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

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

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

 

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Time is running out for statewide housing reform this year

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New Hampshire’s critical housing shortage has emerged as the No. 1 impediment to state economic growth, and the legislative session could end with no substantial progress on the issue. 

In Concord, there is broad agreement that housing is a serious problem. There is little agreement on solutions.

Paralyzed by a widespread reluctance to place legal constraints on local governments, legislators have killed or watered down bills drafted to address the primary cause of the shortage: local planning and zoning ordinances. 

Senate Bill 400, intended to be the major housing reform bill of the year, never offered the sort of sweeping changes that would fix the local regulatory problem. But the most significant changes it did offer were removed last week by the House Municipal and County Government Committee. 

The committee even added language designed to exempt suburban and rural communities from the state’s current mandate to allow housing for lower-income families. 

This follows the Legislature’s rejection of previous bills to prohibit excessive minimum lot sizes and allow small multi-family housing (up to four units) in places served by municipal water and sewer. 

Deference to local governments has not been the only obstacle. The House Municipal and County Government Committee removed from SB 400 a state program to reward communities that allow more housing. 

In the bill’s proposed New Hampshire Housing Champion Certification program, municipalities that adopt ordinances to promote new housing development would be eligible for increased state infrastructure funding. 

An absence of a substantial legislative fix would leave Gov. Chris Sununu’s proposed InvestNH Housing Fund as the only statewide plan. The governor has been a strong and passionate leader on the housing issue. Working within his authority to manage COVID relief money, he’s proposed spending $100 million in federal American Rescue Plan Act (ARPA) funds to create incentives for new housing development. 

That effort was stalled in the Executive Council after objections from affordable housing advocates that the money wasn’t reserved for below-market developments. 

This obsession with steering the housing market toward lower-priced units via government intervention is yet another factor that has contributed to the state’s critical shortage. 

Developers need to make a return on their investment. When government insists that a portion of a development be sold or rented at below-market rates, that discourages new construction. In New Hampshire, town boards even use “workforce housing” quotas to kill projects they don’t want, as they know that these quotas can make projects unprofitable. 

The governor’s plan would allocate $60 million to developers to encourage multi-family housing projects, $30 million to municipalities to encourage the issuance of new housing permits, $5 million to municipalities to study improvements to local planning and zoning ordinances, and $5 million for the demolition of vacant or dilapidated buildings. 

The money to municipalities is directed at overcoming real obstacles by changing the incentives local boards have. Right now there is very little incentive to approve new projects, largely because of vocal opposition fueled by misinformation about the impacts of new housing on local communities. These municipal-directed dollars would offer incentives to move town boards in the right direction.

The seed money for new development would not work the same way. Developers already have every incentive in the world to build, especially in the current market. Developer financing is not a major obstacle to new housing development. Municipal ordinances are. 

The $60 million could cover some lost profits of developments with below-market-rate units. But once that subsidy goes away, those rents will rise to market rate. In any case, subsidizing new development is not necessary, as financing for housing is readily available in the private sector. 

Local ordinances are the problem, and so far, legislators have proven reluctant to approve statewide solutions that limit local authority. Creating better incentives for local governments to approve more housing would be a good option. Unless legislators change course in the next three weeks, the governor’s proposal will be the last statewide solution available this year.

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From vaccines to banks, N.H. sees misguided efforts to restrict freedom in the name of liberty

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“While the talk is about free markets and private property—and it is more respectable than it was a few decades ago to defend near-complete laissez-faire—the bulk of the intellectual community almost automatically favors any expansion of government power so long as it is advertised as a way to protect individuals from big bad corporations, relieve poverty, protect the environment, or promote ‘equality.’”

— Milton Friedman, introduction to “The Road to Serfdom” 50th anniversary edition, 1994

 

The right-of-center movement in the United States is shifting toward statism in a way even many of its self-proclaimed liberty activists don’t realize. 

Responding to relentless left-wing provocation, people on the right think they’re defending liberty by using the state to block or punish private-sector actions they dislike. Instead, they’re expanding state control over private behavior. 

The “Live free or die” state is not immune to this shift. Here, lawmakers who believe themselves to be righteous champions of liberty are trying to extend state control over private contracts and decisions. 

