Charlie Arlinghaus

August 1, 2012

As originally published in the New Hampshire Union Leader

Election season breeds people blowing hard but spreading little other than hot air (insert your own joke here about my column). Let me shorten some of it for you but then suggest a few constructive things.

Each economic report that comes out will be an opportunity for those in power to explain how their ideas, although crafted for long term, are even now having an impact. See? Sweetness and light are even now being spread to the masses in desperate need spurred not because our policies took effect but because our very presence is a signal. Those out of power will say the opposite: even now the wasteland of destruction sure to be created by the bad guys is leaking out and the scariness of that desolation depresses everyone we need to be happy.

No matter your political philosophy, feel free to take this as a criticism of the other guys. In New Hampshire we have the fortune of living under the authority of a left-leaning Democratic president and a right-leaning Republican legislature. Clearly the success we enjoy is because one of those two is doing the right thing and countering the bad bits of the other.

Political windbags aside, all of this focus on jobs and the economy is a good thing. Whether you want to expand social programs to cover more people or make them more efficient, a growing economy and job base in New Hampshire benefits everyone.

The budget difficulties of the last few years were a direct result of the collapse of state revenue. Revenues go up when there are more jobs and down when there are fewer. Fewer jobs mean more people on state services. Regardless of your support for a social safety net, everyone’s ultimate goal is to have more people working. Almost no one prefers being a ward of the state to having an actual job.

So the task for those men and women who would be governor or would be legislators is to identify changes they can make to bring more and better jobs to the state.

Every candidate will talk about the things they don’t like, the things wrong with what’s happening in Concord or what used to be happening in Concord. More important is that we take this opportunity to redirect their conversation.

As a voter, we can say thank you for telling us what was right and wrong with the last session but please tell us what you would do instead.

Every economic development professional will tell you that the first thing people ask about is taxes. New Hampshire is very attractive to most business in some ways on taxes and less so on others. In general, the lack of a sales or income tax is a huge benefit and a big signal to most businesses. However, coupled with that is our Achilles heel: direct business taxation.

New Hampshire’s business tax is a Business Profits Tax and a linked Business Enterprise Tax. The combined tax makes up about one quarter of the state’s general and education fund revenue (the state operating budget) and is more than twice as large as the next largest tax.

The difficulty is that the rate over the last two decades has climbed to 8.5% (the creditable BET is 0.75% of a different base). According to the Tax Foundation, an arbiter of these things used by people on both ends of the spectrum, that gives us the highest business taxes in the country. Our competitiveness in their rankings is improves in other areas but on that subcategory, very important to sectors like manufacturing for site location, we are at a serious disadvantage.

The last legislature needed to balance the budget which was in a very bad spot – deficit estimates ranged from $600-$900 million. Cutting spending first was important to put us in a position to be able to reduce taxes as a business incentive.

I think they made a mistake cutting tobacco taxes first. Although tobacco taxes rose four of the previous five years and are extraordinarily regressive (poor people smoke in much greater proportion that wealthy people), lowering them creates little economic incentive. The first tax we should lower is the business profits tax.

Taxes are fundamentally a price on economic activity. Lowering the price of specific activities creates more of that activity – the incentives are stronger in some area than others but business taxation is among the most responsive areas.

As a candidate, tell me what you want to do about the budget – the most concern of state government. But tell me why. Let’s get our candidates thinking about job creation not just political wind.

Charlie Arlinghaus

July 18, 2012

As originally published in the New Hampshire Union Leader

The November election will include a constitutional amendment to ban an income tax. Whether they wish to see a ban written into the constitution or not, the vast majority of voters are opposed to an income tax based on the experience of other states.

The ballot vote on an income tax ban isn’t exactly a referendum because it divides people into three camps. Those who support an income tax will obviously vote no and many who oppose an income tax will vote yes. A third group will be anti-income tax but unwilling to write a ban for all times into the constitution, preferring instead to keep debating the issue every few years. In that sense, support for the amendment will only be a subset of those who oppose a new tax.

