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.

Borrowing
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.



Josiah Bartlett Center - Mortgaging the Future

New report outlines $75 million in borrowing from Lynch Budget Plan

(CONCORD) The Josiah Bartlett Center for Public Policy today released a new report examining how Governor John Lynch would use new borrowing to postpone the state's budget crisis. "Mortgaging the Future: Can New Hampshire borrow its way to a balanced budget" outlines the three bonding provisions in Lynch's $220 budget balancing package, which account for over $75 million in new debt.

"The Governor's budget package includes budget cuts, new taxes, and additional federal revenue, but it also relies heavily on borrowing money to pay for the Legislature's spending increases," said Grant Bosse, Lead Investigator for the Josiah Bartlett Center and author of the report. "Borrowing that much money may help balance the budget in the short term, but it also makes the long term budget problem worse."

"Mortgaging the Future" also examines New Hampshire's traditional debt service ratio, which has run between 5.6% and 6.6% over the past decade. That ratio is set to climb to 7.9% next year, and would hit 8% for the first time in state history if the Lynch Proposals are adopted in full.

"Rather than help solve the state’s budget problems, two of the bonding provisions in the Lynch Proposal merely postpone them," the report concludes. "They leave the truly tough decisions to future budget writers, and in fact, make the long term problem worse."

Read the full report at JBartlett.org

NH Watchdog - Latest Revenue Numbers

New Hampshire faces $84.8 million shortfall this year
Shortfall on pace for $86.6 million next year; total budget gap close to $300 million

(CONCORD) The Josiah Bartlett Center for Public Policy has published a new report estimating the revenue shortfall facing the New Hampshire budget at $84.8 million for Fiscal Year 2010. The projection is based revenues through March 31, and a study of the spring revenue figures for the past ten years.

The report, authored by Josiah Bartlett Center President Charlie Arlinghaus, breaks the state budget into ten major revenue categories, and projects how each source of funds is performing compared to both the Legislature’s projections and historic averages.

“Based on historical trends, the state is currently on track to be $84.8 million short of its budgeted revenue in the fiscal year ending June 30,” Arlinghaus writes.

Arlinghaus concludes that next year’s revenue shortfall will also top $80 million, unless economic conditions improve quickly.

“The budgeted revenue for FY2011 includes no additional taxes or rate changes. It assumes a 2.2% growth in total revenues over the prior year,” Arlinghaus continues. “If we assume the same 2.2% increase off the new FY2010 base, revenues would be an additional $86.6 million below the amount budgeted to balance spending in the budget.”

“The two-year revenue shortfall of $171 million is the largest component of a budget deficit that is close to $300 Million.”

Read the full report at jbartlett.org.



NHWatchdog - $673 million Transportation Deficit

(CONCORD) New Hampshire plan for transportation projects spends $673 million more than it raises over the next decade. The Public Works and Highways Committee presents its draft of HB 2010, the Ten Year Transportation Improvement Plan, to the full House tomorrow. The Committee made no changes to Governor John Lynch’s submission, which called for $3.6 billion in total transportation spending over the next ten years, even though official DOT revenue estimates only anticipate $2.9 billion in available revenues.

The Legislature has habitually built a “deficit” into the Ten Year Plan, which is updated every other year. But this year’s gap is far larger than the $300 million the DOT Commissioner George Campbell forecast back in December.

$450 million of the $673 million deficit comes from the state’s various highway funds, which plan on spending $2.6 billion despite raising just $2.15 billion over ten years.  The state’s Turnpike Fund is maintained separately, and adds another $128 million to the deficit.  The plan also spends $225 million on railroad projects, while generating just $5 million in railroad revenue.  The transit and airport portions of the Ten Year Plan are self-funding and limited to available revenue. Governor Lynch’s recommendation added $207 in new projects not included in the current Ten Year Plan, which was last updated in 2008.

View the spending and revenue estimates in the Ten Year Plan at NH Watchdog.

Closing the Gap

Part of the unusually high spending gap can be traced to the state’s surcharge on vehicle registrations.  The Legislature passed a temporary increase in that fee, which is set to expire next July.  The Transportation Department’s original revenue forecast included this surcharge continuing for the rest of the decade.  But with such a large gap between spending and revenues, the next Legislature will be hard pressed to let the “temporary” fee expire as planned.  Last week, DOT Commissioner George Campbell shelved plans to build a new toll booth on I-93 in Salem.  Public Works Committee Vice-Chair David Campbell advocates a gas tax, escalating to $.15 per gallon, dedicated to highway funding.

