In October, state legislators held a tax summit and a week later held a spending summit. Charlie Arlinghaus’s presentations to each gathering are attached here. Arlinghaus outlined the state’s only two successful modern attempts at tax reform in 1970 and 1993 and warned legislators that reform attempts will only be trusted if revenue neutral. At the spending summit, he pointed out a $200 million deficit in the current budget and warned about a $625 million deficit lurking in the next budget.

Spending Outlook

 

Taxes and the Economy

[pdf http://www.jbartlett.org/wp-content/uploads/2009/09/New_Hampshire_Hiring_Freeze_2008.pdf]

 

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June 18-19, 2009

We’re live at the Legislative Office Building in Concord, where the House-Senate Committee of Conference is finishing up its work on New Hampshire’s two-year $11.5 billion budget.

Updates as warranted until they pass the budget.

12:30pm- Revenue down. The Committee is downgrading its revenue estimates by $189 million. That just means more taxes they have to raise, since they’ve already agreed to a big spending increase.

1:04- Courts stay open. The Committee will leave open four District Courts that would have been closed in the budget, Keene, Claremont, Colebrook, and Milford.

1:13- Gambling compromise- Sen. Kathleen Sgambati has offered a compromise gambling amendment that would limit the state to a single slot-machine gaming license, which would automatically go to Rockingham Park in Salem. The amendment also allows for a study to look into whether other licenses should also be added. Sgambati’s proposal also includes a number of cuts to various Health and Human Services Programs.

1:25- Lynch arrives- Governor John Lynch is on the scene, and holding private discussions with various Senators and Representatives.

1:34- Cutting local retirement- The Committee just agreed to cut the state’s contribution for municipal retirement. It’s currently 35%, and would go to 30% in FY10 and 25% in FY11. This would not reduce the benefits owed to municipal workers, but would require local taxpayers to pay a greater share of those costs.

1:40- Dueling Blogs- Rep. Steve Vaillancourt is also providing a running commentary at RedHampshire.

1:43- Lou Speaks- Sen. Lou D’Allesandro has scheduled a 2:00pm press conference downstairs in the LOB. He is not currently in the Conference Committee meeting room.

2:31- Pro-Gambling Senators Speak Out
Sen. Lou D’Allesandro led a group of six pro-gambling Senators in a press conference calling for a “non-taxpayer based” revenues source for the state budget. The Chair of the Senate Finance Committee and lead negotiator for the Senate in budget negotiations has been taking a hard line that gambling must be included in any budget he supports.
D’Allesandro, flanked by Senators Peggy Gilmour, Bette Lasky, Michael Downing, John Gallus, and Betsi DeVries, presented a plan to raise $205 million from casino-style slot machines at the state’s race tracks and in the North Country.

D’Allesandro’s says his plan would produce a $55 million surplus, which would be used to address Charter School or other cuts made to the budget. His plan also includes:

  •  State employee furlough
  •  Additional 1/4 point increase in the Rooms and Meal Tax, slated to go 8.75%
  •  Direction to the Governor to cut $15 million in each of the next two years

D’Alessandro said he would not accept a compromise offered by Senator Kathleen Sgambati, which would allow a single expanded gambling license to Rockingham Park. D’Allesandro said he was in favor of economic development for the entire state, and repeated his pledge to oppose any budget that does not include some form of his plan. Gallus, who has long pushed for a pair of slot parlors in the North Country, also opposed any effort to limit slot machines to Salem.

However, Manchester’s Lasky said she was open to compromise, but still preferred expanded gambling across the state.
D’Allesandro said he would not take himself off the Committee of Conference. All Conference Reports must be unanimous, though Senate President Sylvia Larsen could remove any holdouts to a final budget agreement. Larsen has sat through most of today’s negotiations, and at one point sat in when Sgambati is out of the room.

Governor John Lynch has been holding private discussions with key lawmakers throughout the day, but D’Allesandro says he has not been taken aside yet.

“I’m felling a little slighted. The Governor hasn’t taken me into a room. What am I going to do?” D’Allesandro joked. “You know, my wife does that to me sometimes.”

The clock continues to tick down as the Committee faces a Thursday deadline to pass the two-year, $11.5 billion back to the full House and Senate. However, Committee Chair Marge Smith has the power to “stop the clock” and hold off that deadline as long as necessary to get a deal done. Both Smith and D’Allesandro hope to avoid a Continuing Resolution, which would allow New Hampshire government to remain open should the Legislature fail to pass a budget by the end of the Fiscal Year on June 30th.