Tax systems are complicated and every state tax system includes a basket of taxes. Some supporters believe that an income tax is instantly fairer than any system which might include property taxation. Of course part of the problem is that no one has ever suggested eliminating property taxes and replacing them with an income tax. Every proposal for the last 90 years has involved adding a new tax but leaving in place virtually all the others as well.

A decade ago, Democratic Governor Jeanne Shaheen convened a commission on education funding to look at various new taxes. This wasn’t a conservative group hostile to an income tax (in fact, they were relatively supportive of one) but they found that, contrary to the rhetoric, “the substitution of a comprehensive income tax for local property taxes would diminish the progressivity of New Hampshire’s revenue system.”

I say this only to point out that the fairness or regressivity arguments about taxation are far from settled even on the left side of the spectrum.

Most conservatives are skeptical about a new tax based on the experience of other states. While most states that adopted income taxes did so long ago, the two most recent did so with at least the partial goal of reducing other taxes. And they failed.

New Jersey adopted a tax in 1975 with the proceeds directed exclusively to a property tax relief fund. Yet New Jersey’s property taxes are the highest per capita in the country and show no signs of slowing down.

The more recent experiment was Connecticut. During the 1991 recession, Lowell Weicker pushed through an income tax coupled with reductions to the corporate profits tax and sales tax, although the sales tax was extended to hundreds of new items. The first goal was to raise money but the second was to create a more stable tax system.

One theory, often espoused despite evidence to the contrary in New Hampshire, is that state spending relieves the burden on local taxpayers and cuts to state spending increase local taxes. Connecticut’s experience is that a new revenue source just allowed spending to grow through the roof.

Connecticut had been 14th in the country in state and local taxes with a per capita burden of $2900 (New Hampshire at the same time was at $1900). In the first four years, Connecticut jumped to fourth highest state and local tax burden where they’ve stayed. They jumped from $2900 to $3900 during a period where New Hampshire went up only from $1900 to $2300. Further, in the first decade and a half after growing government, per capita tax burden climbed from $2900 to $7600 during a time when New Hampshire’s state and local taxes increased at half the rate, from $1900 to $3700.

A new tax source didn’t shift the burden from locals to the state, it merely grew government dramatically, faster than its neighbors, and faster than the rest of the country.

Surely some of the extra tax money was used to help the state help the towns though, wasn’t it? After all, that’s the excuse we hear all the time. If the state grows, they will shoulder more of the burden. In Connecticut, passage of an income tax was followed by the very same governor proposing a regular series of cuts to state aid. And Connecticut’s property taxes have climbed to second highest in the country.

A big new revenue source didn’t help displace other state sources or result in revenue sharing with local communities. It merely fueled a huge expansion in the size and scope of state government. Nor did it prove sustainable for the future.

The last Republican governor of Connecticut proposed billion dollar tax increases for the exact same reasons Weicker proposed them. The current Democratic governor has also proposed a billion dollar tax increase and cuts to local aid. More money equaled more spending not more help.

 Charlie Arlinghaus

May 2, 2012

As originally publish in the New Hampshire Union Leader

Elections and governments produce many tall tales. One of the tallest was the wishful thinking that the federal and state governments are in fine shape fiscally. Each month, something else emerges that tells us how bad things really are. This month’s dead canary in the fiscal coal mine is the sooner-than-expected exhaustion of the fictional social security and Medicare trust funds. Like the federal government, New Hampshire has hidden problems. Unlike the federal government, ours are getting better.

The Social Security Trustees release regular reports projecting the long term insolvency of the programs. What we call social security consists of the larger “Old Age and Survivors Insurance (OASI)” – the pension program we traditionally think of as social security – and a smaller “Disability Insurance (DI)” program which will be bankrupt much sooner.

For decades, the amount of tax taken from your paycheck was greater than the amount needed to pay that year’s bills so Congress took the money and gave the trust fund an IOU. But those fictional assets consisting only of a government IOU continue to grow. However, they grow slower as benefits paid rise faster than taxes taken. And in a few years, assets will start decreasing. So the trustees make long range projections to warn us about the future.

Twenty years ago, we were told that the theoretical assets would be exhausted in 2057, long after everyone reading the report would be dead so nobody cared. Ten years ago, the bankruptcy date was moved to 2038, a year many of us hope to reach. And this year we have been told that the money runs out in 2033 – the year I might have started collecting.