Front Loaded Spending

HB 2010 front-loads 61% of total transportation spending in the first five years of the next decade.  It would spend $2.2 billion from 2011 to 2015, but only $1.4 billion between 2016 and 2020.  Assuming that future legislatures maintain total transportation spending at its current pace for the rest of the decade would add an additional $789 million in unfunded spending.


NH Watchdog - Don’t Enact Failed Health Bureaucracy Thirty States Repealed

By Charles M. Arlinghaus
From the print edition of the Union Leader

The current legislature and governor are pushing us to establish a new government agency to control hospitals by setting prices and overseeing hospital management. Similar bureaucracies have been abandoned in more than thirty states that tried them. That model cannot be replicated here without spending more than $100 million that we don’t have.

In the 1970s, hospital rate setting commissions became popular and were adopted in so many states that Jimmy Carter tried to pass a federal version in 1979. Over the course of the 1980s and 1990s, more than thirty states repealed their rate setting agencies. Among the last, Maine’s Independent Gov. Angus King repealed the Maine agency in 1995.

Today, only West Virginia and Maryland still have a hospital rate setting agency. Sen. Maggie Hassan cites Maryland as the model she wishes to follow. Her description implies Maryland has broken new ground rather than being the last holdout of an earlier era.

Most important, the system in Maryland can not be established here and deals with a very different problem. It is an all-payer system in ways that New Hampshire can’t replicate and that the bill’s sponsors don’t want to mention.

Sen. Hassan has claimed that she wants all payers to pay the same rate at hospitals. She cites a patient without insurance paying a rate significantly higher than that paid by an insured customer. Yet, the most recent state data shows that less than 1% of hospital revenue comes from the uninsured. Some charity care or uncompensated care is written off by the hospital at a nominal rate much higher than anyone actually pays but that’s an accounting matter rather than a real price. The aggregate pricing of insurance-covered care and all other non-government paid care is at the same percentage of cost although some individual plans may be slightly more or less.

So the amount charged to the 1% is a small problem suitable to a less grandiose solution. The Maryland model is designed specifically for a different issue.

Medicaid and Medicare traditionally reimburse hospitals and other providers at less than cost. Typically Medicaid payments represent about 60% of a hospital’s nominal cost while Medicare represents closer to 90%. The difference is made up by charging people with insurance a significantly higher cost, a quasi-tax on insurance that subsidizes Medicaid.

The cost-mix is a delicate balancing act. In the aggregate, about half of hospital revenues come from patients with private insurance and about half from government-paid patients. In the case of an individual establishment, a hospital or doctor that has too many government paid patients will go out of business.

Maryland created an all-payer system in which the government agency sets prices for each hospital and every payer pays the same rate at that hospital. Medicaid doesn’t pay less, Medicare doesn’t pay less.

The new government health care agency in New Hampshire will not do the same. Specifically, it will do absolutely nothing about Medicaid cost-shifting, and for good reason. To raise Medicaid reimbursement prices just up to nominal cost would require the state government to find another $100 million it doesn’t have.

Sen. Hassan and the supporters of her bill talk regularly about all customers paying the same rate but conveniently don’t mention they would ignore the only part of the Maryland law that mattered – government payments.

The initial savings that came from adopting the system came from having a system where the government doesn’t underpay Medicaid. Increasing Medicaid payments brought Maryland’s hospital charges in line with the national average However, since then Maryland’s growth has actually been somewhat higher than the nation as a whole.

According the Commonwealth Fund, a supporter of the Maryland system, Maryland’s cost per inpatient increased by 95% from 1992-2007. The national average increase was only 75%.

For all practical purposes, the Hassan plan would create a large new government agency with broad authority to raise its own taxes, set prices and micromanage hospitals all to deal with a problem that amounts to less than 1% of hospital costs. The real problem in the room would be completely ignored by financial necessity.

The current New Hampshire proposal would ignore the successful parts of a model it seeks to emulate and only enact the unsuccessful ones. With no hope of success, we would then be saddled with a large new government agency with the power to raise its own taxes and a mandate to find other ways to manage the operations of the providers whose rates it will control.

The only way this ends well is to end it now.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free market think tank in Concord, New Hampshire.