Ignore the Rhetoric and Give Government a Time Out

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.

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Who Wants to Spend Where? A General Fund Comparison

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

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Off Budget: What Happens if New Hampshire Doesn’t Have a Budget by June 30?

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.

Click here to download a pdf version of this report

 

 

[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.

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Don’t Pay Attention To The Budget Debate, It Doesn’t Matter

Charlie Arlinghaus

June 10, 2015

As originally published in the New Hampshire Union Leader

The state budget is a pitched battle fought tooth and nail where the warriors largely agree. Posturing and the art of a press statement are more important than information. In reality, verbally armed camps will give way to easy agreement over all but one or two differences. Vetoes, stalemates, and months of budget-less government are much less likely than annoying-but-meaningless press releases you can safely ignore.

Very few people read budgets and most of our information is limited to a press clip here or there describing awful cuts that will bring about Armageddon or noble initiatives which will allow us all to travel the path to Arcady. They matter not.

If releases are to be believed, a draconian House budget slashed aimlessly at the Governor’s proposal and the Senate version came back a little but is still lacking. In reality none is far from the other. Politics exaggerates disagreements. The House would increase the operating budget (“general and education funds”) by 3%, the Senate by 5%, and the governor by 7% biennium over biennium.

The nature of the process always produces this divide. This year, the governor of one party proposed a budget in February. It included some taxes and other revenue that everyone knew the legislature wouldn’t go along with. That’s fine. It allows her to make a statement about priorities.

The House phase that follows is always difficult. It is less about a speech and more about a spreadsheet. It involves public hearings and the complaints of every group whose program has been changed or didn’t get what they hoped for. At this stage of the process only negatives come forward. No positive news permeates the gloom that envelops this phase.

To make matters worse, when the legislature is of a different political persuasion from the governor, as they are now, this is the phase where those philosophical differences are highlighted for the general public. In addition, budgeteers have an obligation at this phase to be conservative and even pessimistic about revenue projections to provide a foundation for future decision making.

By the time the budget is passed to the Senate, it is a rough hewn document that has sketched out a broad picture but is necessarily incomplete. The Senate is afforded the opportunity to consider changes rather than basic structure. Revenue estimates usually increase as the initial caution is augmented by more information. The Senate may then figure out where the figuratively “extra” money is best spent.

Consider the House’s job in its phase as whittling things back and absorbing to itself all the slings and arrows of the annoyed and disaffected. The Senate then makes changes, most of which make at least someone happy. Were there a legislative dispensary, antacid sales would spike during the House phase.

At this point some slight priority differences are hashed out between the House and Senate in a conference committee before sending everything on to the governor. And this is when the politics heats up.

The governor is able to decry the document she is about to receive as in shambles. She tells us it would “take our economy backward,” I suppose because it leaves out her proposal for keno, that economic development tool lauded through the ages.

In total funds, every dollar spent from whatever shoebox of government, the governor would increase spending by an average of 2.5% in each of the two budget years. The Senate version prefers an average increase of 1.6% each year. The “operating” part of the budget I described earlier compares a 5.2% Senate total increase to a 7.1% Governor’s total increase. There are eight different ways to measure the budget but by all of them the scorecards are close.

There are two big differences: The Senate wants to make our business taxes, currently among the highest in the country, lower to send a message to the kind of businesses that care about rates. The governor would rather spend the money on government services.

Second, the Governor wants to immediately reauthorize the Medicaid expansion plan that expires in a year-and-a-half. The legislature, undecided on the matter and wanting more information, prefers to consider it and its funding needs separately next year.

The changes in the committee of conference will be minor as the differences are. The governor won’t veto the budget but will make sure we all know she doesn’t like it. And most of us won’t even notice.

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Comparing New Hampshire’s Recoveries

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Joshua Elliott-Traficante

June 2015

Summary: Despite a history of leading the region out of recessions, New Hampshire’s recent track record of job creation falls well short of that legacy. Only as of March 2015 has the state returned to prerecession levels of employment and jobs numbers. This paper compares the last three recoveries to the current one, detailing the state’s increasing difficulty in recovering from economic downturns.

Econ Chart 1

New Hampshire has a strong track record of economic growth, especially in the 1980s, 1990s and early 2000s. This economic prowess helped give birth to the phrase “The New Hampshire Advantage” and made the state the envy of the region. Since 2002 however, the stiff wind that once filled the state’s economy’s sails has become a gentle zephyr at best. The last thirteen years in particular have seen mediocre growth in both employment and jobs. The recovery from the latest recession has been particularly slow. More than 5 years after the bottom of the recession, the state has only just recently returned to prerecession employment levels and jobs numbers.

