Highway Fund Revenue

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HWYFundRevenue88-15

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Key: 

Blue: The Road Toll, or ‘Gas Tax’. This tax generates the largest portion of revenue for the Highway Fund, is raised as a per gallon tax on all gasoline or diesel sold. Revenues are currently falling due to more fuel efficient vehicles using less gas.  However, vehicles are still putting the same wear and tear on the road, meaning expenses for maintenance are still the same. It was increased in 1991 and 2014.

Red: Motor Vehicle Fees (MV Fees). This is the portion of the Motor Vehicle Fee that is collected by the state. The amount paid depends on the weight of the vehicle.

Orange: Motor Vehicle Surcharge (MV Surcharge). This was a charge added on top of the existing Motor Vehicle Fees, that ranged from $30 to $75 depending on the weight of the vehicle. It automatically sun-setted in 2011.

Purple: The I-95 Transfer. In order to get money out of the protected Turnpike Fund, the state sold a 1.6mi portion of I-95 to the Turnpike System. The money was to be paid over a term of 20 years, but was accelerated to be paid in just 6. The total amount transferred, including interest, was 131 million.

Turquoise: Bond Proceeds. Bonds were issued in 2008 and 2009, backed by future Highway Fund revenue. The total amount raised from the issue was $60 million.

Periwinkle: Road Toll Increase (SB 367): This is the revenue raised from the most recent increase in the gas tax. The revenue in the first years was allocated to road work projects across the state, with funds in the later years dedicated to paying off the bonds for the expansion of I-93. This increase is due to sunset, once all of the bonds have been repaid in full. 

Green: Other. This is a catch all for other, minor sources of revenue to the highway fund, such as fines.

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Stagnation Will be Permanent Unless We think Long Term

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Charlie Arlinghaus

March 18, 2014

As originally published in the New Hampshire Union Leader

All too often for politicians the big picture can get lost by paying too much attention to details. The state’s budget season is a poster child for not being able to see the forest for the trees. The difficulty for politicians is that we expect them to simultaneously focus on the big picture and to pay strict attention to the details that threaten to obscure the big picture. However, our future as a state depends less on the particular lines of a spreadsheet and more on long term changes that will affect our future.

The problems New Hampshire faces are well known though sometimes we don’t like to mention them. Once a thriving economy, New Hampshire has degenerated into stagnation. Our job growth has been flat not just since the recession but for the last fifteen years. Competitive states are thriving and adding lots of jobs. We are not.

One sign of our problem is migration. People have moved to New Hampshire for work for centuries. The large French-Canadian population of any mill town is a good example of this. We’ve reached the point where a majority of us are from away. New Hampshire is one of only eight states with a majority of its population born elsewhere and the only one in the Northeast.

For decades we had a significant migration of people coming here for jobs. That dried up and more people are leaving the state than coming here. We’ve seen people fleeing the state in six of the last seven years.

Our job market is and remains quite mediocre. According to the census, more than 106,000 New Hampshire workers commute out of state to their jobs. The lion’s share of them would much rather work in the same state in which they live but our stagnant economy offers them no such opportunity.

None of these trends are things that can be changed overnight. Nor does any one of them have an immediate effect on the budget. One tweak in law won’t reverse the floodgates and immediately create $23 million of budget breathing room.

Any long term change runs into naysayers who are focused only on the items right in front of them. The far-sighted politician wants to do more than just managed to get past the current budget discussion. He or she needs to ignore short term political gratification gains and focus on creating a competitive environment that brings back the jobs that will keep our children in state, change us from out-migration to in-migration, and give more residents the opportunity to work here rather than cross the border.

No politician can pick one item or make just one change to reverse a trend that has been building for more than a decade. There are at least a half dozen areas that hurt us. But let’s discuss the two most important to illustrate the trend.

Our business taxes are among the two or three highest in the country. When the corporate tax rate is 30% higher here than in the median state (Tennessee, which also has no income tax for those scoring at home), we struggle to convince relocating companies that we are a good, low tax state. Yet any tax change is castigated by the short-sighted.

A proposed change that would direct the natural economic increase into rate reductions finds objectors bemoaning the supposedly lost revenue. They would gladly sacrifice jobs in the long term for one or two percent more money in the short term. That’s precisely backwards. If we forsake competitiveness, no amount of money can stop us from degenerating into an economic backwater.

