By Jeb Bradley 11/28/2011
In passing the 2011 budget, the Legislature made tough decisions and difficult cuts to stabilize NH finances while also laying the groundwork for economic recovery.
Judging the 2011 budget must be made in the context of the previous two budgets which increased spending 23% from $9.36 billion to $11.5 billion. In those prior budgets, when tax revenue underperformed, Legislators resorted to unprecedented borrowing for operating expenses and Stimulus funds to close growing deficits. That gap from prior budgets was at least $800 million when current legislators began formulating the 2011 budget. Difficult choices could not be avoided!
Those of us tasked with producing a balanced budget also recognized that New Hampshire taxpayers, working families, and small business owners were still reeling from nearly 100 new or increased taxes and fees passed in the previous four years. Those new levies included the job killing LLC business owner income tax and the camping tax that proved to be so odious they were repealed. Given the negative impact that higher taxes would have on job growth and hardworking Granite Staters, higher taxes were an obvious non-starter.
Two of the more difficult decisions involved funding for hospitals and the University System. Due to the fact they are both large expenditure items, cuts in these line items could not be avoided if the budget was to be balanced. Very few legislators wanted to make these cuts, but unfortunately they were necessary.
Due to their not-for-profit status hospitals pay no business taxes and very little property taxes. Over the years these hospitals have absorbed numerous private physician practices that had previously paid taxes, but now don’t, because they are under the hospital umbrella. Meanwhile, some of these not-for-profit hospitals act like large businesses by engaging in expensive advertising wars fighting for market share. Nevertheless, a provision in the budget allows some future funding for hospitals should revenue become available.
While virtually all state departments received less funding, the Senate retained funding for the mental-health system and for families that have disabled children.
Other budget cuts that generated much discussion were in the Department of Transportation and were made necessary by the expiration of the $30 (and in many instances higher) surcharge on motor vehicle registrations. The surcharge was enacted in the 2009 budget and promised to be a temporary measure. New Hampshire residents complained about this surcharge as much as any of the nearly 100 taxes or fee increased in the previous four years -- rightly viewing it as a “fee” to get to work.
Allowing it to expire as promised does have consequences in the Transportation budget however. Initially the Department proposed snow plowing cuts on secondary roads. Several legislators led by Sen. Chuck Morse and Rep. Gene Chandler objected and the newly appointed Transportation Commissioner announced an alternative plan that will ensure the same level of plowing as in past winters. Instead, reductions will be made in maintenance, mowing, road sweeping, tree trimming, and pavement markings in 2012 and the Department will work with the Legislature to meet budget constraints.
In my view, we must prioritize necessary maintenance over most new construction with the exception of projects such as Route 93 expansion, the Little Bay Bridge or Conway bypass that have state-wide traffic significance. There also must be recognition that maintaining our roads and highways costs money.
Because of realistic and conservative projections, revenue is somewhat ahead of expectations -- welcome news indeed. Business taxes, the most important revenue source, are 12% above predicted. The rooms and meals tax, the communications tax, and the real estate transfer tax are all slightly ahead. It is a hopeful sign of possible light at the end of the recession tunnel, when business, real estate, and tourism revenue are improving.
A key priority, especially for the Senate, has been enacting legislation that improves the business climate for job creation. We passed bipartisan legislation (SB 125) that dramatically curtails the ability of the Department of Revenue to foist a de-facto income tax on the salary a business owner pays him or herself. We passed legislation (SB-86) that restricts the Department of Labor from imposing large fines on business owners for rather minor paperwork violations without first warning the business. We expanded net operating loss provisions to encourage start-up businesses and job creation by wrapping SB-126 into the next budget. Also included in the budget, SB-154 made changes to development rules near rivers and lakes that will encourage a depressed home building industry by easing requirements while still protecting the environment.
Furthermore, the Senate sought to relieve future pressure for tax increases through a number of government reform efforts. A new education funding formula sponsored by Senators Jim Rausch and Nancy Stiles ended donor downs and prevented unsustainable future cost increases while ensuring the cities and towns received the same level of funding in these difficult times. SB-147 reforms Medicaid, the largest cost center in our budget, saving significant present and future costs while maintaining quality services for those in need. And finally pension reform will save property taxpayers from skyrocketing costs.
This Senate legislation – much of which I was the primary sponsor of -- will pave the way for more cost effective, efficient government and a demonstrably improved business climate. New Hampshire’s unemployment rate -- while still too high -- has dropped from 5.7% in November 2010 to 5.3% today. However, the fact that nearly 40,000 of our friends and neighbors remain out of work gives added urgency to these measures.
There are also budget storm clouds on the horizon. The federal government seeks to recoup $35 million of excess Medicaid payments made to New Hampshire several years ago. This calls for continued careful budgeting and living within our means. Governor Lynch was able to save $26 million from the previous budget through carefully managing each department’s expenditures.
A budget provision supported by Governor Lynch as well as Senate and House budget writers would curtail welfare eligibility saving $8million per year. Though almost most legislators agree with this change, a drafting mistake was made and the language was not reflected in the final budget.
Realizing this, the Senate met in early September to pass fix-it legislation before more money was spent. Unfortunately, the House waited for a month to address the issue which cost nearly a million dollars. The House then added a non-germane amendment that will foolishly cost another two million dollars.
The State needs to continue to practice frugality to protect hard pressed New Hampshire taxpayers and to help our economy weather the national recession.