Gov. Chris Sununu’s proposed 2022-23 state budget cuts state general and education trust fund spending for the first time in a decade.

Strangely, this generally was not the big story in media coverage of the budget.

But it is a big story — because reductions in state spending are extremely rare.

Comparing the governor’s proposal to the current two-year budget, the governor’s plan represents a decrease in budgeted state general and education spending (not total spending — more on that later). That would be the first reduction since the 2012-2013 budget. 

How much of a decrease depends on what baseline you use. 

The governor’s budget summary shows a general and education fund spending reduction of $40.4 million, or about 0.7%. 

That’s based on actual 2020 spending and authorized (budgeted) 2021 spending. (The 2021 fiscal year ends at the end of June, so we don’t have actual spending for the year yet.) 

What the state actually spends in a fiscal year is not the same as what the state budgeted for that fiscal year. Typically, the governor manages spending so that some money is left over at the end of the year. 

In response to the pandemic, Gov. Sununu got quite aggressive about saving money, as revenues were projected to crater throughout much of 2020. 

Comparing the governor’s budget to the 2020-21 budget, the governor’s general and education spending is lower by $108 million. 

Such a savings from one budget to the next is highly unusual. Only twice since World War II has a state budget been lower than the previous budget.

Actual spending is a different story. With 4.5 months left in the fiscal year, it’s possible that the governor’s budget will spend more in general and education funds in 2022-23 than the state spent in 2020-21. We’ll have to see how the rest of this fiscal year works out. 

If you haven’t had enough caveats, here’s another. 

The budget was released Thursday and we haven’t gone through it line by line. We are looking at bottom-line totals. Perhaps a closer inspection will find details that produce… more caveats.

But looking at the bottom lines for budgeted general and education fund spending, this proposal represents a savings to state taxpayers.  

This will be confusing if you’ve seen stories that report higher spending in the proposed budget. That’s because total spending includes federal money and therefore is much larger than general and education fund spending.

Basically, the general and education funds spend money raised in New Hampshire from Granite Staters. The total state budget includes billions of dollars in federal funds.

The governor’s budget increases total spending by $712 million, or $5.6%, to $13.36 billion. 

The last time total spending went down was also in the 2012-13 budget. In that budget, led by then-House Speaker Bill O’Brien, general fund spending decreased by $536 million, or 18%, and total spending decreased by $1.2 billion, or 11%.

There’s much more to cover in this budget, of course. The governor proposed some substantial reorganizations of several state bureaucracies (including all of higher education), tax cuts (including phasing out the interest and dividends tax), a large increase in health and human services funding, and much more. We’ll do deeper dives later.

For now, the big initial takeaway is the unusual reduction in state taxpayer-financed spending.

Grappling with the consequences of a long and steady decline in students, the Manchester School District this week released plans to close the city’s oldest school, Hallsville Elementary. A consultant has recommended closing three other schools. 

In the short term, city leaders are going to have to make difficult choices, many of which have been put off for decades. 

In the long term, there is only one real solution: faster economic growth.

The problems that led to this unfortunate situation were caused in part by demographic changes. A cultural shift away from large families has driven a steady decline in child-bearing, and the long-term graying of New Hampshire’s population has shrunk school classrooms and drained communities of energy. 

Yet these are not the sole cause of the city’s woes. Poor policymaking has made manageable problems worse. 

For starters, as public school enrollment fell, school district spending continued to rise. 

From the 2009-2010 school year to the 2019-20 school year, Manchester’s public school enrollment fell by 2,595 students, a 16.4% decline, state enrollment reports show.  

But during that same time period, the school district budget grew by 22.8 million, a 14.6% increase, city budget documents reveal.

In the 2019-20 school year, Manchester taxpayers spent $22.8 million more to educate 2,595 fewer students than they did in the 2009-10 school year. 

That’s not a good deal for taxpayers. 

And the problems don’t end there. 

The city’s sluggish population growth has contributed to a stagnating tax base and a shrinking school population.

From 2000-2020, the city’s population grew by roughly 5,600 people, or about 5.3%, U.S. Census data show. (The 2020 figures are estimates.) By contrast, New Hampshire’s population grew at nearly twice that rate during the same years.