3:32- And we’re back.

And we’re caucusing. Lots of rumors in the hallways, but nothing to report.

4:00- The Associated Press reports that a coalition of New Hampshire health care providers are seeking an injunction to prevent lawmakers from raiding the Joint Underwriting Association for $110 million.

Traditionally, courts don’t intervene in legislation until it’s been passed, and the aggrieved party can show harm, but if the injunction is granted, it would blow a huge hole in the budget. As it stands, House and Senate negotiators are about $190 million out of balance.
Thanks to NH Political Report for the tip.

4:05- Time to pull the trigger- A high-ranking state official tells NH Watchdog that it’s “getting close to the time to pull the trigger” and remove pro-gambling Senators off the Conference Committee in order to a unanimous agreement.
The Committee remains in recess as its members caucus privately.

4:10- Berlin Senator John Gallus tells NH Watchdog that he expects to remain on the Conference Committee “as long as there’s hope” for the two North Country casinos he supports.

4:34- Building Aid- The Committee is back in session, and discussing whether to pay for Building Aid through the budget, or borrowing the money through bonding.

4:44- NH Press Corps is a fire hazard- Chairman Marjorie Smith has admonished us not to set up cameras in the doorways. Channel 9 has had a camera in the doorway most of the week, but it’s only become a problem today. The hearing room is packed, and the Committee has put extra staff chairs where TV cameras have been placed in the past, leaving little room to document the Committee’s actions. Steve Vaillancourt also points out that veteran State House Reporter Kevin Landrigan is on furlough from the Nashua Telegraph this week, and AP legend Norma Love is home recovering from a weekend biking accident, leaving the State House press corps even thinner than usual. We shall remain vigilant throughout the day, and try not to get in trouble with the Fire Marshall.

4:54- Charter School Cap repealed- The Committee has restored $6.6 million that would have been cut from state aid to Charter Schools by capping enrollment at 850 students next year. As reported by the Josiah Bartlett Center, this cap would have kicked hundreds of New Hampshire students out of their schools. Repealing the cap will enable small charter schools by taking in next year’s classes of students, who had already been accepted to start in the fall.

5:06- New Revenue Estimates- DRA Commissioner Kevin Clougherty has arrived with the latest revenue estimates. He estimates changes in business taxes would bring in $20 million more over two years, an additional $8 million from the increase in the Rooms and Meals Tax, more money from the higher tobacco tax, and small increases in Interest and Dividends, Real Estate Transfer, and Utility Property Taxes over the estimates in the House and Senate budgets.
Remember that it was two years ago that budget writers used last minute increases in the revenue estimates to justify their 17.5% spending increase. Rep. Norm Major warned at the time that those revenues would never materialize, and they didn’t.

Rep. Steve Vaillancourt has had a quick look at the estimates, and tells NH Watchdog that at first glance, “those don’t look too bad.” He says Leadership “may have learned their lesson” from two years ago.

5:37- Housekeeping- I don’t mean to belittle thousands of dollars in programs that effect thousands of New Hampshire residents, but the Committee is going through some smaller, less controversial items before entering the home stretch. I’d estimate that with the changes already made today, the Committee is still $50 million to $75 million out of balance, though I might have missed a few million.

6:05- The Committee continues to plow through less controversial differences between the House and Senate budgets. The budget will include new and increases taxes. The question now is whether it will include additional taxes on top of that, or expanded gambling. Supporters of each approach want to be the “Last Man Standing”. After every other unpopular idea is defeated, the last unpopular idea to be considered might just win approval. That’s why tonight could be a long night.

6:30- Fun with Funds- The Committee just approved two amendments dealing with the state’s off-budget funds. It capped the state’s Rainy Day Fund at $20 million. Anything over that will be transferred to the General Fund. They also agreed to transfer any surpluses in the Education Trust Fund at the end of any Fiscal Year into the General Fund.

6:50- More on Charter Schools- As reported earlier, the Committee has lifted the Senate’s enrollment cap of 850 students statewide at New Hampshire Charter Schools. However, they have maintained a two-year moratorium on authorizing any new Charter Schools, and directed state officials to determine how future cuts in Charter School Aid might effect New Hampshire standing under the American Relief and Recovery Act (Stimulus).