Definitions and Layout:

Though ‘employment’ and ‘jobs’ are often used interchangeably, the Bureau of Labor Statistics has distinct definitions for each term, which will be used in this paper. ‘Employment’ counts the number of people employed based on where they live. ‘Jobs’ counts the number of paid positions based on where they are located. The employment figure for New Hampshire counts every state resident that has a job, regardless of where the job is located, while the jobs figure for New Hampshire counts the number of jobs based here, regardless of who fills it. For example, someone who lives in New Hampshire, but works in Massachusetts, would show up in the New Hampshire employment number, but their job would be counted in the Massachusetts job number. It is important to note that the unemployment rate is calculated off of the employment numbers, and not jobs numbers.

For this analysis, roughly the first 5 years of each of the last four recoveries are examined. The starting point is the lowest point in the recession (in terms of employment and job numbers), continues through the first 65 months of the recovery for employment numbers, and 63 months of for jobs numbers. This time frame has not been chosen arbitrarily; the state is now 65 months into recovery in terms of employment number and 63 months into recovery in terms of jobs. Doing so, accurately compares how well New Hampshire has recovered from economic downturns in the past, versus today.

Click here to read a pdf verson of the full report

 

 

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House “Conservatives” Lurch Into Price Controls

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Charlie Arlinghaus

June 3, 2015

As originally published in the New Hampshire Union Leader

In the world-turned-upside-down that is the New Hampshire legislature, a group of former conservatives has been reduced to arguing that the only real fix to health care is government price controls. Concerned about the lack of competitive pressures and other market mechanisms, they have decided the best of all solutions is to simply give up and give in to price controls. A legislator in search of a grand solution that can bear his signature in bold type is easily seduced by what he would eagerly call socialism if proposed by his opponent. But we are all easily persuaded that our own idea is merely “realistic” and that my case is an exception to the usual platitudes we espouse.

New Hampshire’s workers compensation rates are higher than average. Although in recent years we are one of only sixteen states that have seen our rates decline, they started out above average. Because of certain rules, the health care component of workers compensation has few competitive features.

Now comes the giant abandonment of principle that turns erstwhile conservatives and libertarians into reluctant statists embracing big government solutions.

The current system which requires employers or insurers to pay whatever charge is presented to them by whatever medical provider the injured worker chooses is rightly decried as anti-market. Legislative supporters of a pseudo-reform bill seek not to fix the competitive failure but instead to have the insurance department set up a schedule of “reasonable charges.” Their supposed past support of competition and angst at market failure has nonetheless driven them headlong into a scheme of government set and managed price controls.

Supporters argue quite nonsensically that their price setting isn’t a “fee schedule.” It is merely a calculation of the reasonable charge where the maximum charge the government permits is set as the average (which under basic math means the average and maximum are necessarily identical). The government (in this case the department of insurance) will set a price (reasonable charge) but we are told that this isn’t a price control. George Orwell call your office.

What I find most distressing is that so many tentative supporters of the price control scheme argue sincerely that their price control is better than other price controls because they use a different and perhaps better set of numbers to create their price.

Under this logic we are expected to endorse government control if the calculation is better. These legislators then must object to Obamacare simply because the right administrators have not been selected. Under their logic a single payer would be best if we let the author of the workers compensation pseudo-reform administer the system.

Of course now I’m being silly but that’s precisely how silly this headlong dive into government price controls really is.

The sad part of this debate is that the problem is understood and the solutions readily available.

The biggest problem is the first line of the workers compensation law requiring the insurer to pay the entire bill of whatever provider the employee selects no matter what unless the insurer can show just cause. This eliminates fraud and little else. It forces costs higher leaving the payer of the bill (employer or its agent) with no negotiating power.

Instead of forcing the employer to prove just cause, shift the burden to the provider and thereby change the negotiation. Or allow the employer and insurer to establish in and out of network pricing to pressure cost outliers.

In short, government set and managed price controls are not the only answer. Competition can easily be introduced to the system.

We faced this with state employees. The ability to go anywhere coupled with little or no exposure to price drive costs high. But the legislature never considered mandating a list of prices for the 80 or 90 most common or costly procedures. Instead, they created incentives in their own contract for consumers to receive a cash reward for using, if they chose, a low cost provider. My own health insurance has a similar competition-inducing mechanism and they are becoming more common throughout health care.

I don’t understand the number of conservatives who prefer price controls of one variety or another to trying to introduce competition. Saying the system isn’t free market so we must introduce government set pricing is quite different from the saying the system is not free market so let’s eliminate the anti- competitive language. Price controls are the same thing as giving up. 