The city’s growth rate in the last 20 years represented a sharp decline from the previous 20-year period. From 1980-2000, the city’s population grew by 16,070, or 17.6%. 

The city’s growth rate is regressing to its pre-1980s doldrums. 

From 1960-1980, Manchester’s population grew by only 2,654, or 3%. In the 1960s, it actually shrank. 

Manchester has struggled for years to attract more residents. One reason can be found in the city’s housing restrictions. Regulations make it extremely difficult to build new homes, particular multi-family housing that is attractive to young couples. 

New apartment complexes are routinely opposed by city officials, who deny approvals on the false claim that new apartments will cause overcrowded schools, as if the city’s schools would be hurt, not helped, by increased enrollments. 

Relatively high taxes are another contributor. Manchester’s property tax rate of 24.66 is higher than the rates in Derry, Hollis, Hooksett, Litchfield, Londonderry, Merrimack. Nashua, Portsmouth, and Windham. 

One reason for these higher rates is, again, the difficulty in building within the city. Londonderry, generally considered a more growth-friendly community, has gained from Manchester’s general hostility to new construction. 

And a general dissatisfaction with school options has driven many families into neighboring communities, such as Bedford and Hooksett, or towns a bit farther away, such as Londonderry. 

All of these problems are linked in a way that might not be obvious if you are in charge of only one policy area — say, schools, or roads. They’re all tied to the city’s sluggish growth. 

Economic growth leads to population growth, a rising tax base, a vibrant culture, and rising government revenues. 

Without growth, a city experiences stasis or decline. Manchester’s growth is happening at such a low rate, it’s constraining the city’s ability to manage its infrastructure. 

Policies that encourage greater population and economic growth would help Manchester get out of its current predicament. And those policies have to be pursued consciously. Growth can be cultivated. 

But too often growth is taken for granted, and public officials ignore warnings that their policies will put it in jeopardy. Today, Manchester is dealing with the results of such poor decision-making. 

Washington Post columnist Megan McArdle, author Virginia Postrel, and Americans for Tax Reform President Grover Norquist will headline the Josiah Bartlett Center for Public Policy’s next three Libertas Virtual Events. 

Megan McArdle, columnist for The Washington Post, joins us for our next Libertas Virtual Event on Thursday, Feb. 18, at noon.

Author and former Reason magazine editor Virginia Postrel joins us on Tuesday, March 23, at 12:30.

And Grover Norquist, president of Americans for Tax Reform, joins us on Tuesday, April 13, at noon. 

About our headliners:

McArdle is a former writer and editor for The Economist, The Atlantic, and Bloomberg View. Originally an independent blogger, she was one of the first to make the transition from blogging to mainstream journalism. Her original and insightful takes on economics, public policy, and culture have made her an influential writer and thinker who is closely followed by policymakers and other journalists in Washington and beyond.

She is the author of the 2015 book “The Upside of Down: Why Failing Well is the Key to Success.”

Virginia Postrel’s latest book is “The Fabric of Civilization: How Textiles Made The World.” Editor of Reason magazine from 1989-2000, she has been a columnist for Forbes, The Wall Street Journal, The Atlantic, Bloomberg, and The New York Times. She won the Bastiat Prize for free-market commentary in 2011.

Grover Norquist is president of Americans For Tax Reform, which he founded in 1985 at the request of President Reagan. He holds a BA in economics and an MBA, both from Harvard University. An expert on state and federal taxes, he is the most prominent and outspoken tax reform activist in the United States today. 

About the Libertas Virtual Event Series:  

The Bartlett Center’s Libertas Virtual Event Series replaces our 2020 Libertas Award Dinner, which could not be held because of COVID-19 restrictions. The cost is $25 to attend this event alone, or $80 to attend the rest of the series, which runs from February through May. 

Subscribing to the entire series gets you in to four events for only $80, a $20 savings. 

Upcoming events include author and former Reason magazine editor Virginia Postrel in March and Americans for Tax Reform President Grover Norquist in April. 

How to make reservations:

To make your reservation for the McArdle event or for the remaining series, visit www.jbartlett.org/donate and click on either the $25 donation for the Libertas event or the $80 donation for the Libertas series. 

