October 22, 2014

As originally published in the New Hampshire Union Leader

To help create jobs, politicians regular have to decide whether to do something or get out of the way. New Hampshire can do more by doing less and try to stay out of the way of people who know what they’re doing. We can’t compete with big states in an expensive and unfair bidding war to lure jobs to the state. Our best strategy is to create a climate in which job creators can flourish and avoid the managers looking for handouts and subsidies.

Regularly we read about some large auto company or other concern who gets states to bid millions of dollars in handouts of money and soon-to-be “forgiven” loans – money those politicians take from other taxpayers in their state in the hope of landing some high profile press release factory.

New Hampshire’s history is to avoid such politically driven games. We don’t enter bidding wars with money taken from other taxpayers to transfer to a chosen few.

The state’s long standing philosophy was summed up quite well by one of the government’s most senior economic development professionals. Michael Bergeron of the state’s Division of Economic Development talked to Sarah Palermo of the Concord Monitor about jobs that moved from Concord to Connecticut.

Connecticut had offered a million dollars of “loan forgiveness” (which sounds better than a cash handout which is what it really is) and New Hampshire had no similar program of cash handouts.

Bergeron said “a lot of companies will shop around to find the best deal. Some states will give away the bank. The law of physics says the money comes from somewhere, and it’s the taxpayers.”

This lesson is often forgotten when people think “the government should do more.” Any subsidies that we hand out to lure businesses to the state are paid for with dollars taken from other businesses – businesses already here and creating jobs, employment, revenue, and economic activity. In essence we would be taxing existing business to transfer their money to the relocating business. We would penalize a company for being here already and being a good corporate citizen.

Bergeron went on to summarize our less controlling philosophy: “instead of taking money away from you and giving some of it back some of the time, why don’t you keep it and use it as you see fit for your company.”

Without question, New Hampshire’s strategy makes us unable to compete for those companies that demand handouts before they ever expand. Yet, no one business development plan will attract 100% of all companies. We choose not to try and pursue those companies who demand greater and more expensive handouts. That allows us, however, to compete for those companies that have a philosophy more suited to our own.

Many companies are not interested in the gamesmanship of new programs. Instead they want a climate like the one Bergeron describes. They want a stable climate where government is not constantly picking winners and losers. They don’t want to compete to be this year’s favorite of the current crop of government planners. Instead they want to run a business in the way think makes most sense, the way that provides the greatest number of jobs and return on investment.

In Bergeron’s terms, they aren’t seeking to pay into a kitty and try and get the government to pick them as this week’s winner. They want to keep the money and use it as they see fit for their companies.

This is New Hampshire’s traditional philosophy. We compete on climate not unusual events.

Unfortunately, our climate needs some work. Our business taxes are the highest in the country. In an historical oddity that would have seemed impossible years ago, our Business Profits Tax is higher than even Massachusetts. That and a series of smaller taxes must become more competitive.

If we aren’t competing through government handouts – and we shouldn’t be – we have to do everything we can to create a very competitive environment not just kind of competitive.

Activist politicians often speak of “investing” in this program or that. But lowering our highest in the region tax rates is a better investment. We don’t rely on hoping that government planners have managed to see the right trends. We get out of the way and let entrepreneurs risk their own capital to fail and succeed.

Our government’s best action is to do less and get out of the way more.


Charlie Arlinghaus

October 15, 2014

As originally published in the New Hampshire Union Leader

The executive branch just proposed a $2 billion increase in state spending and no one wants to talk about it. The budget process starts in October and the executive branch proposed spending $12.5 billion. Everyone involved admits this is an unrealistic and ridiculous place to start but no one wants to disown it just yet. Everyone involved in state budgeting should publicly repudiate the requests as unrealistic fantasies and commit to repealing the law that supposedly requires this bit of theater.

The state adopts a two-year budget in June each odd-numbered year but the process begins eight months earlier in the October preceding each general election. The governor’s final proposal must be presented in February but four months earlier her department heads are required by law to present their initial budgets. That initial budget this year asks for $12.5 billion over two years compared to the $10.5 authorized for the current budget.

These initial budgets are sometimes called agency wish lists but in reality they are guided by a state law and referred to as maintenance budgets. In theory, they are meant as an expression of what state law would require next year absent any changes to law. The theory behind the law as initially written was to establish a baseline.

In practice, department heads approach the law differently and governors approach the law differently. Some department heads regard them as an opportunity to put many different items on the table. One theory holds that programs are likely to happen only if they are put into discussion at this phase. A similar one suggests the more one asks for now the more a department will have after the budget is pared down into reality.

Some governors are more aggressive and work closely with department heads to create a realistic and useful step in the process. Others let fantasies take over and turn this phase into ridiculous theater. In their formal budget presentation in February, governors are wont to say “I cut millions of dollars from the agency budget requests.” It makes them look disciplined and only insiders know that the cuts were made to an illusory document.

At this point, the agency budgets are fantasy – a waste of time and paper for all involved. It might make sense to delete them from the web, send them back to the departments, and thank them for the busy work that wasted all of their time.

The year that ended June 30 spent $5.034 billion with an additional $5.5 billion authorized in the current year, according to Budget Office of the Department of Administrative Services. The fantasy budgets produced by the departments ask for $6.2 billion in the first year and $6.3 billion in the second year – a total of $12.5 billion compared to the $10.5 spent and authorized. This projected profligacy comes just after five months of discussion about budget shortfalls and the governor’s directive to find additional cuts to avoid a worsening deficit.

Let’ start off the next year by eliminating the so-called maintenance budget. Whatever point this may have served in the past, it serves none anymore. It is merely a distracting waste of everyone’s time. Agencies should still be required to produce a budget document with explanations. But that document should reflect instead the specific directives of the chief executive. It is a waste of everyone’s time to force the construction of a fantasy document but, most important, it is a waste of time of the people who will ultimately be tasked with helping the legislature find ways to cut spending from real levels not pretend levels. Executive branch budget officials have enough to do without creating busy work.

Instead, right now – before the election – everyone who wants to help control the budget and our current spending problem should tell us their target for spending. Last fiscal year was $5 billion. Do you intend to increase that amount? Will the current tax rates support any increase or do you have plans for additional revenue? During an election, we ought to know what’s planned.

Those auditioning to lead the state should tell us what they want to do. The leaders of the executive branch have bid for a $2 billion increase. Repudiate it and tell us what you would do instead lest we think you agree.