NH Sen Bradley - State Senate Update

Social issues monopolized the attention of the Legislature a week ago, but now all eyes are once again focused on the budget. I have been named a member of the Senate Ways & Means Committee and this past week much of our time was spent listening to revenue projections from various state agencies.


These revenue estimates are more science than art. But the accuracy of this process is crucial, as spending decisions for state government-- just like family budgets, can only be based upon available revenue.


In the last budget cycle, overly optimistic revenue projections were a factor leading the Legislature to increase spending by an unheard of 17.5%. That occurred in the spring of 2007 when the economy was still growing. Two years later, over 40,000 New Hampshire citizens find themselves out of work, the unemployment rate is 6.2%, and businesses are struggling to stay afloat. What does this mean for New Hampshire’s revenue picture? It is bleak!


Business taxes normally represent about 25% of New Hampshire’s total tax proceeds. But right now, revenues actually received through April are 26% below projections—that’s a staggering $145 million short. Tax proceeds from the hospitality industry, sales of beer, liquor, and tobacco are all underperforming. Taxes from the sale of real estate have understandably fallen through the floor – 44% short in April alone. Revenue from the Interest and Dividends tax was a whopping $19 million short in April. All told, actual revenue for the fiscal year that ends June 30th is $232 million below projections.


Two large questions loom: First, how will budget writers deal with a shortfall of $150 to $200 million in the budget cycle that ends June 30th? Secondly, how will the next budget be balanced?


Federal stimulus money and partially draining New Hampshire’s Rainy Day Fund could cover the current deficit. However, these dollars are one time revenue sources, not recurring revenue. According to Charlie Arlinghaus, President of the Josiah Bartlett Center, almost $600 million of one-time sources will be used to plug holes in the New Hampshire budget.


Relying on one time revenue is bad enough, but the budget stress is heightened by the approved House budget which increased spending levels by approximately 3% --this on top of the 17.5% increase in the current budget. In order to fill these gaps created by drastic overspending, the House voted to raise taxes on the hospitality industry, motorists, smokers, insurance premiums, and gambling winnings. These tax hikes are estimated to cost taxpayers $188 million. On top of that, the House voted for a new capital gains tax as well as a new death tax which will force taxpayers to pony-up another $85 million. And, if that were not enough, numerous fees have been increased.


Unfortunately, it only gets worse. The House failed to fund measures that mitigate property taxes, school building aid and municipal revenue sharing. This translates into a further $133 million hole in the state budget that exacerbates pressure to raise more taxes or down-shift state obligations to property taxpayers.


No community is more impacted than Conway. Conway voters recently decided to build a new high school with the expectation of the State providing 55% of the cost of that new construction. The 55% matching funds is a promise the State has made and kept for years. The Conway bond issue passed by only a handful of votes, and Conway residents tell me it is inconceivable it would have passed had there been a shred of doubt about the State keeping its promises.


Right now, Conway is looking at a hole this year of $1.6 million which, over the life of the bond, will be a $24 million liability that property taxpayers will be forced to swallow. A $200,000 home in Conway will see an increase of about $250 in property taxes---just in this year alone.


The budget has yet to emerge in the Senat e nor has the Ways and Means Committee finalized its updated estimates of revenue. Senate deliberations begin as the national economy continues to shed jobs. 540,000 Americans lost their jobs in April. The 8.9% unemployment is the highest in 25 years. It goes without saying that this is not a time to raise ANY taxes---especially property taxes on hard working and struggling New Hampshire citizens. Nor is it a time to raise taxes that will undermine New Hampshire ability to turn our economy around---the Rooms and Meals tax on the hospitality industry or a capital gains tax on small business owners, investors, and seniors dependent on retirement income.


The only way to address this current and future budget crisis is to cut spending. An alternative budget was prepared in the House by Representative Neal Kurk. It cut overall spending by 2.6. There were some significant across the board spending cuts in various departments. However, there were no new or increased taxes and the State’s promise to property tax payers was funded.


Cutting spending, as Neal Kurk and others proposed in the House, while difficult, is the best way to balance the budget and restore prosperity. It will also insure that New Hampshire’s unemployment rate remains well below the national average and personal income remains well above the national average. These are the stakes, as the budget debate begins in the Senate.

In next week’s posting, I will take a look at the impact of several of the specific taxes.