7:01- Liquor Warehouse- Rep. Ben Baroody is offering an amendment to have the Liquor Commission own its own warehouse, rather contracting out its storage under current law. CORRECTION- The Baroody amendment called for the Liquor Commissioner to study owning the warehouse, and was approved by the Committee.

7:20- Dinner Break- back at 8:00pm. Excuse me, make that “8:00pm”.

8:11- We now resume regular programming. Sorry for the delay. The House conferees had dinner in the room where I’ve been live blogging. They were afraid I wanted to film them eating dinner. Nobody wants to see that. Open government has its limits. Not back in session yet.

8:20- $70 million to go- After a number of changes this afternoon, including some more optimistic revenues projections, the budget hole is down to about $70 million. The new tax on LLC’s and bringing the Estate Tax back from the dead are still on the table. At this point, the budget hole is smaller than gambling would fill, which takes away the pro-gambling side’s argument that they have the only revenue source big enough to balance the budget. I’ve seen deals come together very quickly before a deadline, but no one is expecting a quick evening tonight. In fact, “Thursday” could last well into Friday.

8:47- Senate Time- In a break with decades of tradition, Senators are mingling in the Committee room while House members continue to caucus. Lengthy delays at the State House are often blamed on “Senate Time” as the upper chamber has long had a fluid relationship with clocks and deadlines. Tonight, however, it is the House delegation that is delaying the evening session. Such long waiting periods are frustrating for budget watchers, but in truth, if each side didn’t hammer out what it was willing to accept in a caucus, no deals would ever be reached.

9:15- Back in session- Hammering through small differences in the Health and Human Services Budget, which accounts for half of the state’s General Fund spending.

9:40- LLC’s on the chopping block- The Committee is taking up Rep. Susan Almy’s amendment to apply the Interest and Dividends Tax to Limited Liability Corporations (LLC’s). Almy says this would close a loophole in the law. LLC’s are subject to the Business Enterprise Tax and Business Profits Tax, but not the I&D Tax. S and C Corporations pay the tax on their dividends. DRA Commissioner Kevin Clougherty told the Committee that some LLC’s pay their officers higher salaries than are reasonable and escape taxation as dividends. He also said some taxpayers evade taxes by forming several LLC’s, each small enough to slip in under business tax thresholds.

Such tax avoidance is already prosecutable under current law. This change would apply an income tax to the nearly 100,000 companies registered as LLC’s in New Hampshire, though not nearly all of them are active. It would also put state tax collectors in charge of determining what salaries are reasonable. It would impose a new tax on New Hampshire smallest corporations, who have not had to pay high levels of taxes precisely because they are so small. But this new tax brings a lot of money to the table ($30 million over two years).

9:50- Your money is a loophole- The Committee has approved a series of “loophole” closing amendments proposed by Rep. Almy, including the new LLC tax, subjecting certain tax-exempt 501 (C) organizations to real estate taxes, and new restrictions on businesses that collect the Rooms and Meals Tax for the state. These ideas were first floated by the DRA on Monday afternoon, and have not had any Public Hearings or serious debate. They are being shoved into a budget if not at the 11th hour, then just before the 10th.

One new restriction which the DRA suggested was requiring ALL new Rooms and Meals paying business to post a $5,000 bond with the state against their future tax liability. Before a restaurant or hotel can open its doors, it’s now required to pay in advance so that state tax collectors can collect Room and Meals revenues from the businesses that it forces to collect for them. Imagine if you had to buy a surety bond every year in order to guarantee Uncle Sam that he’d get your check on April 15th. This is how we’re treating business in New Hampshire tonight. Oh, and we’re erasing the tax advantages of incorporating your LLC in New Hampshire as well.

9:57- No to gambling, yes to gambling taxes- The Conference Committee has approved a 10% tax on gambling winnings. This tax is a backdoor way of reducing New Hampshire’s payout under the Tri-State Megabucks game. The payout level is locked with an agreement with Maine and Vermont, but nothing prevents New Hampshire from taxing back part of the jackpot.

NOTE- this post originally reported that Sen. Hassan and Sgambati were removed from the Conference Committee for refusing to back the gambling tax. This was unconfirmed at the time. I was awaiting confirmation when I published the post. I am now seeking to confirm if they were removed, or were simply taking a break.