The Josiah Bartlett Center would like to thank our Libertas Virtual Event Series sponsors:

 

 

 

There will soon be a lot of talk about Education Freedom Accounts (also known as Education Savings Accounts) in New Hampshire. 

Here’s a brief explainer of what they are and how they work. We’ll use the general term Education Savings Account, or ESA, for clarity.

Education Savings Accounts empower families with the freedom and flexibility to purchase a wide variety of educational products and services such as private school tuition and fees, tutoring, special education services, online education, and community college or other higher education expenses. Most states ensure that ESA funds are spent only on approved purchases via restricted-use bank accounts or online portals like ClassWallet.

Five states — Arizona, Florida, Mississippi, North Carolina, and Tennessee — use Education Savings Accounts as one method of purchasing educational services for students.

It’s important to understand that Education Savings Accounts do not give parents access to all of the money that otherwise would be spent to educate their child in a traditional public school. They use only a portion of that money, leaving the rest in the traditional public school system. 

Education Savings Account spending is severely restricted. It typically is limited to purchases such as private school tuition and fees, tutoring, special education services, online education, and community college or other higher education expenses.

This year, House Speaker Sherm Packard has introduced House Bill 20, the Education Freedom Account Act, to enable the creation of Educational Savings Accounts in New Hampshire.

HB 20 would change state law in a few important ways. 

Currently, the state sets aside $3,708 a year for every student who chooses a publicly funded education. The state offers additional money for low-income and special-needs children, so the average per-pupil state expenditure is higher than the base amount (closer to $4,600).

Under state law, parents have little say over where that money is spent. If they want to use it, their child must attend the local public school to which he or she was assigned, or a chartered public school. 

Though the purpose of that money is to educate each child, the state forbids parents from using it on any form of education that is offered outside the state-controlled system. 

As a result, if the local district school is not a good match for a child, families have only two options. They may enroll their child in a charter school if they can find one nearby that is a better fit. Or they can move to another school district, if they can afford to. 

An Education Savings Account allows parents to spend their education dollars on a broader menu of educational options, while still maintaining state oversight. 

HB 20 states that to receive an Education Freedom Account, a parent “shall agree” to use the funds only for certain qualifying expenses listed in the law. 

Those include private school tuition and fees, online learning programs, tutoring, educational services offered by a public or chartered public school, textbooks and other instructional materials, computer hardware, internet connectivity or other tech services used to meet a child’s educational needs, educational software, school uniforms, test and exam fees, special education services, career or technical school expenses, summer school expenses, higher education expenses, and travel to and from an education service provider.

The state would designate a scholarship organization to oversee the accounts. A parent who wanted an EFA would apply. If approved, the state would deposit the student’s per-pupil allotment into the account. The parent could then withdraw it for use on the qualifying expenses listed above. 

In this way, the state still exerts control over how the money is spent, but the parent can decide which service best suits the child. 

This funding mechanism broadens the number and type of educational services available to families who choose a publicly funded education. Instead of being limited to their assigned school or a charter school, families could choose from many more educational services — including public schools outside their home district. 

Under the current system, some families struggle to find an education that is the right match for their child. With an ESA, families would be able to shop for a better fit — with the state still maintaining oversight of the money.

Many people believe that cutting tax rates always and automatically lowers government revenue. They believe this even when shown that it isn’t true. 

When House Bill 10, a bill to continue reducing the Business Profits Tax and Business Enterprise Tax rates, had its turn in the House Ways & Means Committee on Thursday, the predictable objection was made. Opponents said it would reduce state revenue. 

But this prediction was made before every business tax rate cut in the last five years. It has yet to prove true. 

In 2015, Gov. Maggie Hassan predicted that the business tax rate reductions put into place by the Legislature starting in the 2016 fiscal year would blow a $90 million hole in the upcoming two-year state budget. 

To quote Harry Doyle, that prediction was just a bit outside. Business tax revenues were $132.8 million (23.4%) above plan in FY 2016 and $72.7 million (12.9%) above plan in FY 2017. Instead of a $90 million budget hole, the state wound up with $205.5 million more than planned. 