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Have Dedicated Funds Become a Fiction No One Believes?

Charlie Arlinghaus

May 13, 2015

As originally published in the New Hampshire Union Leader

It has become trite to say in budget debates (as I did this week to a friend) that “I am generally opposed to dedicating revenue sources but believe that, once dedicated, that arrangement should be honored.” It sounds good but none of us really mean it.

The state’s budget can be divided into two pieces: That part paid with federal funds and that paid with state taxes and fees. The state portion includes the general fund — the regular state operating budget in which every program and department are competing priorities for state taxes and fees. But some portion of state spending is set aside or “dedicated.”

The largest and most obvious example is the highway fund. A provision of the constitution restricts the way in which taxes on gasoline and other vehicle related fees can be spent. To help ensure that happens, those monies are segregated in a dedicated fund.

Similarly, some licensing fees are spent on the regulatory costs associated with those licenses. Those monies are dedicated on the theory that if the state stops spending a license fee on the license or the activity, you must stop charging the fee.

Over time, however, the number of funds has skyrocketed and the portion of the state budget that is dedicated — and therefore separate from most budget debates — has increased.

The non-federal portion of the state budget in 1998 was 48% general fund and 52% dedicated funds. Sixteen years later, the split was 38% general fund with 62% dedicated.

Program after program fretted about being unable to compete in the budget so they tried to find dedicated revenue sources and thereby avoid being part of the budget debate. While legislators ought to consider every dollar of spending whether dedicated or not, human nature is such that non-general fund spending is routinely ignored. The theory is that cutting spending paid for by a dedicated fee only lowers the fee, it doesn’t allow the savings to be spent elsewhere. In the quest to balance the limited dollars available in the general fund budget, these dedicated funds are ignored as a side issue.

There are now a few less than 300 individual dedicated funds. The Highway Fund  is the biggest. The Turnpike fund must be dedicated because specific bonds are backed only by the tolls. But there are many smaller funds as well.

The Japanese Charitable Trust Fund had a balance of $88,887 at last report. In 1905, the government of Japan gave us $10,000 in gratitude for the Treaty of Portsmouth negotiations which ended their war with Russia. Why politicians haven’t scarfed this up yet isn’t clear. Saving up for cherry trees I suppose.

The Public Interest Payphone Fund reclaims abandoned deposits in the name of the state and requires the phone company to occasionally install a “public interest payphone,” a payphone in a place where it might be needed but has little commercial need. You’ll be surprised to know that the fund paid for 5 PIP payphones as recently as 2012.

More likely to be raided are the bigger funds that are less directly connected to their revenue source. We have a special license fee for moose plates which funds a wildflower program among other things. We tax recorded deeds and use the money to fund land and historical conservation. Legislators have shown a willingness — perhaps eagerness — to raid these sorts of funds as needed.

Experience suggests that finding a dedicated revenue source for your program is a speed bump not a road block. A dedicated source — as opposed to a strictly regulatory fee — is simply a tax under another name. We tax deeds for this program, use license plate fees for this, and tax electric companies for something else.

When there is little pressure the money goes where the group who got the dedication wants. But in tougher times, everything competes against everything else. It seems disingenuous to pretend a fund is dedicated. But by the same token does it make any sense at all to say that developmental disabilities programs must fend for themselves in the budget process while the wildflower program is sacrosanct?

I’d prefer to honor the dedication of as many sources as possible but let’s not pretend there is much of a difference between the taxes that fund wildflowers and the ones that fund mental health programs.

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In Budget Debates Ignore Anecdotes and Check The Data

Charlie Arlinghaus

April 29, 2015

As originally published in the New Hampshire Union Leader

Much of the work of state government is in a holding pattern until the state Senate finishes its work on a draft of the budget. This is probably a useful time to remind you that so much of what we think we know isn’t true. It would be helpful to check your data ask your correspondent (the fellow bending your ear and complaining incessantly) if he’s checked his data. If nothing else, it will make his complaints about whatever happens in the budget more compelling.

New Hampshire’s fiscal policy is often subject to competing claims about tax burdens. Usually pontificators on both the right and left are guilty of exaggerating some claims, relying too heavily on anecdotes and adjectives, and rarely checking their facts to see if what someone once told them is still true (well, not me, obviously I’m talking about everyone else).

Describing a proposal as draconian or profligate is often determined by our pre-existing mindset. Adjectives are determined by philosophy rather than facts.