Actually, considered separately, the disability plan runs out in 2016, before the next presidential election. The old age and survivors pension portion might struggle on until 2035.

By the way, the Medicare trust fund is equally fictitious in the sense that it too exists as a bookkeeping tool so the government knows what it didn’t actually set aside. That theoretical trust fund will be spent in 2024. As Bill Clinton noted, the theoretical trust fund “does not have any impact on the government’s ability to pay benefits.” They have to be paid, like everything else, with this year’s revenues.

For decades, politicians of both parties have borrowed the trust fund money and trillions more (actually a trillion a year these days) to finance their spending wishes on the backs of those yet to be born. This strategy – called pretending the future doesn’t exist – is good politics and worked well for Greece and Portugal, at least until it exploded and ruined those two countries.

Despite all the warning signs in Europe and a subtle alarm from trustees, politicians in the swamps of Washington continue to pretend nothing need happen. Paul Ryan’s an alarmist. All is well.

Back at home, we have similar problems but we’re doing something about them. Some politicians have been critical of my description of fiscal crisis and claimed that we didn’t need to cut the budget 10% because previous budgets were nominally balanced.

But over the two budgets previous to the cut, we increased spending without the revenues to pay for them. New funds were created to obscure general fund spending and spending paid for with borrowed money doesn’t count under our accounting rules but, comparing apples to apples, general fund revenue rose over two budgets by 14.5% in regular tax funds and 20% in total funds despite an actual decline in tax revenue.

How was that possible? A federal bailout of one-time used to pay for ongoing expenses was one way but borrowing was another. Unique borrowing methods shifted money off the regular books to make comparisons difficult. We even borrowed money to pay for our borrowing costs.

Look at state debt. From 2007 to 2011, state debt rose 43.5%. The previous two four years cycles, it rose by 8% and 4%. Put another way, the annual increase from 1999-2007 was 1.4%. From 2007-2011 it was 9.5%. So we borrowed to balance. Nice work in Washington, unusual in New Hampshire.

In the current spending declined because we don’t have the money. Debt is going to decline as well. Although be careful. There are some politicians today who want to borrow more while the interest rates are low. That makes sense if it replaces borrowing in later years but I fear they want to borrow in addition to not instead of.

New Hampshire learned the lesson of Greece and Portugal. Washington still hasn’t.

 Charlie Arlinghaus

April 18, 2012

As originally publish in the New Hampshire Union Leader

Taxes should be passed by the legislature not imposed through regulative fiat with legislative approval or disapproval. Regulators do not have the authority to tax internet access and have created a multi-million dollar budget liability by using the audit process to create an area of taxation that the legislature has not clearly imposed.

Some, but not all, legislators prefer tax administrators extending the limits of the law with the legislature having to act. But sensible government demands administrators administer clear laws and any ambiguity be cleared up by the policy making elected officials.

New Hampshire passed a communications tax in 1990. It applied to telephone calls and anything similar to telephone calls like faxing and the new area of mobile communications. It specifically excluded a form of computer processing that we now see as the internet.

 A Federal effort to pre-empting states from taxing internet services in 1998 was led by, among others, New Hampshire’s Judd Gregg in the Senate and John Sununu in the House. There was a list of states that were “grandfathered” because they already taxed the internet. New Hampshire was not on that list. We didn’t tax the internet and had no intention of taxing the internet.

If you had dial-up AOL or Compuserve for email or internet in the 1990s, you didn’t pay any communications tax to New Hampshire on your hourly charges or your $19.95 monthly bill.

The law was well understood to tax phone calls and not internet access. Areas of disagreement were over things like voice over internet which used the internet but wasn’t email but essentially a phone call.

In 2004, the revenue administration didn’t go to the legislature to change the law but instead proposed to extend the tax by regulation to a variety of internet services not currently taxed like email and chat rooms.

My organization attacked the plan with a short paper called “Bureaucratic Tax Proposals Subvert The Democratic Process.” I argued that tax changes should be passed and debated by the people we elect to make those decisions. Some, but by no means all, legislators preferred to evade accountability by having a commissioner make the proposal and take the heat. “We didn’t pass a new tax, the administrators cleaned up a loophole.”