The energy sector is similar. Our electric rates are among the five highest in the country ensuring large electric users pay 40% more here for electricity than in an average state. This would be less of a problem if we didn’t want to attract the manufacturing and high tech companies that use a lot of electricity and pay their workers so well.

Yet the debate on electricity rarely focuses on how to lower rates or how to add more lower cost capacity into the market to put pressure on rates. Instead, most of the debate focus on objection after objection to building anything anywhere. If you want to live in a state with no jobs because no one wants to build anything, we have neighbor states who would welcome you. But for those of us who prefer employment, building things is necessary.

It’s easier to oppose change in the short term but that requires accepting stagnation. I’m not ready to give up yet.

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Legislative Apathy is Biggest Threat to Charter Schools

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Charlie Arlinghaus

March 11, 2014

As originally published in the New Hampshire Union Leader

Over the last twelve years charter schools have become a small but critically important part of New Hampshire’s education infrastructure. Today, they are under threat by a legislative apathy that threatens to starve them to death. Some opponents are content to ignore any problems hoping no one will notice as the schools fight a struggle for survival. Soft supporters are equally guilty of destruction through apathy – one can’t claim to support something and then ignore it to the point of destruction.

From our founding, my organization, the Josiah Bartlett Center, has cajoled and prodded the powers that to be to enact and support charter schools. They are a reform which has done so much good for so many children across the country – bringing alternatives to children whose economic circumstances often leave them with no real choices.

In the end the weak laws of the 1990s were reformed and then-Gov. Benson signed a state charter school law in 2003 which led to the creation of strongly desired and needed schools.

From the beginning, the reform was fought. I was very critical in 2005 when then-Gov. Lynch sat idly by and allow a local school board to maliciously withhold money designated for the state’s first charter school and gleefully watch it collapse, starved of its funding.

That pathetic episode led to structural changes designed to make sure the funding went where it was legally required to go. Nonetheless, time and apathy have led to schools on the precipice.

After one funding jigger in 2008, charter school payments have remained dead flat at $5450. There have been no adjustments for inflation, no study of costs, no help. Charter Schools are public schools and like all public schools may not charge tuition. They have to manage their budget on that $5450.

In contrast, traditional public schools have always been much better funded and have seen their revenue skyrocket. Seven years ago, per pupil spending was $12,766, almost two-and-a-half times the charter school payment. Their revenue has not been flat. Spending has gone up to $16,199 per pupil in 2014 (according to the state department of education).

Bit by bit, charter school funding has declined in relative terms until they now receive just 33% of the amount traditional public schools get. Everyone expects charter schools to be more efficient but to believe they can survive on just one-third of the funding is either dishonest or silly.

The legislature has traditionally eschewed automatic spending escalators. That’s fine but it requires you to make routine adjustments to the payment you expect the school to run on. Keep in mind this isn’t supplemental aid to pay for one or two things. These payments are expected to pay for virtually all of the capital and operating costs of the school.

This pathetic example of apathy suggests a planning problem with state government. For the last five or so years budget writers have known they were ignoring charter schools. Many of them expressed a willingness to address the problem “next time.” But next time never comes. It’s easier just to ignore the problem and figure some else will fix it but not on your watch. Decisions are always easier if left to be made by someone else.

A bill in the House would start to address the problem but in a kind of half-hearted way. It adds $36 to the payment for next year. That’s not a typo. Rather it’s an attempt to pretend to be doing something. In the second year of the budget, the bill would increase the payment by $1000. So at the end of two years, funding would climb to almost $6500 — which will likely be about 36% of what traditional public schools will receive that year.

After a Herculean effort by some House members to try and find a way to pretend they care, they will drag funding from 33% to 36%. It will still be the lowest spending percentage in the country but someone’s conscience somewhere will be salved.

On the other hand, charter schools struggling to survive and parents desperate the keep their kids in the school they love can shrug their shoulders and say “it’s better than a poke in the eye with a sharp stick.”

Charter school opponents can smile to themselves and say “that won’t keep the wolves at bay for very long.” And more apathetic charter school supporters can say “well, we tried to help a little” and then try not to think about it too much.