To pick one example, consider House Bill 1210, relative to exemptions from vaccine mandates. The bill requires any employer that receives any public funds, including grants or contracts, to allow a “right of conscience” exemption from vaccination.

Framed as a defense of individual liberty, the bill actually would reduce liberty. 

If enacted, it would weaken the right of free individuals to associate only with others who accept their dedication to fighting infectious diseases through vaccination. 

Vaccination status is not an immutable characteristic like race or sex. It is a choice, and not a purely individualistic one. It can have profound, even life or death, consequences for others. 

Were the bill to pass, health care facilities such as nursing homes and hospitals would be required by law to hire employees who refuse to vaccinate themselves against any and all infectious diseases. The bill covers all vaccines, not just those for COVID-19.

The bill restricts freedom of association in the name of “bodily integrity.” But someone who refuses to vaccinate is making a choice to give up bodily integrity. 

A virus is a foreign living organism that invades a body and uses it as a host. Viruses cannot replicate by themselves. They infect host cells and use them for reproduction, usually killing them in the process. Vaccines are designed to protect cells against invasion and destruction by alien organisms. Their purpose is to preserve bodily integrity. 

Viruses aren’t libertarian. They’ll infect anyone they can. People have a right to choose to associate with others who agree to vaccinate. This bill would violate that right in pursuit of a non-existent right to join a group without agreeing to its terms.

Conservatives can easily see that it would be a violation of individual rights for the state to require religious employers or ideological organizations to hire anyone regardless of their beliefs. This bill violates the freedom of association in a similar way. 

Should HB 1210 become law, a cancer patient would be unable to seek medical care in New Hampshire in a facility with a fully vaccinated staff. That’s not protecting people’s rights. It’s forcing people to associate with others who might be a danger to themselves.

The libertarian saying that your rights end where my nose begins applies here. Going unvaccinated (or not) is not a lifestyle choice like getting tattooed or piercing one’s nose. It can have a direct, potentially catastrophic effect on others. And others have a right to protect themselves against that through their associations.

Like House Bill 1469, which seeks to restrict the free association rights of all New Hampshire businesses under the guise of regulating banks, HB 1210 would expand the power of the state to regulate economic transactions in new ways. 

Supporters of such market interventions honestly think they are taking steps to protect individuals. But they’re mistaken. Unwittingly, they are moving to empower collectivism and weaken the liberty of the individual. 

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The dangerous impulse to make people do business with your friends

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Using pressure tactics or government regulations, progressives have sought to banish from the market business activity they dislike. Some Republicans have responded in kind.

In New Hampshire, House Bill 1469 showcases a Republican effort to cement culture war preferences in law. It offers a case study in regulatory overreach.

The bill creates a list of “prohibited acts for banks, credit unions, and businesses.” The list is long, vague and broad. And despite the title, the bill regulates every New Hampshire business, not just the financial industry.

HB 1469 labels as “discrimination” many non-financial reasons for not doing business with someone. 

Among the prohibitions: No financial institution may “discriminate against, impose as a precondition, advocate for or cause adverse treatment of, any person, business, or organization in their business practices” based on “ideological, philosophical, or political views and opinions” or other enumerated non-financial criteria.

The non-financial criteria include “social media posts; Internet browsing history, dietary habits, medical status, participation or membership in any clubs, associations, or unions, etc.; political affiliation; or place of employment or source of legal income.”

The bill would write similar language into the state’s Consumer Protection Act. The Attorney General’s Office testified that this  would “regulate all businesses” in the state, something sponsors did not appear to intend.

Thus every decision not to transact business would be open to potential civil rights litigation on the grounds that it might have been tainted by a non-financial consideration. 

In going after “woke” global corporations, HB 1469 would treat small New Hampshire businesses the way the Colorado Civil Rights Commission treated a Christian cake baker — as pawns in a broader culture war. 

Such a sweeping regulation of private business activity could be seen as justified if Granite Staters had access to only one bank. But they can choose from hundreds of financial institutions. 

New Hampshire has 16 state-chartered banks, eight state-chartered credit unions and 34 state-chartered trust companies. That’s in addition to 783 federally chartered banks, including many that are online-only and process applications in minutes. 