10:09 “Not Yet” I asked Sen. Sgambati if she was removed from the Committee over the gambling tax issue. She says she choose not to sit at the table during that vote, which allows a member of the Committee to let a distasteful compromise go through without having to actively support it. When asked if she was removed, Sgambati laughed, and said, “Not yet.”
10:20- Final Break- The Committee is taking a “Pause” before resuming with the final stretch of amendments. The latest bevy of tax increases, along with about $25 million in cuts to state payroll, just about close the remaining budget gap. But there are still several contentious issues left on the table including restoring funding for the popular Land and Community Heritage Investment Program (L-CHIP) and the much-awaited gambling throwdown. Stay tuned. Hey, it’s still raining at Fenway. Nothing else to watch.

10:37- +$2.3 million- Rep. Neal Kurk tells NH Watchdog that the latest tally given to Committee members has the budget with a positive balance of $2.3 million after today’s changes. That means the budget gap is closed, but does not guarantee that the ten members now sitting on the Conference Committee will support the budget as written.
10:47- Four amendments left- Committee Chair Marjorie Smith tells NH Watchdog that there are “very, very few- maybe four” amendments left to consider. Once the package is finalized, debate on final passage could be swift or could take a while. The Conference Committee must be unanimous, but both the Speaker and Senate President can replace a member who refused to support the package. Rumors have been circulating all afternoon, and all week, about which Senators, and maybe a House member or two, will have to be removed in order for the budget to move forward. We will not speculate; but we will tell you what happens. This budget might get finished on Thursday after all, though the Committee stopped the clock the meet the Noon deadline quite a while ago.

11:07- It’s getting late- The Dunkin Donuts coffee I brought in two hours ago is running out. Scott Spradling and I just discussed whether Moose Racing could bring back the tracks, and everyone wants to go home. This latest break is going on longer than expected, which means somebody to talking to somebody else about the details of the final deal.
But seriously, who wouldn’t take the family to see a Moose Race?

11:21- “Given what could have happened”- Sen. Bob Odell gives NH Watchdog his thoughts on the budget about to be adopted.

“I think the best part, and the Republicans had a lot to do with this, is that everyone was very tax-averse about the Capital Gains and other taxes that were on the table,” Odell said.

Asked about several new taxes first proposed Monday and adopted tonight, Odell added, “I think that in a Committee of Conference there were things that were added at the last minute that weren’t very well vetted, but given what could have happened…” referring to the Capital Gains Tax and other taxes included in the House approved budget.

11:30- Room with a view- Here’s an interesting tidbit I missed the first time around. Campgrounds would now be subject to the Rooms and Meals Tax, now up to 9%. So you’re paying a Rooms Tax to the state, even if you brought your own room with you. The DRA estimates expanding the Rooms and Meals Tax will generate $4 million. Given that campground stays have never been tracked by DRA, no one really knows how they came up with that estimate.

11:39- Sgambati’s reaction- Senator Kathleen Sgambati, who headed up the Senate negotiations on Health and Human Services, tells NH Watchdog that the budget about to be finalized combines “careful cuts and revenue increases we had hoped to avoid.”

“At the end of the day, I think that we’ve protected the state’s infrastructure and that we will provide services that are needed,” Sgambati said. “We’re going continue to work through the first of net year. We haven’t fully solved all of our problems.”

Asked if this budget can win approval from the full Senate, “Every individual Senator comes with different motivations and different marching orders from their district, and we’re all very strong, opinionated individuals,” Sgambati added. “I wouldn’t presume to predict another elected leader’s votes.”

12:06- DeJoie Bumped- As Thursday turns to Friday up and down the Eastern Seaboard; it’s still stuck at Noon on Thursday inside the Legislative Office Building. The Senate just rejected an amendment by Rep. John DeJoie that would have forced any layoffs of state employees to go to collective bargaining with the appropriate union. This would have given the State Employees Association or other union representing state workers, an effective veto over any layoffs ever.

DeJoie offered his amendment in response to the removal of “Bumping Rights” in the budget, a provision long sought by Republican governors, and long rejected by the Legislature. John Lynch included repeal of Bumping Rights in his budget address, and it’s remained in the budget throughout the long process. With Bumping Rights, a senior state employee facing a layoff could take the job of anyone working under him. That bumped worker could bump someone else lower on the pay scale, and so on until the most junior worker left had no one else to bump.

While this arduous process went on, the State Treasury would keep paying everyone’s salary and benefits. This diluted the cost savings of layoffs and ultimately could require that more lower level employees lose their jobs rather than a few highly paid state workers.