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Taking a Look at the Governor’s Budget Trailer Bill

Josh Elliott-Traficante

March 12, 2015

The State budget consists of two bills, traditionally numbered House Bill 1 (HB1) and House Bill 2 (HB2). HB1 is essentially a spreadsheet laying out spending levels, while HB2 contains all of the legal language to make it work on the spending side, as well as any changes needed to the tax code on the revenue side. Most of the 117 items contained in the Governor’s bill are technical details, but inevitably some new policy makes it in as well. Below are some of the major changes, and all of the tax and fee increases included.

Major Policy Changes:

Certificate of Need Repeal Delay:

The Certificate of Need (CON) is a state board which oversees healthcare providers’ major capital expenditures. Any major capital projects proposed by a healthcare provider, such as adding more beds, building new buildings, or offering a new service, must be approved by the CON Board. In theory, the CON was supposed to bring the cost of healthcare down, but has never been shown to do so. The repeal was first due to go into effect in 2014, but that was pushed off in the last budget to 2016. The Governor has proposed extending the repeal out again, this time to 2018.

Municipal Bridge Aid Calculation Change:

In order to assist municipalities with the very expensive task of replacing bridges, the Municipal Bridge Aid program, administered by the Department of Transportation, pays for a large portion of the costs. Currently 80% of bridge costs are borne by the state, with the balance (20%) paid for by the city or town. The change would increase the state’s share to 85%, and lower the municipal share to 15%. However, in her budget, Governor Hassan eliminated funding for the program.

Continues Medicaid Expansion:

The Governor has proposed repealing the automatic sunset of the Medicaid Expansion program. Repeal of the sunset clause would allow the program to continue on as it does today.

Changes in Medicaid Eligibility:

With the state’s Medicaid program creating budget problems, the Governor proposed moving pregnant women and children above 133% of Federal Poverty Level (FPL) off of Medicaid and on to the Exchange. From a state budget view point, this means going from paying half the cost of covering a person through traditional Medicaid, to paying nothing. By putting those above 133% of FPL on to the Federal Exchange, they qualify for subsidies to help underwrite the cost of purchasing private coverage. Those subsidies are paid for by the Federal government, not the state.

State Aid for Education:

The cap on Adequate Education Grants would be lifted from 108% of the prior year, to 115%.

Chief Operating Office:

The Governor has proposed the creation of a Chief Operating Officer for the state. Duties would include “coordinating and implementing statewide efforts to monitor, oversee, and improve the operating efficiency, customer service, and transparency of state government activities.”

Tax and Fee Increases:

Boat Access Fee: +$5. The increase is dedicated to the Fish and Game Fund.

Pesticide Product Registration Fee: +$40: Increases fees for pesticides and increases the percentage (from 10% to 15%) of the revenue that is dedicated to the Integrated Pest Management Fund.

Tobacco Tax: Increases tax by $0.21 per pack on cigarettes, and increases the tax rate for non-cigarette tobacco products by 9 percentage points (from 65.03% to 73.94% of wholesale) It also extends the tax to e-cigarettes and cigars for the first time.

Business Profits Tax: An increase the reasonable compensation safe harbor to $100,000, but puts the burden of proof onto the business owner making the deduction. Current law puts the burden of proof on the state to prove the deduction amount is unreasonable.

Business Profits Tax, Off Shore: Targets businesses based in countries or territories designated as ‘off-shore tax havens.’ Change would eliminate the deduction of distributed dividends against the business tax liability. 

Motor Vehicle Registration Fee and Certificate of Title Increases: Across the board increases in the state portion of the MV Registration fees and Title fees. Taxed for the first time are Road Oilers and Ski Area vehicles. The fee for registering a mid-sized car would increase by $15.

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Price Controls are Still Bad

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Charlie Arlinghaus

March 4, 2014

As originally published in the New Hampshire Union Leader

Among politicians, price controls are a bad idea unless they’re your idea. In truth, the government setting prices is never the right solution to a problem.

Those who would have the state government set and control prices in the workers’ compensation part of health care should remind themselves that they were opposed to government price controls five years ago when it was then-Sen. Maggie Hassan’s idea for a hospital price fixing commission. They were right then. They should listen to their old selves now.