If one or 10 or 50 banks decide not to do business with center-right customers in a center-right country, competitors would immediately take up that business. Fear that conservatives will lose all banking privileges is overblown.

There is no shortage of financial institutions willing to take Americans’ money. And there is no shortage of entrepreneurs who would be happy to get rich by lending money to gun owners, meat eaters and other practitioners of great American pastimes. 

But there is a shortage of states where legislators resist the temptation to let people resolve their differences peacefully in a free and open marketplace. New Hampshire is one of the few places where leaving people alone is a cultural value. Kill that here, and the consequences will be a lot worse than some bank deciding to lose money by shrinking its customer base. 

Some Republicans think they need a law to protect them from businesses run by Democrats. But the market already does that via competition. Expanding business regulations so broadly will only give left-wing activists another tool with which to control businesses once their allies return to power, which is inevitable.

When that happens, conservatives will want to be able to argue against such proposals on free-market grounds. Regulating the political motives of every business transaction will do more than topple Republicans from that moral high ground. It will amount to abandoning the hill and destroying it. 

The state banking commissioner testified that the department has received no complaints of political discrimination in banking. Given that, a less burdensome alternative is obvious, if lawmakers feel that they have to “do something.” Task the department with collecting consumer complaints about discriminatory practices and reporting those complaints annually to the Legislature. 

If financial institutions begin to systematically turn away right-of-center customers and business partners, this will show up in the data. If those customers are unable to find other institutions willing to take their business, then lawmakers could consider an appropriate legislative remedy. 

In the meantime, legislators might want to consider the wisdom of a recently departed Granite Stater who cautioned that “there are just two rules of governance in a free society. Mind your own business. Keep your hands to yourself.”

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The Burgess Biopower ratepayer money pit

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If the Burgess Biopower plant in Berlin closes, New Hampshire electricity customers will save money. The state’s shrinking timber industry (and the City of Berlin) will lose money. 

The Legislature is again faced with the prospect of choosing sides. And again a proposed bill would side with the timber industry, not ratepayers. 

It’s a long and complicated story. Let us explain. No, that is too much. Let us sum up. 

The plant burns wood pulp, largely but not entirely from New Hampshire. Eversource buys power from the plant at above-market rates mandated by the state. 

These higher payments are not to support “green energy.” The plant is just a conduit for funneling money to the timber industry. It exists to create a market for New Hampshire wood pulp. It’s a jobs program, not an environmental program.

But it’s a jobs program funded by a mandatory rate increase on Eversource customers. That’s highly regressive and economically harmful. Low-income families pay more for electricity, as do employers.

To reassure the public that this wealth transfer scheme wouldn’t get too out of hand, the state capped total above-market customer payments to the plant at $100 million. Whenever the customer overpayments pass the $100 million mark, the plant has to reduce its prices so that ratepayers recover the difference within the next 12 months.

Thanks to falling natural gas prices, the cap was hit several years ago. So the Legislature intervened again and suspended the cap for three years. That suspension ends this November, at which point the plant will have to lower its rates to let customers recoup the last three years’ worth of overpayments.

Uh oh.

Eversource estimates the three year total to be $58.8 million by the end of November. If the plant must repay that within 12 months, it will have to close, its officials have testified.

The state has a few options. 

It could amend the agreement to let the plant repay the money over a longer period of time. This might not save the plant in the long run, but it could buy time (assuming the plant can afford to rebate the money at all). 

It could directly subsidize the plant with payments from the General Fund. 

It could let the plant close. That would save ratepayers an estimated $2.50 to $3 a month, according to the Department of Energy. Large customers (employers) would save much more.

Or it could pass a law to basically forgive the $58.8 million in customer overpayments. That’s what Burgess Biopower says Senate Bill 271 would do. 

The bill might do more, though. It states that “any and all legislative relief provided to the Burgess BioPower plant shall be deemed to be reasonable, legitimate, and in the public interest….”

Any? 

Through the end of 2021, Eversource customers have already paid more than $150 million in above-market rates for electricity generated by the Burgess Biopower plant. The plant cost a reported $275 million to build. But ratepayers don’t own 54% of a power plant. They just threw their money away. Well, the state threw it away on their behalf.