At the center of these ideological divides are taxes, property and income. The more conservative among us are enthralled with our lack of an income tax and don’t talk too much about property taxes (this is the group into which I fall). The more liberal emphasize their desire for “tax reform” and the general burden of property taxation.

Property taxes are among the most hated probably because we notice ourselves paying them. The federal income tax is removed from our paycheck before we ever see the money so it causes less psychological pain. I suspect that if we had to write a check every month or quarter to the feds we would be even more annoyed about income and payroll taxes.

New Hampshire’s property tax burden is the fourth highest in the country, not a badge of honor. However, an interesting study by the Tax Foundation found that from 1999-2009 (the latest data then available) our state and local property taxes increased by much less than most other states in the country. We ranked 41st in property tax growth.

Property taxes are high but not growing as fast as in the rest of the country. In New Hampshire, they are a large amount of the state and local tax burden. But in general, we tax people less than other states do and that fact has remained the same over time. Thirty years ago, New Hampshire’s state and local tax burden was 44th highest in the country. In the most recent year’s study by the Tax Foundation we remain 44th.

A more common area of data free analysis is state spending. Many conservatives will impose their view of Washington on Concord and conclude that New Hampshire is rife with waste, fraud, and out-of-control spending profligacy. This does not appear to be the case.

Comparing this year to last year can be difficult because of relabeling some spending and deciding whether to count actual or budgeted spending, authorized authority or money spent. Over decades, comparisons are more obvious.

Instead of comparing this fund or that, let’s look at all non-federal spending — the money we have to raise with our own taxes and fees whether dedicated, segregated, or mixed in. State money crested $3 billion in the 2004 budget. All non-federal sources were budgeted at $3.12 billion. Eleven years later, the 2015 budget (which ends June 30) has $3.74 billion in non-federal sources (70% of total budgeted spending).

The budget has grown but not as fast as inflation. Adjusted for inflation, 2015 includes $150 million less in state-paid spending than eleven years earlier. By the way, federal spending in the state budget had also increased less than the rate of inflation from 2004-2015. However, the new Medicaid spending makes up for that and all the state savings as well.

There is generally enough in the data to allow you to make the ideological point you wanted to make anyway. Supporters of the overspending theory will point out that state spending is only small because of budget cuts in the 2011 passed budget or because a larger than average recession deflated tax revenues and kept spending wish lists in check. Nonetheless, it’s hard to argue that recent history includes a great deal of out-of-control binge-spending at the state level.

When the next draft of the budget is presented, try to ignore a few of the adjectives and instead check the math.

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State Budget Less Chaotic Than It Appears

Charlie Arlinghaus

April 8, 2015

As originally published in the New Hampshire Union Leader

The state budget seems chaotic after a draft passed the House but the details of the budget and the few large items subject to debate are now relatively clear. The next two months will see significant compromise on revenues and on human service spending with little or no drama about a final House and Senate approved draft and the almost certain though reluctant approval of the governor.

This period of the budget is chaos. As a Republican House drafts something different from what a Democratic governor proposes, numbers are reported comparing budgets to themselves, to the governor’s draft, to last year, to actual spending, to what was proposed but then changed two years ago. The observer is confused, often on purpose.

At this point in time, we should compare the budget to what was spent in the last budget (the two year budget closing on June 30) and identifies the likely decision points as the Senate takes the House draft and turns it into something close to the final product (the Senate and House will still meet in late June to iron out differences but easy agreement is likely).

The portion of the budget spending regular state taxes (as opposed to dedicated fees like the gas tax or federal funds) is the general fund and pseudo-separate education fund. They total about half the budget and the amount spent is guided partially by policy decisions but controlled by the amount of money lawmakers estimate the state taxes will raise.

The governor’s estimates for existing taxes were about $102 million higher than the House Ways and Means committee came up with. In addition, the House decided not to raise any taxes (which seems sensible in this economy).

The governor’s team projected average annual revenue growth of a modest 2.3%. The House foresaw 1.15%. Expect the Senate, with more data available, to have revenue estimates lower than the Governor but $60-$80 million higher than the House had.

Although the House budget makes significant increases to total Health and Human Services spending, two areas have emerged as the most talked about and the most likely to change. The first is “meals on wheels,” the popular in-home support designed to keep seniors out of more expensive nursing homes. Reductions to the budget area that includes meals and wheels funding could lead to significant reductions in that program even if administrators give the program high priority.

Look for the Senate to increase funding but dedicate it specifically to that program while eliminating the department’s current level of budget flexibility. This change will cost about $4 million.