Employers looking for ways to reduce the cost of doing business in New Hampshire have looked to possible reforms in the workers’ compensation system. Workers’ compensation is the successor to Otto von Bismarck’s sickness and accident laws. It is a mandatory system of employer paid insurance to cover workers’ temporary and permanent disabilities.

Compensation costs are divided between a medical benefit and cash benefits for lost work time, known as indemnity. Many states looking to lower costs have merely dictated that medical benefits be reduced according to government price controls. In essence, a fee schedule for at least some costs is adopted at a lower rate than had been paid. New Hampshire is considering having the government set prices.

According to data compiled by the state of Oregon, New Hampshire’s costs are the 12th highest in the country (a slight improvement from ninth highest two years ago). The bad news may be that our costs are above average, but the good news is that we’re improving rapidly.

According to the National Academy for Social Insurance, which does an annual report on costs, from 2008-2012 (the latest data) New Hampshire saw workers’ compensation costs decline by 8.5 percent when the country as a whole increased by 5 percent. At a minimum, we’re doing something right.

What we’re doing right is not having price controls and having a robust system that allows timely access to care and dramatically reduces indemnity costs by getting people back to work faster. Nationally, benefits are half medical, half indemnity ($30.8 billion, $31 billion). In New Hampshire, indemnity or cash benefits are only 34 percent of total benefits ($77 million) with medical benefits making up $152 million, or 66 percent.Imposing government price controls on the medical side of benefits will increase indemnity costs. The University of Washington School of Public Health studied California’s expensive system and found that “access barriers increased the duration of compensated lost time by approximately 60 percent.”

We know that price controls will reduce access. In fact, the New Hampshire Medical Society found in an online survey that 96 percent of its responding members will opt out of workers’ compensation if price controls are adopted. The real number will be smaller, but access will be affected and indemnity costs will rise. We’ve seen this before in New Hampshire.

A plan 25 years ago to place artificial caps on prescription drugs in mental health led to a small decrease in drug costs and a huge increase in hospitalization. The drugs were reducing the need for more expensive hospitalization. I suspect that in workers’ compensation, access and competition are reducing indemnity costs.What can we do? We want to preserve what’s working well. New Hampshire was one of only 16 states to see costs decrease from 2010-2012. And as noted before, we’re down 8.5 percent when the country is up 5 percent. Those are good trends.

There are some medical outliers, though. The way to eliminate the high-cost outlier is through transparency. If we don’t know what providers charge, we can’t know who’s high and low. A database with all payers, including the self-insured and privately insured, will help insurers decide where to go. This again is something New Hampshire has experience with.

The state’s health care plan includes a tool called “Compass” that allows members to save themselves out-of-pocket costs and find more competitive providers for the same procedure. In the last four years, this program has saved millions of dollars and directly and indirectly forced other providers to become more competitive.

In workers’ compensation, this same level of transparency doesn’t exist. Because it is illegal to compare prices (collusion is an anti-trust violation), high-cost providers don’t know if they are particularly high. If a transparency site shows you that you’re an outlier and you know that customers can easily find out too, you will lower your costs to be competitive.

New Hampshire is one of the few states moving in the right direction. Instead of hurting that progress with government-mandated price controls, let’s try and improve competition.

– See more at: http://www.unionleader.com/article/20150304/OPINION02/150309679/0/SEARCH#sthash.ITgy4g06.dpuf

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Delayed Decisions are Difficult Decisions

Charlie Arlinghaus

February 25, 2014

As originally published in the New Hampshire Union Leader

The decisions a politician makes this year will have an impact next year, particularly as it relates to the budget. Nonetheless, most politicians ignore short term consequences and pretend the future doesn’t exist. The logical outcomes of choices they make are often ignored and many decisions are delayed for a year or two as a way to avoid them.

In the state’s budget process, putting off decisions seems to haunt us every two years. In general, politicians are expected to balance current levels of spending with the revenues they raise in the same budget. But enough games and gimmicks are available that clever budget writers can cover up holes until they become much bigger two years later. They then feign surprise and look for a new gimmick.

The classic example was the budgeting of 2009 and 2010. Happy budgeters of that era will misleadingly tell you that the budget of those years was “balanced.” What they don’t mention is that lawmakers, desperate to avoid making decisions, propped up then current spending levels with odd doses of borrowed money (among other things we borrowed money to pay for our borrowing) and two special federal stimulus programs which allowed them to prop up spending with one-time federal grants.

