NH Watchdog - Wishful Thinking Outnumbers Cuts and Tax Increases in NH Budget Package

(CONCORD) Borrowing, transfers, and wishful thinking drawf the actual spending cuts and tax increases included in a $295 million budget deal unveiled this afternoon at the State House. House and Senate Finance Committee Members held an informational session to give their colleagues and the public a chance to see the budget balancing package they’ve agreed to before both chambers vote on it tomorrow in Special Session called by the Executive Council.

Special Session HB 1 assumes that revenues will come in $198 million short of estimates for FY10 and FY11, $45 million slated for transfer from the Joint Underwriting Association that was ruled illegal by the New Hampshire Supreme Court, and $18.5 million more for Health and Human Services spending than originally budgeted. It estimates the total budget deficit at $295.2 million over the next 13 months.

To make up that gap, House and Senate budget writers have crafted a package that includes nearly $72 million in spending cuts, which doesn’t include an $18.5 million increase in HHS spending. It also contains $4.99 million in tax increases, $51.21 in lapses and transfer among state agencies, $65 million in borrowing, and $112.87 million in speculative revenues that may never be realized.

Spending Cuts
Governor John Lynch has outlined a series of budgets cut to state agencies saving $35 million over the next year, along with $25 million in savings from his Executive Order 2010-2, which did not need legislative approval. Other cuts include $1 million each from the Legislative and Judicial Branches, $2.18 million in reductions to the Office of Information Technology, and a number of legislatively directed cuts to Health and Human Services. However, the package also adds back $18.5 million in spending that HHS had already been asked to cut. Adding the additional spending to package brings total spending reductions to just $54 million.

Tax Increases
Increases in taxes and fees include an expansion of the tobacco tax hike slated to generate $2.6 million, a 75% increase in the fee to operate a pet shop or animal shelter that would bring in just $30,000, and an increase in the Vital Records Fee costing filers an additional $400,000 each year. It also carves out exemptions to the recently passed tax on gambling winnings, which would reduce taxes by $1.17 million

Lapses and Transfers
The Legislature empties the piggy bank of a number of state agencies and programs that are normally outside the reach of the state’s General Fund, including the Regional Greenhouse Initiative and the Land and Community Heritage Investment Program. Lapses funds that were unspent this year are also swept back into the General Fund to help balance the budget, though the budget plan passed every two years relies on a significant lapse from each state agency.

The proposal borrows $25 million from the University System of New Hampshire, and pays for $40 million in next year’s debt service payments by issuing new bonds. The Josiah Bartlett Center for Public Policy examined this use of debt to balance the budget in its April report Mortgaging the Future.

Speculative Revenues
Over $112 million out of the $295 million package come in the form of speculative revenues that might never happen. The bill spends $250,000 to fund a committee to identify $60 million in state lands and assets to sell off, with the possibility of the state retaining Conservation Easements on those properties. But the bill does not identify which properties would be sold, not at what price.

SSHB 1 also banks $5 million in savings over the next year from passage of the national Health Care bill, but does not say where that money would come from.

As reported today at New Hampshire Watchdog, budget writers are counting on $48 million in revenue from the extension of the FMAP program which temporarily increased federal Medicaid revenues to the states. In Washington, the House of Representatives has already voted against FMAP extension as the fiscally-conservative Blue Dog Democrats balk at voter discontent over federal spending. Senate Majority Leader Harry Reid (D-NV) has indicated his support to restore the FMAP money nationwide, but its future in Congress remains in doubt.

SSHB 1 also includes a number of changes in state law unrelated to the FY10-11 budget deficit. It also transfer significant funds from FY11 to FY10 in order to balance each year’s budget independently. That includes crediting $80 million in FY11 federal stimulus dollars to FY10, and draining $5 million from the Rainy Day Fund in FY10, which would be restored in FY11. There is no legal or fiscal significance to these transfers, would could be of political importance to lawmakers wishing to run for re-election by claiming that they balanced the state budget.

A separate bill would repeal the state’s controversial LLC Tax, but not until after the current biennial budget closes, leaving business owners on the hook for this year and next. The Senate is expected to bring forward a bill allowing expanded gambling licenses at four New Hampshire locations. The New Hampshire House and Senate convene in Special Session tomorrow at 10am.