NH Watchdog - NH's Artificial Surplus


NH “Surplus” relies on borrowing, transfers
By Grant Bosse

(CONCORD) Governor John Lynch yesterday announced that the state ended Fiscal Year 2010 with a $70 million surplus, but that figure includes both new debt and an $80 million transfer from the current fiscal year. The unaudited “surplus statement” comes from the Department of Revenue Administration. Lynch claims that the “surplus” came about from “our strong fiscal management”, but the real reason the state balance sheet appears balanced is because lawmakers approved a number of tactics to artificially inflate FY10′s bottom line at the expense of future years.


Building Aid

The FY10 Budget continued the recent practice of borrowing money to meet the state’s payments to local school districts under the Building Aid Program. By taking $45 million out of the General Fund, and paying for it out of the Capital Budget, the Governor and Legislature have created the illusion of a spending cut, while actually increasing the cost of the program.

University System of New Hampshire Loan

The budget fix proposed by Governor Lynch this spring, and approved by the Legislature in June, included a $25 million cash transfer from the University System of New Hampshire in lieu of the budget cuts that hit every other state agency. In exchange for the quick cash, the University System received $25 million in additional bond revenue from the Capital Budget. Neither this new debt, nor the $45 million in Building Aid debt, is included as spending under the “surplus statement” issued yesterday. These two provisions alone would wipe out the “surplus” claimed by Governor Lynch.

$80 million transfer

The budget fix also included an $80 million transfer in the Education Trust Fund from FY11 to FY10. An extra $80 million was inserted into the FY10 account, which then automatically transferred to the state’s General Fund, where it was counted towards the “surplus” generated by DAS. But that $80 million now needs to be moved back into the Education Trust Fund for FY11. Since the Education Trust Fund and General Fund operate on a two-year budget cycle, the transfer written into the budget in June has no legal or financial significance. But it does create an artificial surplus in FY10 and a matching deficit for FY11. Since the “surplus statement” ends with the close of FY10 on June 30th, it includes $80 million that is no longer there.

Prospective Deficit

The “surplus statement” does not address the prospective budget deficit that faces the next Legislature in January. Assuming all current spending continues, and one-time revenues and spending cuts do not reoccur, the state starts the FY12-13 budget cycle with a budget hole between $600 million and $900 million.