Taxes should be voted on not snuck in through regulation

 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. 

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Liberals and Conservatives Join Together to Cap Taxes

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.

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New Hampshire taking the keys away from top bureaucrats

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.

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FY2011 Revenues on track to be $54.6M short of budget

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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.

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House Budget Draft Lets Us Evaluate and Change Priorities

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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.

 

 

 

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New Hampshire State Budget by The Numbers

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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.

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Higher Vanity Plate Fees bring small drop in Sales

Higher Price, Slow Economy mean fewer customized plates in NH

By Grant D. Bosse

December 9, 2010

Fewer New Hampshire drivers are paying a premium to customize their license plates, following a 60% increase in the fee. The New Hampshire Legislature increased the annual surcharge for customized plates from $25 to $40 as part of the 2009-2010 budget. The higher rate went into effect on August 1, 2009. One year after the fee increase, there were nearly 10,000 fewer vehicles with premium New Hampshire license plates. This drop-off represents a small fraction of car owners, as the percentage of vehicles with vanity plates has fallen from 14.8% to 14.3% of all cars on the road.

[pdf http://www.jbartlett.org/wp-content/uploads/2011/06/NH_Vanity_Plate_Followup_2010.pdf]

Click here to download a pdf version

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Accounting Gimmicks Can’t Hide State’s Fiscal Disaster

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Charles M. Arlinghaus

 October 6, 2010

Originally published in the New Hampshire Union Leader

After months of discussion about the exact size of the historic deficit we face next year, the news is filled suddenly with reports of a surplus. Did something change or are we just in the middle of election season? The short answer is things haven’t changed but the easiest distraction from bad news is to ignore it completely. The deficit is still huge. It will dominate the state’s financial future. And, paradoxically, we have a mid-budget surplus for the same reason we face a huge deficit.

New Hampshire has a two-year budget but sensibly mid-budget progress reports are announced. After weeks of discussion of the state’s dismal outlook, the governor eagerly announced this week that the state ended FY2010 in June with a $70M surplus. The public can be forgiven for being confused about how it is possible to have a surplus and also to be facing a huge deficit.

The current legislative leadership and administration will tell you they made the tough decisions and balanced everything through sound financial planning. Let’s look at what happened and decide for ourselves if it was sound decision making or if those decisions were bad for the long term stability of the state.

Although the total budget increased over the last four years by $2 billion, the increase in general and education funds was about $700 million while state tax revenues declined slightly. That revenue decline put a lot of pressure on the state budget. Ordinarily, without the money to pay for it, spending would need to have remained flat as well.

To keep increasing spending as if they had the money, legislators and the governor were forced to turn to three temporary sources for $597 million of one-time revenue. The largest chunk of temporary scaffolding came from the federal stimulus. Some stimulus money is meant for dedicated projects like paving. However, the current budget for FY10 and FY11 includes $351 million in state bailout funds to be used for whatever we wish. It goes away next year.

The budget also includes $90 million in one-time state revenues like the sale of state assets. Obviously you can’t sell things twice so that revenue also goes away next year.

Finally, the most dangerous thing we did was to borrow $156 million to plug what would have been a deficit including borrowing more money to pay the interest on money we borrowed in the past. As an added bonus, under state accounting, if you pay for a program with borrowed money it doesn’t count as spending so you can claim it as a spending cut.

All of that $597 million has to be replaced or the spending it paid for has to be cut. In addition, the state undertook $300 million of one-time spending reductions that will come back. For example, we suspended municipal aid but promised towns it was temporary and will come back next year. That’s how we can claim balance this year and have a deficit of historic proportions next year. Back in the day, this was referred to as robbing Peter to pay Paul and generally frowned upon.

Even among all the excess money, further games were played. The feds gave us $80 million each of FY10 and FY11 to prop up education spending. As the first fiscal year drew to a close in June, politicians fretted that the mid-budget number might be embarrassing so they fast-forwarded and spent $160 million in the first year and none in the second.

Spending it all in one year doesn’t have any impact on the state’s two-year budget but the quick infusion of $80 million turns the mid-year shortfall into a mid-year surplus just like magic.

A good sign that the nominal surplus is illusory is that no one has proposed using it to restock the rainy day fund. That’s simply because the surplus is a shell game not real.

For the future of our state, the real question is where we stand going forward. While people disagree about the exact number, no budget observer would disagree that the starting budget problem for next year is somewhere between $600 and $900 million.

When a politician starts talking to you about the supposed surplus, simply nod your head and humor them. Then politely turn the conversation to the current state of affairs. How big do they think the hole is for the next budget?

The current budget problems were covered up with borrowing and bailouts. Do they intend to borrow another $156 million for spending? Are they counting on another bailout from Washington or will they join the 37 other states that reduced their spending while New Hampshire increased its spending?

We have a huge problem in the future. Pretending it doesn’t exist won’t make it go away.

 

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