It’s likely that by the end of the 20-year contract, the overpayments will total more than the plant cost to build. And that doesn’t include the above-market payments for Renewable Energy Credits that are mandated by the agreement.

Burgess representatives say the plant supports 240 industry jobs. If we accept that number for argument’s sake, ratepayers have already spent more than $640,000 per “job saved,” with years left in the contract. 

This is a huge transfer of wealth from Eversource customers to a few hundred people (at most) in an industry that is economically declining but politically well-connected.

Burgess Biopower officials say the plant won’t need any more handouts if the $58.8 million in overpayments is forgiven. But the contract that forces customers to pay above-market rates continues. That’s a handout. 

The state’s scheme to subsidize the plant will continue to cost ratepayers more than $20 million a year through the life of the 20-year contract, according to the Department of Energy. The plant began operations in 2014.

And when all of these subsidies are done, what will the ratepayers have to show for it? Probably nothing. If these above-market payments were actually “investments,” they would have purchased shares in the plant’s parent company. Then, at least the ratepayers might have gotten something in return.

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Legislators might allow Granite Staters to make more money from their homes this year

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Granite Staters could gain a little more freedom this year to make extra money from home.

The COVID-19 pandemic has reshaped the American workforce, probably permanently. A Pew poll in February found that 59% of people who say their jobs can be done mostly from home are working from home all or most of the time, with another 18% working from home some of the time. 

What’s more, 61% of them say they are working from home by choice. 

A study published by Stanford University in March concluded that “about half of the US workforce currently works remotely at least one day each week.”

Millions of Americans are choosing to convert their living rooms, dens, bedrooms, play rooms, basements, etc. into home offices. 

But for those who don’t type on laptop computers all day, working from home is trickier. Regulations often prevent homes from being monetized in more traditional ways. 

Two bills in the Legislature would relax some restrictions that make it harder for people to generate extra income from their homes. 

RSA 143-A:12 allows Granite Staters to operate a “homestead food operation” from their kitchens. (It excludes foods the require refrigeration.)

To prevent these kitchen businesses from scaling up to full commercial operations, allowable sales are capped at $20,000. 

House Bill 314 would increase that cap to $35,000, letting people make a living, or at least a really strong side-income, from homestead food preparation. The bill would increase a homestead food operator’s maximum allowed weekly sales from $384.60 to $673.

For those who wish to monetize the rest of their home, Senate Bill 249 would prohibit municipalities from banning short-term rentals. 

According to a new analysis by the state Office of Planning & Development, 27 New Hampshire jurisdictions regulate short-term rentals in some way. These range from Franconia’s registration requirement to Bedford’s ban. 

SB 249 would allow short-term rentals statewide while authorizing municipalities to “generally regulate parking, noise, safety, health, sanitation” and apply “other related municipal ordinances” to short-term rentals. 

Municipalities could require registration, and they could revoke that registration if a property is associated with more than one ordinance violation. 

There is some concern that short-term rentals could raise rents and home prices. Studies have found that these rentals are associated with a short-term bump in prices.

But over the long run, short-term rentals have been found to stimulate housing construction.

A study released last fall looked at the effect of Airbnb rentals on housing construction over a decade. It found that a 1% increase in Airbnb listings led to a 0.769% increase in permit applications. 

The authors found that short-term rentals stimulate the construction of new housing units, leading to increased property tax revenue, and that “restricting STRs can have a significant, negative impact on local economic activity.”

It’s not surprising that people will try to build more housing if they can use it to generate extra income. 

These practical considerations aside, regulations on the use of property (particularly for generating income) have grown so strict that they’ve caused a significant erosion of private property rights. 

Historian Edmund S. Morgan wrote that “widespread ownership of property is perhaps the most important single fact about Americans of the Revolutionary period. . . . Standing on his own land with spade in hand and flintlock not far off, the American could look at his richest neighbor and laugh.”

Today, a Granite Stater standing on his own land looks at his neighbor and worries, as the neighbor can call the town planning department and report him for a dozen potential ordinance violations.