The problem with such one-time props is that they vanish and leave a bigger hole next year. The program you didn’t really have the money for doesn’t go away. It exists again next year at an even larger level and you still don’t have the money for it. The decision you tried not to make was merely delayed and made more problematic.

The bad decisions of 2009 and 2010 illustrate this in spades. Lawmakers coming afterwards faced what they (and I) called an $800 million deficit. It wasn’t a retrospective deficit (money already spent) but rather a prospective deficit. The amount represented how much spending levels would exceed revenues in the next year if nothing were done.

That astronomical problem is a good example of what lawmakers can face many years when they put off some decisions. This year, there are a handful of problems that combine to force lawmakers to roll up their sleeves. First, the budget passed two years ago spent more than it took in. It used $57 million in surplus funds left from the prior budget.

After that surplus turned out to be larger than expected, the executive branch overspent its budget and created additional problems. Each of those two overspending problems carries forward into this budget and creates a hole that has to be adjusted for.

Third, changes to the hospital tax often called mediscam created a lawsuit that had to be settled. Requiring that money to be spent for its stated purpose was a predictable and delayed outcome but creates close to $100 million of spending issues.

Lawmakers are being forced to make decisions to deal with each of these issues and make sure current levels of spending are supported by regular revenues not gimmicks.

A second kind of issue is the one that relates to charter schools. The state has a public charter school program (and I support more options for more children) but funding continues to be an issue. Charter school funding has been a fixed dollar amount that doesn’t adjust at all for inflation. So lately we’ve ignored the issue and hoped charter schools could figure out how to operate on less and less. Without a change they will be asked to operate on less than one-third of the spending in traditional public schools (which have per pupil costs of a little more than $16,000).

Of course that’s silly and has to be changed. Each year we choose to ignore the problem the discrepancy becomes larger and larger and the solution become bigger and bigger. This again is symbolic of the problems budget writers face when their predecessors ignore a problem. The problem doesn’t go away but fixing it becomes harder.

The House currently has to come up with a budget almost from scratch (they don’t really have a workable draft to start from). They will have to make all the decisions that have been delayed. With less margin for error, the problem is, in some ways, as hard as it was four years ago. We will all be annoyed by some decisions they make. But we have little to complain about. Delaying and doing nothing made these decisions difficult. All we can ask now is that someone step up and do the job.

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Hassan’s timid, meaningless budget

Charlie Arlinghaus

February 18, 2014

As originally published in the New Hampshire Union Leader

Timid politics makes for bad budgeting. A case in point is Gov. Maggie Hassan’s proposed budget, which isn’t even a good first draft for the Legislature. It is a hodgepodge of mediocre ideas with a little money sprinkled here and there to get her through the speech. But there’s nothing bold or interesting. The speech isn’t even the starting point from which others can work.

The best example of passing the buck is the proposed creation of a new chief operating officer. It is a weird proposal mixed in with a good one. Consolidating small licensing functions into one office so there aren’t dozens of one- and two-person offices is quite sensible. But the creating of a new über executive is quite bizarre.

To begin with, the governor is already chief operating officer of the state. If we hire someone to do her job for her, we would need to stop paying her. The title is ridiculously grandiose for a staff member designated to root out inefficiency.

The governor already had an efficiency commission (sorry, innovation and efficiency; we can’t do anything without adding the word “innovation”). It would have been reasonable to include more of their recommendations in the budget.

But creating an executive senior to everyone except the governor, doing the job the governor’s supposed to do, and with a title that makes him or her seem like a viceroy, is all politics and no substance. In fact, it’s quite similar to the time-honored dodge of creating a commission. The commission helps you avoid responsibility and gives you someone to blame for the recommendations.

A so-called chief operating officer is worse. It sends a clear message: “I want someone else to do the work and be held responsible so I don’t have to be.” This proposal should and will vanish quite quickly.

Every governor always touts having presented a balanced budget even though balance is required by law. The governor went further with some gobbledygook about it being smaller than the 2004 budget. Hogwash. Since that time, hundreds of millions of dollars that used to count as general fund spending have been relabeled as non-general fund. The spending didn’t go away, it was merely relabeled. Politicians need to stop pretending ignorance of that fact.

