Budget Blues

By NH Senator Jeb Bradley

Governor Lynch has finally weighed in on the budget crisis with his proposal for balancing a $220 million deficit. Let's re-visit how we got here, and place it in the context of the overall economy

While there have been glimmers of economic hope, New Hampshire citizens continue to struggle. The national unemployment rate crested at 10.1% in October. Since then the national rate has inched downward to 9.7% while unemployment in NH has continued to climb. Our October rate was 6.8% and 50,483 people were unemployed. February, the last month for available numbers in NH, the unemployment rate had climbed to 7.1% and 52,875 people are unemployed. Ominously, a recent study indicated that NH lost more jobs per capita to China, especially in technology than any other state.

In the past, NH led national economic recoveries, so why now are job losses in New Hampshire growing? Can it be the 38 new or increased taxes and fees implemented by the Legislature in June 2009? It's likely that tax levies on business owners have undermined the incentive for small businesses to locate or expand in New Hampshire. Aggressive and constant Department of Revenue audits on small business owners have resulted in imposition of the business profits tax on a significant portion of a business owner’s salary. This 8.5% tax combined with the 5% LLC Tax on the same stream of business owner salary has created a deadly job-killing 13.5% tax on business owners and the jobs they create.

The non-partisan Tax Foundation recently ranked NH’s corporate tax system the worst in the nation. While hard to believe, the business climate in Massachusetts is better than New Hampshire’s – a dangerous condition which illustrates why our unemployment rate has continued to climb while the national rate has declined.

 The good news in Governor Lynch’s budget proposal is the assumed repeal of the LLC tax. Finally -- reluctantly, Democrats in Concord who voted for the LLC Tax, despite not being vetted in a public hearing, and defending it as merely closing a loophole, have seen the light. It’s a small miracle that Democrats finally realized that increasing so many job killing taxes in the face of rising unemployment is not a prescription for helping working families and creating jobs. Perhaps they realized that the November elections are right around the corner and voters are angry!

The LLC tax is not the only tax harming our economy. The so-called camping tax --- also enacted without a public hearing --- may take the foolishness cake. Supporters claimed this tax would raise $7 million over the two year budget. But so far it has raised only $500,000 in the first year which includes most of the camping season. 

On a bill I sponsored to repeal this tax, campground owners testified at a public hearing that they are losing business as campers avoid New Hampshire. Unfortunately, the Democratic leadership laid the repeal bill on the table in the Senate – never to be seen again. Thankfully, Representative Herb Richardson’s bill which also repeals the campground tax, survived the water torture of the House Democratic leadership’s effort to kill it. Rep. Richardson's effort succeeded and the legislation is on its way to the Governor’s desk. Governor Lynch probably realized that the paltry $500,000 raised is more than offset by campers avoiding NH and thus not contributing to state revenue raised from sale of gasoline, meals, tobacco, wine, beer, and liquor. So his budget proposal eliminates the camping tax thus enhancing the tourist economy – one of our biggest sources of jobs and state revenues.      

Governor Lynch also proposed a number of across the board cuts – precisely what Republicans had recommended when the budget’s 10.5% spending increase was adopted. Had those cuts not been summarily rejected 10 months ago, today’s problems would not be as dire. Nevertheless the Governor has begun the process of reeling in the excessive spending with cuts to the courts, attorney general’s office, health and human services, education, corrections, environmental services, and information technology. An additional 30 to 35 people will lose jobs on top of nearly 300 jobs that have already been cut. 

Some troubling aspects of the Governor's proposal are the $25 million of operating expenses at UNH that will be bonded – on top of the recent bonding of school building aid. Continued bonding in this manner isn’t sustainable. The cigarette tax will increase for the 5th time in 6 years. Much of the competitive advantage NH enjoys over neighboring states will evaporate, so revenue growth may not match expectations. Lastly, the budget proposal’s assault on property taxpayers continues as retirement costs, revenue sharing and some education programs will be downshifted to cities and towns.

Here is an idea the Governor should consider rather than socking property taxpayers with more costs. The Regional Greenhouse Gas Initiative (RGGI) fund may have approximately $15 million in it by the end of the budget. Currently these funds are disbursed to different entities such as UNH, Dartmouth, and Stonyfield Farms to reduce carbon emissions. Consider this however: UNH has been paying golden parachute bonuses for years to top administrators, Dartmouth College has an endowment, while Stonyfield is one of NH’s most successful corporations. Surely property tax relief, at a time when 52,875 people are unemployed and countless more NH citizens are struggling, is a higher priority for scarce resources.

Governor Lynch’s proposal may resolve this current budget crisis through a patchwork of spending cuts, one time fixes and accounting maneuvers, but the state will continue to lurch from crisis to crisis because we are avoiding long overdue restructuring of state spending for Medicaid, education funding, retirement and healthcare costs. These big ticket items unless reformed –quickly – will produce a more profound future crisis -- a likely income or sales tax and erosion of well-paid jobs. We have an opportunity – indeed an obligation to confront and resolve these growing fiscal problems before it is too late. If not, perhaps this blog should be re-titled from Budget Blues to Budget in the Red.