Instead of balancing competing private property interests, state and local regulations have long trended against property owners. Regaining that balance will take decades. It can start with small changes that grant a little more discretion to property owners while maintaining rules that allow neighbors to assert their own property rights. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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A gas tax holiday is just a holiday from reality

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Rising gas prices have prompted calls for a state gas tax holiday. Though a gas tax holiday would provide some immediate relief from high prices, the cost would have to be paid later, possibly through higher taxes or deteriorating road conditions. 

In New Hampshire, the gas tax is not a general tax. It’s a user fee. Part 2, Article 6-a of the New Hampshire Constitution requires that it be used exclusively for road construction and maintenance.

State gas tax revenues have not kept up with inflation this century. In the fiscal year ending in June of 2000, total unrestricted gas tax revenues were $116 million. That would equal $182 million in 2021 dollars. But in FY 2009, unrestricted gas tax revenues were $131.6  million before falling back to $116.5 million in FY 2021. 

While the state’s population grew by 13% since 2000, gas tax revenues have remained essentially flat in nominal terms and have fallen in real terms. 

Because the gas tax is a user fee, a holiday would stop charging people for use of the public roads for its duration. But it wouldn’t stop the wear and tear on the roads. If that funding is not made up later, the state would have to forego repairs and maintenance, replace the lost revenue with higher taxes or transfers from somewhere else, or find some way to reduce costs. 

Given current inflation, it’s not clear how the DOT would reduce costs, leaving the other two options as the most likely long-term effects of a gas tax holiday. 

Legislators have floated the revenue transfer idea. But two proposals to do that were rejected this week in the House Finance Committee. The first would have had motorists fill out a rebate form to receive checks from the state. Motorists would have had to keep their gas receipts. 

The costs of administering that scheme prompted the amendment to be replaced with a plan to send every owner of a registered motor vehicle a $25 check for each vehicle. The cost was estimated at $40 million. The money would come from the general fund, not the highway fund, so it wouldn’t be a gas tax rebate. It would simply be a check from the state to help people cover the cost of paying for fuel. 

At this week’s prices, $25 wouldn’t cover even half the cost of filling a 12-gallon gas tank.

Such one-time tax rebates are not good tax policy. They don’t have the kind of stimulating effects that tax rate cuts do. 

“The tax code should not be used like an appropriations bill to dole out benefits, effectively putting a chicken in every pot,’” as the Tax Foundation put it in a 2001 policy brief. “The primary purpose of the tax system is to raise revenue, not to micromanage the economy with subsidies. It should create a level playing field in which individual and business decisions are made to achieve the best economic outcomes.”

In this case, the general fund should not be used to dole out benefits. It should pay for necessary public services. 

If the state has a surplus of federal COVID money or other one-time revenues, it would best be used to cover state obligations that are difficult to cover with recurring revenues, such as reducing the shortfall in the state pension system. 

If the state has an ongoing surplus of recurring revenues, it should consider another tax rate cut.

As the Tax Foundation has pointed out regarding a federal gas tax holiday, it would do nothing to change the underlying causes of gas price increases and could create other problems.

Though it sounds like a nice way to give consumers some short-term relief, a gas tax holiday is not sound policy.  

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The dumb fight over an 0.1% business tax cut

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Republicans in the Legislature are pushing to lower New Hampshire’s Business Profits Tax by one tenth of one percentage point, from 7.6% to 7.5%. This tiny change would make New Hampshire’s rate the same as Connecticut’s. We would then be tied for the second-lowest top corporate tax rate in New England. (Rhode Island’s rate is 7%. Maine and Vermont have graduated corporate tax rates.)

But of course, there’s a fight over it.

 

New England Top Corporate Tax Rates

Maine: 8.93%

Vermont: 8.5%

Massachusetts: 8.0%

New Hampshire: 7.6%

Connecticut: 7.5%

Rhode Island: 7%

 

Democrats oppose the rate cut, saying it would cost the state $8.5 million a year. That number comes from the Legislative Budget Assistant’s (LBA) fiscal note on House Bill 1221, the bill to reduce the rate.