If you compare apples to apples, spending increased over the last decade by hundreds of millions of dollars. In fact, when you include all funds — federal and all categories of state money — the budget increases by $947 million, nothing to sneeze at.

On tax policy, the governor’s actions were predictable and disappointing. Her revenue estimates are significantly higher than the House’s. When you balance your budget using estimated revenue, every increased estimate is an additional dollar you get to spend.

The two biggest tax increases are old standbys of hers and her predecessor’s. For the better part of the last decade, the two of them turned time and again to raising cigarette taxes. Everyone knows the cigarette tax is among our most regressive taxes, falling much more heavily on the poor. But poor people who smoke are somehow fair game.

And don’t let anyone offer a canard about kids smoking. This is about revenue, pure and simple. In a period of rampant cigarette tax hikes, youth smoking in New Hampshire declined six points, the same amount as the country as a whole.

Speaking of regressive taxes, the other major increase is to car registrations. A flat fee, no matter who you are or how much you have, isn’t exactly progressive. But increasing a fee sounds more palatable than, say, raising the gas tax would. It’s not good policy, but timid politics never are.

Finally comes innovation. Extending the MBTA train over the border is very innovative in a 19th century sort of way. Even that has no money. We’ll spend $4 million up front and then hope for a miracle. Massachusetts, in the middle of a budget crisis that has seen significant cuts to the MBTA, is being counted on for $96 million. That seems optimistic, no? For the rest, the governor is hoping for “public-private partnerships,” a wonderfully meaningless phrase.

So much of the budget amounts to talking points designed to get through the speech, but not designed as building blocks for change. In football, they call this punting.

 

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The Business Profits Tax Affects Everyone

Charlie Arlinghaus

February 11, 2014

As originally published in the New Hampshire Union Leader

The vast majority of businesses in New Hampshire are non-employers. Interestingly, just 10 percent of firms account for 95 percent of the jobs. As states across the country and the region look to increase competitiveness by lowering business profits taxes, these numbers become very important. But the most important reason to lower taxes is to be competitive in attracting new jobs to New Hampshire.

Naysayers have tried to argue that the business profits tax affects few people or few businesses, but those claims are based on a poor understanding of businesses in New Hampshire.

The Bureau of Labor Statistics and the Census collect data regularly on businesses in the 50 states. In 2012, there were 132,800 businesses in New Hampshire. The lion’s share of them (more than 100,000) are “non-employers.” A non-employer might be a sole proprietorship or a nominal business created to account for a small sideline of self-employment income. That sector does account for a small fraction of overall employment, but only about 2 percent of the total employed population.

Of the 30,500 firms with employees, most jobs come from a small number of companies. The 4,900 firms (3.7 percent of the total) that have at least 20 employees account for 80 percent of the jobs. If we expand that universe to every employer with at least five employees, it includes 13,500 employers (about 10 percent of the total number of firms) and 95 percent of the jobs.

Not coincidentally, those employers representing 95 percent of the jobs approximate the number of firms that pay the business profits tax. Last year 15,865 firms paid the business profits tax. That’s a 10-year high. The lowest number of the last decade was 11,375 in fiscal year 2011.

It is reasonable to presume a significant overlap between the 13,500 firms that have 95 percent of the jobs and the 15,000 taxpaying firms. In that respect, we can conclude that the business profits tax affects nearly all the jobs in the state.

From an economic development standpoint, we are interested in businesses that employ people. We know that the business profits tax will have an impact on virtually every business that employs people.
Lowering the business profits tax becomes essential because all of our competitors are looking to attract those same jobs to their state. Businesses across the country and the region know that a lower corporate tax is a visible and tangible signal to companies to come and do business. While the rate is important, the act of becoming competitive sends a strong message about the state’s mindset.

Last year, New York state embarked on major reductions that reduce complexity and loopholes as well lower the rate to its lowest level since 1968 (6.5 percent). Those changes could ultimately affect the state’s standing in the corporate index rankings of the Tax Foundation, moving New York from 25th to 4th. New Hampshire is 48th in that category.