The trend continued for the next two years. Business tax revenues were $118.8 million (17.9%) above plan in FY 2018 and $151.6 million (23.2%) above plan in FY 2019. 

In those four years, business tax revenues exceeded budget projections by a combined $475.6 million. 

So after the state began cutting business tax rates, business taxes generated almost half a billion in unplanned revenue in just four years— an enormous windfall. 

But what about the four years before? Surely the economy, and with it state revenues, were growing rapidly before the tax cuts.

Business tax revenues were $13.1 million above plan in FY 2012, $33.7 million above plan in 2013, $11.5 million below plan in 2014, and $6.5 million below plan in 2015. 

After the state cut business tax rates, business tax revenues took off like a cheetah that wandered into a Nigerian hacker hangout and ransacked the entire stash of Red Bull. 

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. 

It would be a mistake to attribute all of those revenue gains to the state business tax cuts. Other factors, such as national economic growth and federal tax changes, played a large role, as the Sununu administration has pointed out. 

But one also cannot attribute all of those gains to the national economy. From 2016-2019, the U.S. GDP grew by 9.3%, while New Hampshire’s grew by 11.6%, according to Federal Reserve figures. 

Not long ago, New Hampshire had the highest business tax rates in New England. Thankfully, that is no longer true, though our rates are higher than notoriously high-tax Rhode Island and Connecticut.

Despite recent reductions, our business tax rates remain very high. We are near the bottom — 41st in the country — in the Tax Foundation’s ranking of corporate tax rates.

High business tax rates have been shown to have a negative effect on business startups, job creation, productivity, and economic growth. Pushing New Hampshire’s high rates down a bit more would, at the very least, increase our economic competitiveness and make us more attractive to employers. It also would improve the atmosphere for small-business startups.

As the state’s experience since 2016 shows, it is a mistake to assume that further business tax rate reductions would trigger automatic state revenue reductions. All recent predictions that this would happen have proven false. 

“Our default position should be to try to keep the schools open and get children who are not in school back in school as best as we possibly can.”

— Dr. Anthony Fauci, Dec. 9, 2020

With the 2020-21 school year half over, tensions regarding school reopenings have reached new heights.

In Nashua, frustrated and angry parents are trying to recall school board members who oppose reopening the city’s public schools. 

The New Hampshire Education Association has demanded that teachers be classified with “high-risk first responders” and given priority access to limited supplies of COVID-19 vaccines.

News coverage, as usual, focuses on the politics rather than the data.

Stepping back from the drama and looking at the research, it is clear that reopening schools can be done safely, with little risk to students, teachers, staff, or the general public. 

In fact, that has been clear since the summer, when researchers at Johns Hopkins University pushed for schools to reopen. Anita Cicero, deputy director of the Johns Hopkins Center for Health Security, said that reopening schools “should be a national priority, and it’s much more important—immeasurably more important—than opening bars or restaurants.”

Regarding the risk to teachers and other school staff:

  • An occupational risk tool designed by the Vancouver School of Economics put Canada’s education sector in the medium risk category for COVID-19 exposure.

Regarding COVID-19 transmission in schools generally:

  • A Duke University study of North Carolina schools last fall “found extremely limited within-school secondary transmission of SARS-CoV-2” and found that “no instances of child-to- adult transmission of SARS-CoV-2 were reported within schools.”
  • A study published in Eurosurveillance, the European journal of infectious disease epidemiology, last spring found “no evidence of secondary transmission of COVID-19 from children attending school in Ireland.”

Regarding schools and community spread:

  • “The data so far are not indicating that schools are a super spreader site,” University of Michigan infectious disease expert Dr. Preeti Malani said during an Infectious Diseases Society of America briefing in October. 
  • A University of Washington Center for Education Data & Research study published in December found that school instruction models don’t affect community spread when community infection rates are not high. When community rates are high, in-person instruction with a large percentage of students in school was associated with some additional community spread. The study found that “there is no significant evidence that school systems offering hybrid instruction increases COVID spread.”

The research is increasingly clear that schools can be opened safely when standard precautions are followed. 

Importantly, this summary addresses only the risks of COVID-19 exposure, and not the numerous demonstrated negative effects of school closures on student well-being (see here, here, here, here, here, here, and here.)