That’s a tiny amount in the $13.5 billion state budget. It’s also probably wrong, as the LBA doesn’t measure the impact tax reductions will have on human behavior. The office simply calculates the reduction in revenue based on the assumption that a lower rate will automatically bring in less money. 

As we’ve pointed out, the business tax rate cuts implemented since 2015 have not reduced state revenue, as the LBA had predicted. 

“In 2017, the Office of Legislative Budget Assistant projected that the additional business tax rate reductions passed in 2017 would cause an $11 million reduction in business tax revenues in FY 2019. Business tax revenues came in $151.6 million above plan that year.”

Even if the 0.1% rate cut allowed businesses to keep an additional $8.5 million a year of their own money, the state would hardly notice. It’s awash in business tax receipts it didn’t plan to have.

As we reported in January, business tax revenues surpassed budgeted amounts by $649.6 million from the 2012-2021 fiscal years. 

So far this fiscal year, business tax revenues are $91.5 million (18.5%) above plan and $121.3 million (26.2%) above the prior fiscal year. 

The other talking point used against the proposed cut is that it will benefit only, or primarily, out-of-state corporations. That’s misleading.

New Hampshire has a single, flat Business Profits Tax rate. All businesses that pay taxes pay the same 7.6% rate. That includes everyone from the mom-and-pop store to Walmart, Target and BAE Systems. 

As of this tax year, any business with gross income of at least $92,000 pays the tax. (Prior to this year, the threshold was $50,000.)

There were 170,000 registered businesses in good standing in New Hampshire in 2019, and 76.3% of them paid no BPT. That’s by design. (The number will increase this year, as the filing threshold was nearly doubled.)

Democrats claim that BPT rate cuts are for “out-of-state corporations” because businesses with headquarters outside New Hampshire pay 60% of all BPT taxes collected. What they don’t say is that those companies represent a very small portion of all BPT-filing businesses in New Hampshire. 

Out-of-state companies made up only 5.7% of BPT filers in 2019, according to the state Department of Revenue Administration’s 2021 annual report. So 94.3% of companies that made a Business Profits Tax filing were based in New Hampshire.

We asked the DRA to break down the numbers by payers instead of filers, as some filers don’t have a tax liability. These previously unpublished numbers show that New Hampshire companies make up the vast majority of BPT payers.

Out-of-state corporations made up only 10.6% of BPT payers in 2019. The remaining 89.4% of businesses that paid BPT in 2019 were New Hampshire-based businesses.

And many of them are small businesses. Proprietorships, which are defined by the state as any unincorporated business owned by an individual, paid only 3.6% of BPT revenue collected in 2019 but made up 20.1% of BPT payers. Partnerships made up another 19.6%, fiduciaries 1.7%, and corporations rounded out the rest at 48%.

Contrary to the opponents’ talking points, just shy of 90% of the businesses that would benefit from a BPT tax cut are headquartered in New Hampshire.  

New Hampshire-based businesses pay a smaller share of the total amount collected because they’re smaller companies with relatively smaller profits. But because they’re smaller, rate cutes can be more meaningful to them than to large national or multi-national businesses.

This tax cut would move New Hampshire into a tie for the second-lowest top corporate tax rate in New England. And it would do so at little to no cost. It’s kind of surprising there’s even a fight about it.

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Remote work makes commuter rail even less viable

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A commuter rail line from New Hampshire to Boston would need increasing taxpayer subsidies to serve a shrinking number of riders, recent data on transit ridership and commuting patterns suggest. 

Health concerns are not the only reason commuter rail ridership remains a fraction of its pre-pandemic levels. Work and commuting patterns have changed, leaving public transit systems — especially commuter rail — with massive, long-term revenue shortfalls and shrinking pools of potential riders.

The New Hampshire Department of Transportation’s proposed “Capitol Corridor” commuter rail project would extend the Massachusetts Bay Transportation Authority’s Boston-Lowell line to Manchester (and possibly to Concord). It would undertake this expansion, at a cost well north of a quarter of a billion dollars, just as remote work begins to reshape commuting patterns.

Remote work and vanishing commuters

“The desire for hybrid work models, defined by part-time telework, remains strong,” a City of Boston survey of commuters found last year. 