Massachusetts lowered its top corporate tax rate three times (in 2010, 2011 and 2012), reducing it from 9.5 percent to 8 percent. “Taxachusetts” now has lower business taxes than we do and is eating our lunch in the contest for jobs.

Not to be left out, Maine is looking to make a change. Long the economic doormat of the region, Maine’s governor wants to eliminate the highest corporate rate of nearly 9 percent and lower the top rate to 6.75 percent.

Surrounded by tax cutters in Massachusetts, Maine, New York and Rhode Island, New Hampshire could emerge as an island of high rates surrounded by a sea of states putting out welcome signs for business. How’s that for a historic reversal?

Some policymakers will avoid lowering taxes for everyone and instead focus on a deduction here or waiving taxes for new businesses for a short term. That would be a terrible mistake. Tax reform involves creating an incentive for everyone, not some legislators picking and choosing winners and losers to pretend they did something at minimal cost.

New Hampshire has a history of keeping its laws as simple as possible, not creating a tax code with exceptions and exemptions. 

Lowering the business profits tax helps in several ways. It covers virtually all the businesses in the state that employ Granite Staters, and it offers equal treatment for new companies we hope to attract and old companies we hope to keep.

It also is the most visible and effective signal that this state (or any other) can send to the economic development world. That’s why every state is getting ahead of us. Let’s not fall behind.
 

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The Governor’s Budget Address Starts Everything

Charlie Arlinghaus

February 4, 2014

As originally published in the New Hampshire Union Leader

February is that exciting time of the year when the governor gives us a special valentine in the form of her budget address. Much better than candy or flowers, it is an outline of the two-year state budget – the policy document that guides every little thing the government does and defines an administration. With government currently divided, we should listen carefully to see if this critical address is meaningless theater or the first step toward something constructive happening despite political antagonism.

The areas we should all watch relate to economic development, budget gimmicks, and whether the budget will be really balanced or rely on one-time revenues and settlements.

By now, everyone realizes that the top priority for the state, Republicans and Democrats, liberals and conservatives, is economic development. Jobs have been stagnant for 15 years and people rightfully fear that we will never regain our competitiveness.

While there is disagreement about what needs to be done, everyone agrees that now is not the time for half measures. The governor should step forward and prove she is serious with serious initiatives. One of the things I’ve suggested is to lower the highest marginal tax rate – the billboard price of doing business in New Hampshire. She’s unlikely to agree but that’s all right. I’ve said for years that we have to do more than a few things, not just one.

She needs to make serious proposals and explain how they will make a difference in our competitiveness. The one thing that can’t be at the center of her plan is a train. Whether the train is a sensible idea or not (financially it’s not in my book but perhaps you knew that), it is a marginal proposal that occupies a small niche. It’s not the centerpiece of economic development.

We have a real problem and we need solutions. Propose your silly train but don’t try to pretend that’s a plan. Give us some real ideas. We are uncompetitive on taxes and they can be changed right away. But let me also vote to move energy up the list and focus on price not weather stripping.

In addition, the business of budgets matter. Budgets are harder each year because we did less of the hard work the one before. Each budget for a decade the various parties in control have suspended the state budget law that requires surpluses be placed in the rainy day fund. Consequently we have almost no money in reserve.

What’s worse, we generally achieve pseudo-balance in weird ways. The ridiculous gimmicks (like borrowing money to pay for our borrowing) of 2008 and 2009 have gone for good but there are still gimmicks to be had and avoided. The short version of the rule ought to be that general spending will be balanced by regular general revenues. Dedicated funds need to stay dedicated lest you be accused of lying about the purposes. One-time revenues need to be spent on one-time expenses not used to prop up spending you can’t pay for.

The governor will likely endorse Sen. Sanborn’s idea of a tax amnesty holiday but that’s a one-time remedy not an annual occurrence. Annual spending must only be supported with annual fees and annual taxes. She should also endorse his idea of not spending on recurring operating expenses.

The last budget was only sort of balanced. Its revenues and its spending didn’t match. Instead it used the surplus remaining from the prior budget and spent it down over time. Lawmakers will always have those temptations but they must avoid them.

Honest estimates of regular revenues should be balanced by a spending budget that the executive branch will and can enforce. We have some remaining holes this year because the administration let spending get away from the budget. Those holes should be plugged but then let’s be honest about whether the spending estimates are realistic and will or can be enforced.

