Charlie Arlinghaus

October 7, 2015

As originally published in the New Hampshire Union Leader

Pay no attention to the surplus behind the curtain. It’s not real. Despite advertised claims, the state did not run a $73 million surplus. It ran a barely $1 million surplus. The difference between press releases and reality comes entirely from the state’s reckless refusal to adhere to its rainy day fund law.

This week the governor announced a supposed $73.2 million surplus. Leaders in both parties took to the public square to praise their own fiscal responsibility in helping create such an enormous “surplus.” In reality however, the two-year state budget did not create a massive surplus. It just barely broke even.

These wonderful press releases were created by government starting out on third base and pretending they hit a triple. The budget did not raise $73 million more than it spent — the traditional definition of a budget surplus. Instead, budget writers started the budget with $72.2 million carried forward from the previous budget, ensuring a “surplus” by their definition as long as they didn’t deficit-spend by too much.

Under the state budget law, any money left over at the end of the budget is automatically deposited into the state’s rainy day fund — officially called the revenue stabilization account — to protect against future economic downturns. New Hampshire’s rainy day fund is considered by most regulators, financial analysts, and state officials to be woefully underfunded at $9.3 million, just two-tenths of 1% of the state’s biennial operating budget [general and education funds].

But the state budget law is a farce. Lawmakers routinely flout it. The $72 million that should have been deposited into the rainy day fund was preserved by temporarily suspending the rainy day fund law. It left it available to be easily spent without the restrictions the law would have placed on money deposited in the rainy day fund — the law has been suspended regularly for the last decade.

So the real surplus for the budget is just $1 million. That’s not necessarily bad management. Or is it?

Revenues for the biennium came in ahead of the budgeted amount by $57 million. Knowing that, you’d think we would have a $57 million surplus, not just one. That suggests the executive branch overspent its authority by $56 million. But it may be worse than that.

The governor attributed the not-really-$73 million surplus to her “working closely with state agencies to responsibly manage their budgets.” That is at it should be. The chief operating officer of the state has a responsibility to manage and to manage to budget. But some of that management appears to be problematic.

Notably, the state Department of Health and Human Services reported that they did not spend $20 million earmarked for services for the developmentally disabled even though there are more than 100 people remaining on a waiting list for services supposedly because of lack of funds.

This is perhaps the only area of state government where there is broad agreement between both parties about it being a significant priority. Surely a CEO “working closely with state agencies to responsibly manage their budgets” would have noticed a huge lapse in a universally agreed on priority and one which she herself kept advocating for increased funding throughout the budget process.

With that as a priority for her, and eliminating the waiting list a long held priority for the entire management of the HHS department, how does $20 million slip through the cracks?

The more cynical among us might argue that eagerness to have a press release with a big surplus number puts undue pressures on the process.

The state’s largest department — HHS is close to half the state budget — is always under extraordinary pressure to reduce spending without reducing services, particularly as the budget draws to a close and managers are worried about overspending in other areas. It’s clear that the pressure the one department is under would be less burdensome and perhaps lead to better outcomes if someone were working closely with other agencies to responsibly manage their budgets.

The state’s needs to modernize and improve the transparency and utility of its reporting on spending so people inside and outside state government could notice these odd lapses developing when central management misses them.

We shouldn’t rush to judgment on the inexplicable $20 million shortfall. But when spending comes in just a bare $1 million under the wire only because of a significant error in a bipartisan priority, questions ought to be asked.

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 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.