Only 7% of Boston commuters said they never want to work remotely in the future. More than half, 54%, said they preferred to telecommute a few days a week. Sixteen percent said they wanted to telecommute every day. 

Boston employers also expect that work arrangements will not return to the pre-pandemic norm. 

A MassCompetes survey of Massachusetts employers last year found that 75% are considering hybrid work models after the pandemic, 61% reduced capacity, 59% hybrid practices, 55% hybrid physical space, and 48% staggered schedules. (Respondents could choose multiple options.)

Regarding public transit use, 51% of employers said they expect their employees’ dependence on mass transit to decline after the pandemic, 30% said they expect it to stay the same, and only 3% said they expect it to increase. 

A March 10 Upwork survey of 23,000 Americans found that 2.4% said they had already moved because of remote work since 2020, and 9.3% said they planned to do so. Those percentages translate to 4.9 million and 18.9 million people. 

“People are moving outside commutable distances: 28% of people said they are moving more than 4 hours away,” the survey found. “Another 13% said they are moving between two and four hours away.”

And this is just the tip of the trend, the data suggest.

“The effects of remote work on geography are just beginning to unfold: The number of people who have relocated is likely just the start of a larger reshuffle, since our data suggests that there are strong reasons to suspect longer-term moves will rise,” the Upwork study concluded.

Commuter rail suffers huge ridership declines

Transit officials nationwide report that they, too, see a future with fewer riders. 

As we reported in January, the DOT expects lower Capitol Corridor ridership after COVID than it had projected in 2014. Nationally, commuter rail operators expect emptier trains.

“The nation’s biggest commuter railroads are preparing for potentially permanent shifts in daily ridership, declines that in some cases could threaten their long-term viability,” The Wall Street Journal reported on March 6. 

“The changes are based on expectations that many office workers will continue to work from home at least part-time for years after the Covid-19 pandemic subsides.”

The American Public Transportation Association reports that weekday ridership counts for commuter rail are down to between 25%-55% of pre-pandemic levels.

“The MBTA commuter rail system is averaging about 45,000 weekday passenger trips versus roughly 120,000 before Covid-19, and officials don’t expect a full rebound even after companies bring most workers back to offices,” the Journal reported.

“We’re going to have to figure out a way to operate with lower fare revenue, and it remains to be seen how much lower it’s going to be,” MBTA General Manager Steve Poftak told the paper.

Lower fare revenue means larger taxpayer subsidies for an organization already dependent on taxes. 

Tying N.H. taxpayers to MBTA’s financial woes

The transit ridership collapse has put the MBTA into a dire financial situation. In December, the authority projected that its expenses would exceed its revenue until 2027, and even then fare revenues would remain below pre-pandemic levels. 

Fare revenues in 2027 will range between 68% and 93% of 2019’s numbers, the MBTA projected. 

On March 10, the MBTA projected a budget gap of between $201 million and $458 million next year, growing to between $341 million and $550 million by 2027, without one-time revenues such as federal bailouts. 

The cash-strapped MBTA is the N.H. DOT’s chosen partner to operate the Capitol Corridor commuter rail line. The state’s plan is to hand the operation of a New Hampshire taxpayer-funded enterprise to a Massachusetts organization hundreds of millions of dollars in the red, desperate for cash, and entirely reliant on growing levels of taxpayer subsidies for its survival. 

Fares cover only 9% of the MBTA’s fiscal year 2022 revenue, the authority’s March report showed. Non-operating revenue, which the MBTA itself calls “subsidy” revenue, accounts for 91%.

This revenue situation places tremendous pressure on the MBTA to increase both fares and taxpayer subsidies.

Could the lost revenue be made up by raising fares? Automobile commuters told the City of Boston’s commuter survey that they would be most likely to switch to transit if offered a free or reduced-price commuter rail pass. They are price-conscious. Higher fares would only drive more commuters away.

That leaves additional taxpayer subsidies as the only way to keep the MBTA operating as ridership remains below 2019 levels. 

A publicly financed commuter rail line from Manchester to Boston would funnel New Hampshire taxpayer money into the financially troubled MBTA just as teleconferencing software has begun to decimate demand for city-to-city commuting. That’s not what anyone would call a wise investment.  

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