The Committee adopted direction this afternoon for the Governor to find an additional $25 million in savings from the state’s personnel budget. DeJoie estimated at least 100 state workers would lose their jobs. But budget writers are hopeful that layoffs can be avoided, or at least lessened, through a furlough program under which state workers would take unpaid leave. Since such a furlough program would require the approval of the SEA and other public employee unions, the Legislature can not implement it, but instead rely on the Governor’s Office to negotiate furloughs with the unions. Chair Marjorie Smith says the Legislature’s inability to pass a furlough program to save money and jobs is frustrating, and urged the Governor’s Office to push for such a plan.

12:30- Concord Warehouse revisited- The Committee has adopted an amendment that directs the Liquor Commission to maximize efficiency within its warehousing operations, specifying the role of the Concord Warehouse. The amendment allows the Liquor Commission to implement a warehouse optimization plan if it results in $5 million in savings, and transfer that $5 million to the General Fund.

Rep. Neal Kurk went along with the change, but questions whether budget writers could count on $5 million that may or may not happen. “I’m amazed at our ability to find new revenue,” Kurk quipped.

Chairwoman Marjorie Smith expressed faith in the ability of the Liquor Commission to optimize its operations, given the freedom the Legislature is giving the agency in this budget.

“I expect them to meet these requirements and more,” Smith said. “That’s what happens in a capitalist system.”

12:44-House rejects “Historic Racing”- The House has rejected an amendment by Sen. Kathleen Sgambati that would have allowed racetracks to install “Historic Racing Machines” which allow patrons to bet on random horse races run in past years. The bettor has no idea which historic race will be run, and can actually skip watching the race and get the payout immediately. Rep. Susan Almy objected to the machines, calling them a “bright line” allowing slot machines. She sighted a Wyoming Supreme Court decision defining the machines as slot machines.

Sen. Sgambati responded that New Hampshire is not Wyoming, and that other states allow “Historic Racing Machines” but not slots. She said the LBA estimated allowing the machines would generate $3 million in state revenues, and help keep the Belmont dog track in business.

Earlier today, Rep. Steve Vaillancourt, an outspoken critic of expanded gambling, distributed a flyer warning that machines would bring the same problems as slots.

12:53- No more amendments- The remaining crowd of lobbyists, reporters, and staff let out a cheer as Chairwoman Marjorie Smith announced that there were no more amendments to be considered. The Committee will now do a little housekeeping, and get down to the business of final passage. Once again, the Conference Report must be unanimously approved by five Representatives and five Senators. Speaker Terie Norelli and Senate President Sylvia Larsen on hand in case any members needs to be replaced in order to win approval. Neither Sen. Lou D’Allesandro nor Sen. John Gallus, both of whom pledge opposition to any budget without gambling, are currently seated at the table.

1:04 AM- Final Passage- The House-Senate Committee of Conference has adopted HB 1 and HB 2 as amended. Accepting for the Senate were Sen. Larsen, Hassen, Janeway, Reynolds, and Fuller-Clark. Accepting for the House were Rep. Smith, Eaton, Nordgren, Almy, and Kurk.

1:25- House Speaker Terie Norelli:
“I am so proud of the Conference Committee for all of the hard wok that they have done. This is culmination of six months of seriously looking at a very challenging budget. I think we made some significant cuts, and at the same time we have protected some programs that really help people, particularly in these challenging times. So I think it’s a very responsible budget, and I’m very proud of the work that the House and Senate have done.”

House Minority Leader Sherm Packard:
“We’re extremely disappointed that we didn’t look more closely at making cuts before we raised all the taxes. We’re disappointed that they decided to bond $87 million instead of funding it. There are a number of fees that are doubled. The registration fees on cars are doubled. The registration fees on boats have been doubled. We’ve raised the Rooms and Meals Tax. We feel in this economy, it’s absolutely the wrong way to go. I think that we should have taken a much closer look at the budget and making cuts before we went about raising fees and instituting new taxes.”

1:36- Wrap up- We hope you’ve enjoyed this behind-the-scenes look at sausage making in New Hampshire government. This morning’s papers will have great reports on the budget’s bottom line, and some of the most controversial issues, but no reporter will have the column inches necessary to capture the wide-ranging debate that took place today in Concord. This live-blog didn’t come close to capturing everything, but we hope to have given you a better understanding of the issue facing state budget writers, and the choices they made today.

The House takes up the two-year, $11.5 billion budget on Wednesday, June 24th.

Submitted by Grant Bosse
Lead Investigator
Josiah Bartlett Center for Public Policy