Given the well-documented negative impact that school closures have had on students, and the low risks associated with reopening, it is evident that getting students back into classrooms ought to be regarded as an urgent need.  

It’s the heart of winter, and home sales in New Hampshire are hotter than a leprechaun on a Lucky Charms-fueled bender in Vegas. 

December typically is a slow home sales month, for obvious reasons. But in December, 2020, sales were up 25% over December, 2019, and sales volume was up 49%, according to data tracked by the New Hampshire Association of Realtors. 

A home spends an average of only 33 days on the market in New Hampshire, down 47.6% from the previous December. And the median sales price hit $349,900, up 16%.

In December of 2019, housing experts were concerned because the median home price rose to $299.999, just a dollar shy of $300,000. In a year, the median price rose by nearly $50.000.

And that price increase happened as new listings rose by 30%. People couldn’t put houses on the market quickly enough to meet demand. There was 2.4 months’ worth of supply in the housing market in December of 2019. A year later, that was down to 0.9 months.

Just five years ago, the median home price in New Hampshire was $249,800, fully $100,000 less than today’s median. 

Although urban coronavirus refugees pushed demand even higher in 2020, it was far outstripping supply long before the pandemic hit.

A state report issued in December noted that even though 2019 was the sixth year in a row to experience a growth in the number of housing units permitted by local governments, “the level of building activity continues to be less than half of the level at its peak in the early 2000s.”

Housing totals illustrate how slow the pace of new construction has been.

Hillsborough County, home to the state’s two largest cities, had 166,050 total housing units (single-family, multi-family, and manufactured) in 2010. In 2019, it had 174,824, an increase of only 8,774, or about 5.3%. 

Statewide, total housing units rose from 614,238 in 2010 to 646,889 in 2019, an increase of 32,651, or just 5.3%. 

For contrast, the U.S. Census Bureau measured the change in housing units from April, 2010 to July, 2019 (so the time frame is different from the state’s by a few months). The Census figures show the total number of housing units nationwide rising by 6.1% from 2010-2019. The increase in New Hampshire was only 4.5%, by the Census’ count.

Rental housing is also in short supply, suffering from a severe shortage of new construction. The good news in 2020 was that the vacancy rate roughly doubled. The bad news is that it was below 1% last year and rose to only 1.8% this year. 

A healthy rental vacancy rate is considered to be 5%. New Hampshire last had a vacancy rate above 5% in 2009 — during the recession. Rents rise every year, driven largely by the extreme shortage of units, especially in places that are experiencing stronger economic growth. 

Legislators have introduced several bills to try to address the problem. But many of the bills focus on incentives and subsidies, as if developers need prodding from the Legislature to get rich selling homes people are clamoring to buy. 

The best way to get more housing is to reduce local government restrictions on the construction of new housing. Until that is done, anything else is just window dressing. Really, really expensive window dressing.

December was by far New Hampshire’s deadliest month for COVID-19 fatalities, with 233 recorded deaths, according to state data. That record high represents a 441.8% increase over November and a 32.4% increase over May of 2020, which recorded the state’s previous high of 176 deaths. 

The number of new recorded COVID-19 infections in December —23,034 — was more than double the total number of all recorded infections from March through November.

That huge increase in infections in just a few weeks indicates rapid and broad community spread of the virus. 

On Nov. 30, the state had tallied 20,994 total COVID-19 infections since the epidemic was first detected in New Hampshire. By December 31, the state had recorded 44,028 infections.

Total new infections in the month of November were 10,545. December’s 23,034 new infections represented a 118% increase over the previous month.

This rapid increase in infections and deaths is not unique to New Hampshire. December was the deadliest and most infectious month for the entire United States as well. 

As the Josiah Bartlett Center reported last month, the state’s hospitalizations figures are inaccurate, so we are not calculating a hospitalization total. 

The state officially listed an increase in total hospitalizations of only 63 for the month of December, an obviously incorrect number. The state went from 160 current hospitalizations on December 1 to 252 on December 15 to 317 on December 31. 

The large rise in daily numbers is not reflected in the state’s totals because the state does not include most hospitalizations in its totals.