Because of public scrutiny and public outrage over the imposition of new taxes through regulation, the department quickly backed off its proposal but lay in wait to fight another day.

That fight should have made clear what legislators understood the tax to apply to. But after a few years of cooling off, quietly and without any law change, the revenue department started auditing internet companies and telling them they should have been collecting internet taxes for years.

An audit is a big threat and hassle but it exists not to “maximize revenue” but to collect revenue fairly and ensure no one cheats. They exist to administer existing laws. If there is a reasonable question or questionable interpretation, it is up to the legislature to set policy.

In this case, the law does not provide for internet taxation. New Hampshire has not taxed the internet historically. Since New Hampshire’s current tax system began and precedent was set by not taxing internet service (as the law clearly suggests), no law has been passed at the state level changing anything. Without a change in law, there should not be a change in collection. The threat of an audit is not a substitute for legal authority.

This may seem like a small matter (forty or fifty dollars a year for most consumers) but there is an enormously important principle at stake here. We elect people to make policy decisions. They delegate the administration of those decisions to others but they remain responsible and accountable for the decision to take our money or not take our money.

Administrators are not subject to public forums, town meetings, debate with opponents of their decisions, or – most critically – elections.

Sen. Chuck Morse and Rep. Ken Weyler announced an effort to clarify for consumers and providers that New Hampshire does not tax the internet. Their language is charitable. It would be more accurate to say they need to step in and stop the administration from using its audit authority to create a policy that is not based in the law, is not based in the traditional interpretation and implementation of the law, and has no basis in the clear legislative intent. 

Charlie Arlinghaus

February 29, 2012

As originally publish in the New Hampshire Union Leader

 

As town meeting season approaches and local budgets begin to worry us all, we can find inspiration in the oddest of places. In this particular case, fiscal conservatives across New Hampshire should look to and emulate the liberal lion of New York, Andrew Cuomo.

As governor of New York, Cuomo adopted the most significant property tax cap of recent years. Fortunately for us, the New Hampshire legislature has made it easy for any and all towns of New Hampshire to follow suit. Under legislation passed last year, any town in New Hampshire may adopt a legal limit to the annual growth in property taxes.

Cuomo was elected governor in 2010 as a mainstream liberal but with a difference. In 2010, New York was an economic basket case that made New Hampshire look almost fiscally responsible by comparison. Well, not really but they were definitely in even worse shape.

Cuomo got elected saying raising taxes was not an option. But he went one step further and decided to go after the most annoying of all taxes, the local property tax. The liberal governor pushed through a tax cap long championed by a conservative state think tank.

The Cuomo cap was modeled after the successful prop 2 ½ in Massachusetts. It limits growth in property taxes to the rate of inflation or 2%, whichever is lower. Both houses of the legislature signed on and New York now has a property tax cap for every town, village, district, and other local government (10,500 different government entities).

In New Hampshire the notion of tax cap is not new but they have been under-utilized until recently. The city of Franklin adopted the first tax and spending cap in 1989. For a time, they were something of a lone wolf in New Hampshire but over the intervening twenty years communities that make up 24% of the state’s population have adopted spending caps.

Until last year, caps were limited to cities and the few towns that have a town charter. To make matters worse, lawsuits and uncertain statutory language put the status of some tax caps into question. In 2011, all that changed.

The current legislature passed language making it clear to the courts that it was granting the authority for towns to pass tax caps. In doing so, it extended that ability to any and all towns in the state. Wherever you sit reading this, your town now has the authority to adopt a tax cap limiting the growth in property taxes to the rate of inflation.

A local tax cap is not a radical change but rather a modest restraint. It sets rules for government spending. Opponents complain that it will be harder for government to “spend the money it needs.” But that seems to look at government exactly in reverse. Should government focus on spending ever increasing amounts of money or on limiting the amount of money we take from people? Governor Bill Weld of Massachusetts expressed it succinctly twenty years ago: “We’re raiding the citizen’s paycheck to pay for all this stuff – we’ve got a moral obligation to take as little as possible.”

