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State’s Poor Fiscal Health Demands Caution

Charlie Arlinghaus

March 7, 2012

As originally publish in the New Hampshire Union Leader

Stupid laws beget stupid problems. The current debate over the rainy day fund and what to do with a surplus has been going on for eight years and is a direct result of bad legislation. What to do, as with most budget issues, requires common sense and a little discipline. The last budget had an odd technical surplus and we should prevent people from being too excited about the existence of money that may mislead them about the state’s very poor fiscal health.

The State of New Hampshire operates under a two-year budget. The audit for the second year of the budget ending June 30, 2011 shows that the state ended the two year budget cycle with a decent surplus – with a $17.7 million balance plus $9.3 million in the rainy day fund for reserves of $27 million. (we started the cycle on July 1, 2009 with a zero balance and $9.3 million in the rainy day fund). In the first year of the budget, we took in $65 more than we spent but in the second year we spent $48 million more than we took in despite significant lapses in spending that the governor quite justifiably brags about.

It would be unfair to describe FY2011 as having a $48 million deficit because we budget on a two-year cycle. It is no more important than an individual twelve months be balanced than that a week or month be balanced.

Don’t let talk of a $17 million surplus fool you into think everything is hunky-dory in Concord. Things aren’t horrible but the budget was only balanced in 2010-2011 by the unprecedented use of borrowed money and grants. The first of the two budget years had used nearly $300 million in one-time federal bailout funds and borrowing. The second year – the year being talked about publicly as having a “surplus” – used $200 million in borrowing and one-time grants and still was $48 million short for the year.

The Swiss cheese nature of the last budget is why the current budget was forced to make significant cuts. The current two-year budget is projected to spend 9.9% less over its two years than the last budget did in an apples to apples comparison. Those cuts were required to replace borrowed money and the federal bailout.

The governor frets that the current budget is $14.1 million short in the first year with $14.7 million extra in the second. In a two-year budget cycle that seems reasonable compared to the $65 million up, $48 million down roller coaster in the last budget.

The real fight right now is over the rainy day fund. Yet, the sad part is that if state law were followed, there would be no debate. Under the state’s rainy day fund law, any surplus at the end of the two-year budget shall be deposited into the rainy day fund once the audit is complete. There is no vote, no choice. It happens automatically.

But the current budget suspended that law as did the three budgets before it. Section 207 of the current budget requires “nothwithstanding RSA 9:13-e…any budget surplus shall NOT be deposited….” Faithful readers will recall my carping on this subject during Gov. Lynch’s first budget when he also enjoyed a Republican legislature. Republicans inserted the language, then Democrats followed suit, and now Republicans did it again. You’ll forgive me if I have no sympathy now that suspending the budget law has come back and bit them in the neck.

The point of a rainy day fund law is to automatically take surpluses generated in good years and save them so we don’t have to play odd borrowing games in off years. The rainy day fund requires approval of both the governor and the legislature for a withdrawal and stipulates conditions that must be met (deficit or revenue shortfall). It’s not meant to be a windfall to be used to fund whatever you wish to fund instead of raising the taxes to pay for your plans.

Because there are restrictions, some politicians prefer the flexibility of just leaving it as an undesignated balance to use however they wish. But in New Hampshire we have storm clouds on the horizon (hospital lawsuits, uncertain revenues, and an uncertain economy) and our track record of responsibility is poor.

The legislature did the wrong thing in suspending the rainy day fund law. The Governor is suggesting they double down on their mistake. They need to ignore his siren calls, admit their error, and put the money away in the rainy day fund before someone spends it.

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Best Chance Ever for Education Aid Amendment

By Eugene van Loan and Martin Gross

The New Hampshire Senate recently passed and sent to the House of Representatives yet another proposed constitutional amendment designed to specify our state Legislature’s authority and responsibility regarding state aid to local education, including the ability to use “targeted” aid as the basic form of education funding.

So, is this just deja vu all over again?

No, this time things are different. The Senate-passed proposal, known as CACR 12, is truly a bipartisan, multi-branch product.

Despite years of pronouncements by politicians of all stripes about how much a constitutional amendment is needed to restore stability and common sense to education funding, the various participants in the debate have never been able to agree on specifics.

CACR 12, however, not only received overwhelming Republican support in the Senate, but it was also supported by Democratic Sen. Lou D’Allesandro, of Manchester, and has since been endorsed by Democratic Gov. John Lynch.

Further, within days of the Senate action, a number of business and community groups publicly signed on in support. Included within this group were the Business and Industry Association, New Hampshire Auto Dealers Association, the Greater Nashua Chamber of Commerce and representatives of the so-called Coalition Communities.

Even so, some say CACR 12 still faces an uncertain future in the House. This is because a three-fifths vote is required to pass any legislative proposal for a constitutional amendment and, thus, any combination of “no” votes – despite being based upon objections that could not be more different from each other – would thwart the proposed amendment from receiving the necessary supermajority vote.

We two join today to urge our fellow citizens who serve in the House not to let this happen. One of us is a Democrat, and one of us is a Republican. Both of us have dedicated much of our time and energies over the years to public service of one type or another.

Both of us are lawyers who supposedly know a thing or two about constitutional law. And both of us ardently support the notion that quality education is critical to our state’s economic success and the vitality of its civic institutions.

We join in common cause because we believe CACR 12 is just plain good public policy. We do not base our support for this proposal upon what “the framers intended” or whether the Supreme Court got it right or wrong in the Claremont cases. We just know that where we are is not where we ought to be.

Each of us would perhaps emphasize different features of CACR 12. On the one hand, Mr. Gross would emphasize its elimination of the court-dictated requirement that the state provide the same amount of aid to all school districts in the form of “adequacy payments” and, thus, he would focus upon its substitution of legislative authority and responsibility to target state aid to communities that truly need it.

He would point out that, especially in these days of scarce public resources, there is no real justification for force-feeding funds to communities that can support a high level of educational effort with their own local resources.

Mr. Van Loan, on the other hand, would emphasize that CACR 12, while not eliminating the courts from the equation, restores the responsibility for making educational policy to the democratically elected branches of government.

He would point out that, also especially in these days of scarce public resources to which Mr. Gross refers, determining how much to spend on various public policy objectives – including but not limited to education – should be the business of the Legislature, not the courts.

But these are only differences in emphasis, not points of disagreement. On the contrary, we agree on the general need for a constitutional amendment and on the language for such an amendment that is contained in CACR 12.

Accordingly, we urge members of the House not to let your own points of emphasis determine whether you will support this particular constitutional amendment. Much has been said recently about the perfect being the enemy of the good, and it certainly applies here.

Just remember: If there is no amendment at all, none of us gets the perfect; what we get is what we have right now, and that is no good at all.

Eugene Van Loan is a frequent author of articles on constitutional law and past chairman of the Josiah Bartlett Center for Public Policy. Martin Gross is a longtime Democratic activist and former mayor of Concord.

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