The state’s official tally of total hospitalizations includes only people who were hospitalized when their COVID-19 infection was first recorded. Anyone hospitalized after the initial infection was recorded by the state shows up in the daily hospitalization count, but is not included in the total hospitalizations. 

Amid a historic collapse in transit ridership, the Executive Council has approved a $5.4 million contract to design a commuter rail line from New Hampshire to Boston. The contract is financed entirely with federal money, so New Hampshire taxpayers could choose to take some comfort in knowing that the state is throwing away what is mostly other people’s money. Nonetheless, it’s a waste of taxpayer dollars.

Americans have in the past year avoided mass transit like the plague, largely because of, well, a plague of sorts. But the trends before the rise of the coronavirus show a longer decline in ridership. 

In 2020, mass transit ridership fell by 50%, according to data kept by the American Public Transit Association. Commuter rail ridership fell by 62%. 

Transit ridership nationwide has been falling for years, according to federal data. (Commuter rail ridership has increased in the last decade, thought it’s leveled off in recent years.) 

In Boston, however, Massachusetts Bay Transit Authority (MBTA) commuter rail ridership has been in steady decline. 

The Pioneer Institute reported last year that MBTA commuter rail ridership fell by 11% (or about 4 million riders) from 2012-2018. 

In November, the MBTA reported that commuter rail was down to 13% of its normal ridership level.

Whether transit ridership will rebound to anything near its pre-COVID levels is an open question. It might. But commercial real estate rents, along with announcements by large and small companies that they are preparing to permanently switch portions of their workforce to remote work, suggest that urban work and commute patterns might forever be altered.

Again, even before the arrival of the coronavirus, technological advancements were driving declines in public transit. Ride sharing companies have given people another, more convenient way to move around cities and suburbs without relying on government-provided vehicles that travel pre-set, government-chosen routes. Those services are drawing riders away from mass transit, as this University of Kentucky study shows.

Rail is a 19th century technology that is ill-suited to solving 21st century transportation and environmental issues. The way forward is through innovation. Electric vehicles and autonomous vehicles will get people where they need to go while reducing greenhouse gas emissions and turning commute time into productive work time. They are far more versatile than trains and will serve people’s travel needs better.

That transition is already underway. And flying cars might follow, further changing the way we travel. New Hampshire doesn’t need to spend hundreds of millions of dollars to build a train to serve a declining number of commuters when tech companies are already working on alternatives that will better serve everyone. 

An education funding system in which education dollars go to families rather than directly to school districts is “the ideal,” Gov. Chris Sununu said at the Josiah Bartlett Center’s first Libertas Virtual Event on Thursday.

New Hampshire should focus on student outcomes, not how much funding the system gets, the governor said. 

“You can sum all this up with: It’s gotta be about outcomes for the kids, not outcomes for the system,” the governor said. “We have to stop worrying about the system as much as the kids.”

The governor advocated Education Savings Accounts, which are like health savings accounts, but for education. 

The state would deposit a portion of a child’s per-pupil allotment of adequate education aid into a government-approved savings account, which the parent could then use for education expenses. 

They offer a way to put students first, and the pandemic has increased demand for such a change, Sununu said.

“This isn’t about the traditional school choice battle. If you’re thinking about it that way, you’re way behind. Independent, non-political individuals… people that traditionally weren’t involved in this discussion are stepping up and saying, ‘wait a minute, where is my money going? Why isn’t my kid in school? Why are we stuck remote learning when we know that we can and should be having our kids in school, at least in some facet… and they’re getting involved in this discussion about where their money — not our money, their money — is being spent. That’s gonna raise the level of debate to where it needs to be.”

Letting the money follow the child is not about the quality of public schools, but about finding a model that serves every child’s needs, he said.

“We have great public schools here. But there are one, two, three, four percent of the population where it’s not ideal, and giving them that opportunity is huge.”

With so many parents angry and frustrated with the limited public schooling options presented this school year, 2021 could be the year that New Hampshire joins the six other states that have education savings accounts, Sununu said.

Republican House Speaker nominee Sherm Packard and Senate Majority Leader Jeb Bradley have introduced bills to create education savings accounts. 

In the 2017-18 legislative session, an education savings account bill passed the Senate but was narrowly defeated in the House.