Some government needs do increase more in some years but a cap makes clear that new priorities demand an adjustment of old priorities. Local government can’t be a one-way ratchet where every program always gets more and none are adjusted downward. A tax cap makes clear that there are limits and boundaries to government.

In unusual times, the spending limit can be exceeded but only by a supermajority vote. This is a principle we already require towns to use to approve borrowed money.

There are two approaches to getting property taxes under control. The wrong approach is raising taxes to cut taxes. The last two states to adopt an income tax, Connecticut and New Jersey, both did so expressly to lower property taxes. It didn’t work. They are two of the three states with higher per capita property taxes than New Hampshire.

Governor Cuomo instead adopted the Prop 2 ½ model. When Massachusetts adopted Prop 2 ½ it had the highest property taxes in the country. Over thirty years, they declined to 32nd.  Citizens in every New Hampshire town now have the authority to follow those footsteps.

By Grant Bosse

December 23, 2011

As originally published in the Concord Monitor

Economic downturns and budget deficits are not good things.  But like most things in life, we can always look on the bright side.  One of the fringe benefits of tough times is that public officials spend our money a little more carefully.  With some prudence, we actually preserve some of these efficiencies for when the economy rebounds and revenues begin to roll in.

Such is the case with New Hampshire motor vehicle fleet.  Last year, the Legislature passed SB 402, which among other provisions required state agencies to track and report the Non-Business Use of state cars and trucks under 10,000 pounds.  Any vehicle driven more than 15% of the time by employees off the clock would automatically be returned to the state pool, unless a committee of top officials granted a waiver allowing the continued use of the car.

The first such report was presented to the Legislative Fiscal Committee earlier this month, and we’ve published a “Fleet Week” of stories digging into the data at New Hampshire Watchdog.

Rep. Ken Weyler (R-Kingston) has been chasing the Great White Minivan of fleet management for years.  Ironically, he was bounced in the Democratic wave of 2008, and wasn’t around when SB 402 passed.  But he came back in the Republican wave of 2010, and was chairing the Fiscal Committee when Department of Administrative Services Commissioner Linda Hodgdon presented the findings.

It turns out that state employees drove state cars more than 1.5 million miles for Non-Business Use last year, and some of those miles may actually end up saving us money. DAS estimates that the cost of operating a vehicle averages $.33 per mile, so New Hampshire taxpayers spent just under a half-million dollars last year paying for employees to drive cars when they were off-duty.

Most of those miles were from mid-level state employees, largely in the Department of Transportation, taking specialized state cars from their homes to their job sites.  DOT officials argue that it’s cheaper for a project foreman or bridge inspector to drive a state car directly to work than pick up the car, punch in, and get paid to drive to the site.  Taxpayers end up footing some of the bill for an employee’s commute, but end up saving money by keeping those workers off the clock until they actually get to work.

But some other high profile examples are much more like the corporate perks we associate with government cars.  Several top officials lost the keys to the state taxpayer-funded rides after racking up too many non-business miles, including all three of the state’s Liquor Commissioners and the Executive Director at Fish and Game.  Department of Resources and Economic Development Director George Bald and HHS Commissioner Nick Toumpas kept their cars.  Bald also fought to keep the “company car” of Cannon Mountain GM John DeVivo, arguing the perk was part of DeVivo’s agreed compensation and that the heavily-logoed car would serve as a billboard for Cannon on his commute between the mountain and his home in Bethel, Maine.

Whether this non-business use of state vehicles is justified is up to lawmakers, and the folks that elect them.  But there is a clear difference between asking a construction foreman to take home a truck full of equipment and letting a manager commute for free every day.

You and I are expected to make our way to the office on our own dime.  My boss Charlie Arlinghaus (Secret Service Code Name: Argyle) hasn’t tossed me the keys to a Chevy Malibu so I can drive to Concord every morning.  Occasionally, I’m also expected to drive to various state offices to cover meetings.  Here is the complete mileage reimbursement policy from page 1,237 of the Josiah Bartlett Center Employee Handbook:

“Suck it up.”

Actually, Charlie has encouraged me to submit mileage reimbursement forms.  He thinks he’ll find them amusing.