The larger change will be made to the state’s programs for adults with developmental disabilities. The House increases funding by $22 million over what was actually spent in FY14. However, this modest increase (with a second year decline) would not fund existing demand and is $54 million less than the governor proposed.

The areas of developmental disabilities and mental health disorders have long been the highest priority of spending for every legislator of every philosophy. House legislators regarding their budget as a rough draft fully expect this area to claim additional dollars in a final draft. Watch for an increase of about $30 million over two years with a general fund cost of closer to $15 million.

The biggest debate that won’t be a debate right now is over the state’s Medicaid expansion. A decision last year to enact the Medicaid expansion called for in the federal Obamacare law expires at the end of 2016. The governor would like to pass the same law with no changes. The House did not include it in their budget.

The Senate, authors of the expiring plan, will likely negotiate changes perhaps acceptable to the House to at least partially continue the program. However, the decision needn’t be made today and the differences between the House and Senate are too great to include in the budget. This is an argument that can’t be settled in short order and will occur next year.

The House is often unfairly criticized for the seeming chaos of their budget. But completing a different rough draft from the governor in just six weeks is a task bordering on the Herculean. The relatively few areas of change expected and the likelihood of those changes being easily accepted suggests a healthy dose of order behind the chaos.

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The Good, The Bad, and The Ugly of the House Budget

Charlie Arlinghaus

April 1, 2015

As originally published in the New Hampshire Union Leader

The House of Representatives proposed budget in New Hampshire is good, bad, and ugly. It is not draconian by any measure but does represent a difficult struggle to patch together New Hampshire’s fiscal house within existing sources. Not everyone will agree with every decision but too often budget information is sacrificed to the woefully misleading caterwauling that passes for political discourse today.

Every two years New Hampshire has a budget crisis of some degree or another.  The programs and expenditures we currently have grow a little faster than the taxes and fees we use to fund them. Of course that’s an average. In some years, revenues grow a lot faster. Unfortunately we usually spend that money not believing it was an above average year that will soon be counterbalanced.

So most budgets require a reevaluation of programs and priorities. In addition, there are three distinct phases to the budget: The governor’s evaluation and proposals, the House phase, and the Senate sifting of those two competing sets of thoughts with additions of their own.

When the governor and House are of different parties as they are now, the contrast between them is the most striking. It also leads to the greatest political posturing.

The House budget has good points and bad points but it is not some sort of radical cut. In fact, it increases spending faster than the rate of inflation.

The budget includes six or seven different ways to measure numbers and many of them don’t quite compare apples to apples which leads to much confusion. But General Fund spending — the basic category of funding paid for with state taxes — would increase from $2.514 billion in the budget ending June 30 to $2.683 billion in the next budget, an increase of 6.7%. For comparison, the most recent biennium over biennium inflation number is just 2.8%.

Some of that increase comes from shifting $23 million per year in Department of Safety spending back into the general fund so the right apples to apples comparison might be a 4.8% increase, still well above inflation.

Politics being what it is, an increase above the rate of inflation is described in political press releases as slashing cuts. It is true that this budget will spend much less than the governor wanted to spend. But it is an increase over actual spending last year and the year before.

Different legislators will perhaps have different priorities. There will be a significant debate — as there always is — about education funding. The state’s education formula is based largely on pupil counts. In the recent past towns were shielded from the effect of declining enrollments. Adhering to the actual formula would mean towns with fewer students would receive fewer dollars. Some legislators would like towns to never lose the aid they once received. That’s obviously not feasible in the long term.

There are also structural problems with the budget as there usually are with the House budget, the middle step of the three step process.

First and foremost are revenues. A budget is fundamentally a plan to spend the revenue available from the state’s taxes and fees and only that revenue. It is quite sensible to limit spending to existing taxes and avoid increasing the tax burden on citizens in a state that has not yet recovered from the most recent recession.

However, lawmakers should spend tax money and not prop up spending with one-time gimmicks that have little hope of being repeated. Recurring expenses should only be supported by recurring revenue. To do otherwise is to put off a decision and create a problem for someone in the future to resolve.

This budget proposal would use a tax amnesty program, something we can’t do more than once a decade or so, and uses the proceeds not for one-time spending (as I’ve suggested) but uses it to prop up the budget. Worse, it would take $50.8 million from the renewable energy fund and just spend it. The annual proceeds from energy supplier paid credits were just $17m in the most recent year.

So a total of $64 million of the budget comes from one-time revenues that won’t be around next time. That’s a mistake.

You should ignore the political language describing the budget as somehow cutting. It spends more money just not quite as much more as the governor would have preferred. But many of its decisions will have to be reconsidered in the Senate. Think of this as a first draft.

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