By Jeb Bradley: June 25, 2011
On Wednesday, both the House and Senate passed a comprehensive two year budget that Governor Lynch has said he will not veto. Some have praised the budget’s fiscal responsibility while others have criticized the cuts it makes to services. From my vantage point, it is a budget that makes tough choices, establishes priorities, and makes long overdue reforms so that government services will be delivered in a more cost effective manner – all of which will enable NH’s competitiveness and future job growth.
Six months ago NH confronted a gaping $800 million projected budget gap. Despite a languishing economy, the previous two budgets had increased spending 23% from $9.36 billion to $11.5 billion. Prior budgets had relied on inflated revenue estimates that never materialized, borrowing for operating expenses, and one time federal stimulus dollars. Alarmingly, despite nearly 100 tax and fee increases, an $800 million gap loomed. Voters said enough last November.
The 2011 Legislature established two goals: NH would not raise taxes that would harm economic recovery and NH government would live within its means -- just as working families and small business owners have been forced to do in the current economic climate. Budget writers knew great caution was necessary in predicting future revenue and certainly the last six months have proven the wisdom of that caution as revenue has not met expectations. They also knew continued borrowing for operating expenses was unsustainable. Lastly, budget writers knew that with a $14 trillion dollar federal debt and trillion dollar deficits stretching as far as the eye can see -- federal largess was neither possible nor warranted.
Extraordinary tough choices had to be made and priorities established, which meant programs – many worthy -- were cut. Governor Lynch initially proposed significant reductions to hospitals for uncompensated care, cuts to programs that serve troubled youth, catastrophic aid for schools districts’ special education costs, Healthy Children, and to the Post Secondary Education Commission, as well as cuts to virtually every state agency except prisons. The Governor also proposed complete elimination of the 35% state assistance for cities and towns’ retirement costs which would have the effect of increasing property taxes by $85 million annually.
Governor Lynch also presumed that revenue growth would be a relatively healthy 3.5%. Unfortunately as winter turned into spring, revenue in the current budget was $42 million less than projected. Legislative budget writers had to make further spending reductions than those proposed by the Governor. NH has learned the hard way: spending that depends upon revenue that may never materialize is foolhardy.
When the budget reached the Senate, the chair of the Finance Committee, Chuck Morse, effectively established priorities. Senator Morse added funds back in to the budget for mental health programs, the developmentally disabled, Service Link, troubled youth, adoption initiatives, and catastrophic aid for special education. Morse proposed key reforms including allowing up to 600 inmates to be incarcerated at private prisons to create savings to pay for some of these adjustments. The Governor’s proposed elimination of retirement assistance to cities and towns was mitigated by pension reform legislation – benefitting hard pressed property taxpayers.
Given the significantly under-performing revenue, funding could not be restored for the University System or to hospitals. Some people have asked why then was the tobacco tax lowered and why were net-operating-loss provisions expanded. Supporters of the tobacco tax decrease believe there will be no net revenue loss as an increase in cross border sales will occur that will help small businesses. If there is a revenue loss, then the budget calls for the tax decrease to be removed in two years. The net-operating-loss provisions will only take effect in the next budget. These provisions allow business to better carry forward losses against future profits. This will improve New Hampshire’s business climate and has been an important priority for chambers of commerce across the state.
In total, spending has been reduced to $10.2 billion -- an 11% cut. Taxes have not been raised, borrowing for operating expenses has been eliminated, no federal bailouts have been assumed, and rosy revenue projections have been rejected. This budget does what small businesses, working families, and taxpayers have been doing for some time: making tough choices to live within their means.
While much has been written about the budget’s bottom line and the impact on particular programs, less discussed are the reforms that will enable state government to deliver services far more effectively and efficiently.
Medicaid – the largest cost item in our budget – will be delivered through managed care as a result of legislation I sponsored and Governor Lynch recently signed. Managed care will save millions without sacrificing quality. A new education funding formula maintains funding levels, holds communities harmless, eliminates donor towns, while mitigating large spending hikes in Concord. Bipartisan legislation I sponsored will curtail the practice of revenue auditors assessing what in essence is an income tax on the salaries small business owners pay themselves – a key reform to enhance NH’s competitiveness. I also sponsored bipartisan Shoreland Protection legislation which protects our shoreland while also simplifying the permitting process and helping homebuilders create jobs. Prison and retirement reforms will also clearly benefit taxpayers.
Voters sent a clear message last November – government had to live within its means and stop reaching ever further into taxpayers’ pockets. This budget makes the tough choices to do exactly that. By doing our job in the Legislature ending the climate of spending hikes, unsustainable borrowing, inflated revenue projections, and ever more tax and fee hikes; the stage is set for further job growth –and when job growth is sustained --- revenue will grow.
Tough choices, priorities, necessary reforms that will grow jobs -- or as President Kennedy said a rising tide that will lift all boats.