We’re not going to balance the budget by running a more efficient motor pool.  But our Fleet Week series has shown how a little bit of daylight can force public officials into making better decisions.  Let’s remember that in better budget years.

Grant Bosse is Lead Investigator for the Josiah Bartlett Center for Public Policy, a free-market think tank based in Concord.

By Charlie Arlinghaus

May 2011

With ten of the twelve months of revenue collected for Fiscal Year 2011, revenues are on track to be $54.6 million short of the budgeted amount. The shortfall will not only require action to balance the last budget but also reduces the base used to project revenue growth for the 2012-13 budget currently under consideration.

Revenue collections for the current fiscal year have been falling further behind the estimates used in the last budget. After the April numbers were reported, some analyses have compared revenues to the month-by-month plan. A better assessment uses historical averages to avoid having to make a judgment about the accuracy of the month-by-month projection.

Historical Averaging Methodology

The chart below compares the major categories of state revenue with the historical collection amount. For example, Meals & Rooms Tax revenues were $199.4 million through the first ten months of the year. Historically, the ten-month total for that tax is 81.9% of the final collection. If this total is 81.9% of the final, we are on track to collect $235.4 million which is $9.6 million below the budgeted amount.

The table combines BET and BPT collections into “business taxes.” Because the two are not separate taxes but linked to each other, projections are more accurate when the two are combined. The list also includes a similar projection for the combines other categories of revenue which are not calculated separately. The insurance and statewide property taxes and Medicaid enhancement revenue are discussed following the table.

Tax Source April 2011 Historical Average Projected Total Budgeted amount Difference
Business Taxes 392.7 .819[1] 479.5 503.0 (23.5)
Meals & Rooms Tax 199.4 .847 235.4 245.0 (  9.6)
Tobacco Tax 192.3 .822 233.9 220.6 +13.3
Liquor Revenue 102.2 .831 123.0 127.9 (  4.9)
Interest & Dividends Tax   65.9 .846   77.9   90.1 (12.2)
Real Estate Transfer Tax   67.2 .832   80.8   89.2 (  8.4)
Other Sources[2] 314.9 .808[3] 389.7 386.5 +  3.4

These seven categories add up to a projected budget shortfall for the first of the two budget years of $41.9 million. To this total we need to add estimates for the Insurance Tax, Medicaid enhancement revenue, and the Statewide Property Tax. There is seeming broad agreement that the two Medicaid enhancement sources will end the fiscal year short by a combined $14.2 million.

Insurance receipts are more or less complete and will likely end the year $1.5 million ahead of budget. The Statewide Property Tax will be right at the budgeted amount. The SPT is set at a fixed amount not a rate so it isn’t an estimate that varies.

Revenue Shortfall for Fiscal Year 2011Combining the seven-source estimate with the other three sources, the state is currently on track to be $54.6 million short of its budgeted revenue in FY2011. That total would reflect a drop of 1.6% below the levels of FY2010

How this Estimate Will be Wrong

Using historical averages gives us an estimate of each tax but the actual performance will vary a point or two from the average. What is most likely is that some taxes will end just higher and some just lower than average so the variations will be smoothed out. Nonetheless, this projection is not meant to predict an exact number. What is most likely is that revenues will finish the year close to $54.6 million behind barring any unusual event (like last year’s surprise windfall of $32.1 million which caused the June revenues to be revised dramatically in the accrual statement).

Impact on the Budget Debate

The revenue numbers for Fiscal Year 2011 are more important than just as a look back at the prior year. The current budget being debated must balance any shortfall from the prior year. In addition, the FY11 numbers are used as base for the estimates of growth in 2012 and 2013. As such, any change in the 2011 number has a threefold impact as it affects each of 2011, 2012, and 2013.

The governor’s original estimates in his February 15, 2011 budget address and the numbers used by the House of Representatives in the version of the budget it passed in March are $307 million apart[4]. Half the difference is explained by a difference in the 2011 number and therefore a lower base for 2012 and 2013. If the FY2011 shortfall is $54 million not zero, then the economic projections for the following years are built off a lower base. The shortfall plus the lower base would make a total difference of $162 million. The rest of the difference is a result of the governor using optimistic economic predictions for 2012 and 2013 and the House using pessimistic ones.

