Chapter 480

[6] Laws of 1978 {Special Session}, Chapter 1

[7] Laws of 1978 {Special Session}, Chapter 2

[8] Laws of  2003, Chapter 212

[9] New Hampshire RSA 10:6

[10] Laws of  2003, Chapter 212

[11] http://www.ncsl.org/issues-research/budget/late-state-budgets.aspx

[12] For example, under current statute, the tobacco tax will increase automatically by 10 cents on July 1, whether or not there is a budget agreement.

[13] Wysocki, David, “State Employees Can Go Payless,” Nashua Telegraph, July 2, 1977

[14] Herman, Bill, “Budget Lack Imperils Top NH Bond Rating,” Manchester Union Leader, July 14, 1977.