Charlie Arlinghaus
October 31, 2012
As originally published in the New Hampshire Union Leader
The biggest state political issue no one is talking about is debt. Everyone knows of the federal debt problem. Most people (except, perhaps, for my most faithful readers) do not know about the debt explosion at the state level that is only starting to be corrected.
During its experiment with fiscal games from 2007-11, New Hampshire started to slide into Washington-style debt habits that will take more than one budget cycle to correct. I have been very critical of the unusual budgeting tactics employed in the two budgets prior to the current one.
The short version is that by using borrowed money (and a one-time federal bailout) for operating expenses, budget writers exploded state debt and created a delayed deficit for the next Legislature to fix. It is well known that the balanced-by-borrowing budget created a deficit-to-be-fixed that was around $800 million (other estimates are higher).
Less discussed is the debt problem. New Hampshire’s policy toward debt was stable and cautious under governors of both parties for more than a decade. But in 2007 everything changed. From 2007 through 2011, the state’s general obligation debt exploded from $654 million to $939 million. This 43 percent increase was striking by any measure. Consider that the $285 million total increase in just four years was more than state debt had increased in the previous 20 years (the increase from 1987-2007 had been $275 million).
As a percentage, the rate of increase was more than 10 times the rate of the previous decade. For more than 10 years, state debt had grown at an average rate of less than 1 percent each year. For the four-year explosion, the annual increase was 9.5 percent. The explosive growth of debt was not just unusual, it was a radical departure from New Hampshire’s tradition of responsible borrowing.
The tradition this new behavior most resembles is that of Washington. Federal debt rose by an average of 9.8 percent each year from 2001-2011 (a period that includes Presidents of both parties) and shows no signs of slowing down. But New Hampshire isn’t supposed to be like Washington. Washington hasn’t seen its debt decline since 1969. In New Hampshire, we had small reductions in our debt in six of the 10 years from 1994-2003, and the years of increases were at or near the rate of inflation.
The explosion of debt was not an accident. The governor and Legislature at the time borrowed money to balance the budget not because it was the right thing to do – they agreed it was unusual and not a good idea – but because borrowing allowed them to pass hard decisions on for a future Legislature to make. Like many people faced with a tough decision, they hoped delaying it would make it better. Instead, it made things worse.
The Legislature elected in 2010 inherited a mess. The borrowed money had been used to pay for ongoing operating expenses. Without the borrowed money and the one-time federal bailout, legislators would be forced to raise taxes or cut spending. Realistically, increasing taxes in a recession or weak recovery wasn’t an option. So they were forced to make the decisions that hadn’t been made for four years: bring revenues and expenses back into balance.
During this election, the legislators who were forced to make difficult decisions are being attacked for those decisions by many of the same people who chose to avoid decisions and spend borrowed money as if they’d been elected to Congress. Yet no one talks about the debt. No politician is being forced to defend his or her decision to increase debt in four years by more than it had been increased the previous 20 years.
A rational state government will carry some debt simply because some capital expenses should be paid over 10 or 20 years rather than at once. But our debt increased too fast, showing that we need to guard against the politicians’ weakness. Left to their own devices, weak politicians will spend future money by borrowing so they can avoid a difficult decision today.
The current Legislature stopped the borrowing cycle. But there’s more work to be done. The next Legislature should pledge to limit new borrowing to 90 percent of what is paid off. They can only borrow money by paying down other borrowed money.