Muted recovery

The lower revenue for FY 2011 would leave the revenues used to finance the general and education funds 1.6% below the FY2010 level. While declines in total revenue are rare, a 1.6% decline is a slight improvement over the 3.5% drop the prior year and the 10.5% decline in 2009. Although we are still well below the ten-year average growth for FY2001-FY2010 of 1.45%. The weak performance for FY2011 suggests that the economic recovery is somewhat muted in terms of its impact on state revenues. As such, growth estimates going forward should remain cautious.



[1] The business tax average is for the years 2001-2009. FY 2010 included what an unusual $32.1 in extension payments which caused a dramatic revision of the June number. Regular collections absent the unusual event were in line with the 2001-09 historical average.

[2] For comparison with the state’s monthly revenue reports, “other sources” as defined here includes the communications tax, court fines & fees, securities revenue, utility consumption tax, board & care revenue, beer tax, racing & games of chance, gambling winnings tax, transfers from lottery commission, transfers from racing & charitable gaming, tobacco settlement, utility property tax, and “other.”

[3] For the category of other taxes, the historical average is for the years 2006-2010. The trend has been consistent over the last five years but not for before that. Using a ten-year average would significantly exaggerate the projected amount of shortfall.

[4] The estimates used by the House and Governor treat a Meals and Rooms Tax change differently. The last budget dedicated a portion of that revenue to a specific debt service payment. Both budgets acknowledge the law change in expenditures but the governor’s budget includes that revenue in his general fund revenue estimates while the House doesn’t. The change amounts to $5m in FY2011, $14.6m in FY2012, and $14.4m in FY2013. To make the revenue numbers comparable to each other and to the state monthly revenue updates, this analysis includes the dedicated revenue in the general fund totals.

By Charlie Arlinghaus

April 13, 2011

As originally published in the New Hampshire Union Leader

The budget that passed the House and was sent to the Senate at the end of March wasn’t perfect nor is it supposed to be. What the budget did do is to use realistic budget numbers and make the very difficult decisions required to balance a budget and close the largest budget gap in modern history. Each of us will set different priorities for spending but the House draft of the budget clarifies the choices we have to make if we want to change some of those decisions or create different priorities.

The House draft is probably the most difficult part of the process. They have only six weeks and program supporters still talk about each program independent of the budget as a whole. The major accomplishment of the House draft is to take the level of money the House and Senate agree on and craft an actual budget based on that amount. It becomes what a final budget might look like.

They have to make broad decisions and weigh each program against every other program. But now we have a draft that balances and we can look at it and decide where to reprioritize.

The most debated parts of the budget are the cuts made to human service programs. As I’ve mentioned before, every part of the budget was reduced. Programs in Health and Human Services saw a smaller reduction but a reduction nonetheless.

The hardest part of this year’s budget is to account for stimulus programs in making comparisons. So, for example, the amount of general fund (state tax dollar) money spent on HHS isn’t actually changing much. However, in the last budget we spent $167 million of federal stimulus money as if it were state tax dollars. So while the budget impact is flat, a fair comparison of changes the program itself has to make requires we add back in the stimulus money and suggests a cut of about 12.5%. This is still less than the 29% cut to the rest of state government but somewhat higher than the 4% cut to local aid programs.

Perhaps the most controversial cuts to HHS programs are the cuts to mental health programs and to services for people with developmental disabilities. To measure the impact of those cuts on the population served, I’m going to make comparisons using the total funds in the budget – all money spent in those divisions regardless of whether it’s from federal sources, state sources or grants – because it is total funds that determine how much or how little an agency can do.

The divisions of Behavioral Health and Developmental Services make up about 20% of the Health and Human Services budget. The House passed budget for FY2012, the first and lowest of the two fiscal years in the budget, is about $1.8 billion for HHS. Of that total, $353 million goes to Behavioral Health and Developmental Services.

The total budgeted HHS spending is about 6% less in total funds than two years before and actually 4% higher than four years before.