A supposedly temporary gimmick one year becomes a hole the next. Worrying about every detail every year keeps problems under control.

Most important, a sensible budget will allow us to focus on the real problems New Hampshire faces: why is our economy stagnant and what can we do about it?

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New Hampshire Must Stop Living in the Past

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Charlie Arlinghaus

January 25, 2014

As originally published in the New Hampshire Union Leader

What you think of New Hampshire is almost certainly wrong. Most of us are living in the past and think of this as a vibrant and competitive state. It isn’t. The truth is that, economically speaking, we are increasingly a mediocre backwater stuck with a stagnant economy and lacking the political will or self-awareness to do anything much to make ourselves more competitive. The future belongs to the bold and we live in the land of the timid.

Too many people in New Hampshire live in the past. Many of us remember the huge economic booms of the 1970s and 1980s and think reality is unchanged from then. For a long time, New Hampshire boomed as Massachusetts stagnated. But that was then, this is now. Our economy is not growing, it’s stagnant. We’re not competitive, we’re mediocre.

As recently as fifteen years ago, economists described New Hampshire as “the envy of its neighbors.” It was a common truism to say that New Hampshire led the region out of the recession. Jobs lost elsewhere were reopened here. But that dynamic is now true in Texas not New Hampshire.

Prof. Mark Perry writes my favorite economic blog, Carpe Diem (doesn’t everyone have a favorite economic blog?). He published a startling chart I now steal for all my presentations. In the last seven years, the state of Texas has seen 13% employment growth or 1.4 million jobs. The rest of the country combined is still 275,000 jobs short of their pre-recession peak.

New Hampshire used to be as vibrant as Texas. Our growth in the 1970s, 1980s, and even 1990s was faster or equal to Texas. But our graph lines have diverged. They’ve grown 1.4 million jobs, we’re still down from pre-recession levels. They’re vibrant, we’re pathetic.

The last fourteen years, the new century, we’ve deteriorated into a flat line – not even a pale imitation of our former selves. In the 1980s jobs grew 27%. In the 1990s they grew 18%. In the decade and a half since 2000, we’ve grown by just 5% — not enough to keep up with the population or to keep people in state.

Even Massachusetts has left us behind. They aren’t exactly thriving but while we have yet to get back to our pre-recession jobs, they’ve grown by almost 4% in the last seven years. That’s better than our zero in the same period but pales by comparison to Texas’s 13% boom.

No wonder 106,000 people commute from New Hampshire every day to their out of state jobs. In a distressing signal, this is a 12% increase from 20 years ago.

The problem is that most politicians live in the past. They speak nonsensically about some vague and ill-defined “New Hampshire Advantage” – a term coined for political campaigns of the 1990s – and apply it to every aspect of political debate.

To be sure, the Tax Foundation still ranks us in the top 10 in overall tax burden but largely on the basis of having neither a sales nor income tax. Those advantages attract and keep some businesses here but by themselves they aren’t enough to keep us from being left behind in the fight for jobs.

The total cost of doing business in New Hampshire is too high. There is not one thing to change but rather everything. Anything that increases costs helps us lose.

To change, we need to do something or resign ourselves to a future where we look like Vermont and Maine and encourage our kids to all move to Texas where they might actually find a job.

Uncompetitive business taxes are something we can start addressing immediately. Massachusetts cut

Its highest marginal rate to 8% while ours languishes at 8.5%. I believe it should be unconstitutional for our tax rate to be higher than Taxachusetts in anything. The median state (Tennessee which also has no income tax) is 6.5. To be in the top 10 we’d need to be at 5. It’s time to start moving in that direction or give up. By the way Texas has no business profits tax.

Similarly as we increasingly fret about building any energy infrastructure anywhere, our electric rates are shockingly high. Our average rate of 18.08 cents is 43% higher than the national average and 74% higher than our no-income-tax friends in Tennessee. We’re also 50% higher than Texas.

None of this is a problem unless we want to attract jobs that use electricity like manufacturers or high tech companies.

It’s time for us to get over ourselves and stop living in the past. There is no question that we are becoming a stagnant backwater. The only question is whether or not we want to do something about it.

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