Many budget observers would say that while cuts to some programs are quite sensible in difficult economic times, programs that help people who can’t help themselves are in a different category and should bear a significantly lesser burden. The most often cited categories are services for mental health and developmental disabilities.

The Division of Developmental Services actually fares better than HHS as a whole in the House budget. The House budgeted amount is $255 million in 2012. That represents an increase of 7% over 2 years ago and 22% more than 4 years ago.

In contrast, the Division of Behavioral Health actually fares worse than HHS as a whole. Their total fund appropriation in FY2012 is $98 million which is about 18% less than 2 years ago and even 1% less than four years before.

The House budget was a huge step forward in the process. It set priorities and achieves a realistic balance. It also allows us to compare and think about priorities and making some alterations to those priorities.

The House prioritized cuts to state government that were significantly greater than cuts to the local aid half of the budget. HHS quite sensibly saw smaller cuts than the rest of state government did but Behavioral Health saw cuts larger than the department as a whole.

A sensible compromise might bring local aid cuts closer in line to the cuts to state government and a lesser cut to Behavioral Health.

 

 

 

By Charlie Arlinghaus

April 6, 2011

As originally published in the New Hampshire Union Leader

The draft of the state budget that passed the House last week is a significant cut to state government but much of the political hype about it from both sides is slightly different from the reality of the numbers.

Faced with the worst budget shortfall in recent history, budget writers were forced to either make significant cuts to state spending or to raise taxes. In the midst of a precarious economic recovery, neither the governor nor the House was willing to raise taxes and hurt job growth even a little bit. That left spending cuts.

Everyone agreed going in that cuts would involve more than just eliminating elusive waste and inefficiency or making small cuts for everyone. The government would actually have to stop doing some things that we might think were a good idea in better economic times. The budget that passed the House is without question the biggest cut in modern state history. On apples to apples terms, the proposed budget would spend 11.3% less in general and education funds, the state operating budget, than we will spend in the current two-year budget. That amounts to an actual cut of $564 million.

The budget can be divided into three parts. Debt service is only 5% of the budget but comprises payments for money we already borrowed in previous years and therefore must pay for. It went up 9% and we had no choice. The remainder of the budget can be divided into two halves: local aid and the operations of state government.

The current budget cuts local aid but by only about 4% to $2.2 billion; most of which is for schools. The governor would have cut local aid a bit more but the House added back in $28 million for special education and $29 million for building aid. Otherwise, they were broadly in agreement, notably on eliminating the state subsidy of local government retirement costs.

The biggest disagreement comes over the state government portion of the budget which the House budget writers reduced by 19% or $481 million. In the current two-year budget ending in June, the state government portion can be divided into Health & Human Services (HHS) and the rest of government, each about half.

The House budget writers did not cut those two chunks equally. In fact, spending on HHS functions was essentially flat, dropping $19 million or 1.5% not counting stimulus money. The other half of government declines in this draft of the budget by 29%.

This isn’t meant to minimize the cuts to HHS. Certainly caseloads are still rising and health care inflation is much higher than price and wage inflation. A 1% cut without significant economic recovery to reduce the pressure is difficult. But in setting a smaller cut for HHS budget writers set clear priorities.

Programs for those who most need help were almost level funded. The rest of government was cut by 29%. Most of us would probably lean toward that sort of priority setting if we had to find a way to reduce the budget.

Having said that, I don’t think the priority setting in the current draft of the budget was all well placed. Because House leadership has been focused on a misplaced downshifting argument, local aid has emerged somehow as a sacrosanct part of the state budget.

The argument is that while cuts to state government operations are fine, any reduction in local aid is a “downshift” and will result in higher property taxes. This argument wrongly presumes that state government has the ability to reduce its expenditures 29% in some areas but local governments can’t ever reduce anything even in budget crises.

It would seem more rational that if state government and local aid are each half of the state operating budget, the part funded by regular taxes, then each half could be reduced by a similar percentage without one side claiming the other is shifting its burdens. In contrast, the current House draft cuts local aid by 4% and the rest of state government by 19%.

I think an 11% cut to each half would be equitable. Without question it would require difficult choices to be made at the town and school level but no more difficult than the choices being made in Concord.