HEADS & TAILS MEAN NEW TAXES!
By Jeb Bradley
In what can only be called a bizarre turn of events in the Statehouse last week, a coin flip was needed to break childish chest thumping between the Democratic House and Senate Leadership. At issue was how to begin negotiations over dueling pieces of legislation purporting to reduce a dangerous and growing budget deficit. The Department of Revenue estimates the deficit is $290 million. Just in April, Governor Lynch pegged the deficit at $220 million. But Republicans on the House Ways and Means Committee believe it could reach $360 million.
With that stark reality echoing through the Statehouse, a coin flip was necessary to determine the size of the negotiating table and initiate diplomatic talks. Mercy! Please!
How did we get here? In June 2009 the Legislature passed and Governor Lynch signed a budget that proposed to increase total state spending by $1.1 billion or 10.5% according to the non-partisan Legislative Budget Assistant. This increase was on top of an increase in the prior budget of $1 billion or 11.2%.
Almost immediately revenue underperformed expectations despite 43 new or increased taxes and fees. Next, the State was blocked by the Supreme Court from raiding $110 million of a fund paid into by physicians for medical liability coverage. Revenue continues to implode. In April -- one of the most important months -- the Business Profits Tax was off 27%, and the Business Enterprise Tax was off 21.5%. These are not only two of the largest taxes but also a barometer of future economic weakness. Rehiring has slowly started to occur with the unemployment rate inching downward to 6.7% but 50,080 people remain unemployed. The discouraging tax numbers are symptomatic of continuing economic pain that working families and small business owners are facing. Now that pain has metastasized in Concord.
But that’s not all. The Interest and Dividends Tax – another barometer of economic health was off 26.7%, the Communications Tax off 16.2%, and the Rooms and Meals Tax off 4.5%. The few hopeful signs among the tax revenue carnage were slight increases in liquor, beer, and tobacco sales. Whether that’s hope is questionable.
The first year of the budget will conclude on June 30. This means that as the budget deficit explodes the ability to fix it diminishes like sand in an hour glass -- each passing day lessens the time to deal with a growing problem. Republicans warned that this is precisely what would happen a year ago. But now, confronting the results of decisions made a year ago, tempers of top Democrats are fraying, accusations are flying, and coin flips are a proxy for leadership.
The House position is a potpourri of borrowing, shifting costs to cities and towns, limited spending cuts, and increased taxes. Tax hikes include more levies on tobacco, a new tax on electricity, hikes in taxes on insurance premiums, and a new estate tax. The tax hikes exceed $25 million, new costs to cities and towns of $20 million, borrowing of $65 million, and spending cuts of $34 million.
The Senate relies on the same borrowing which restructures $40 million of existing debt and turns $25 million of operating expenses for UNH into future debt. While borrowing $65 million maybe be an alluring antidote to short term pain, New Hampshire’s borrowing will soon be unsustainable and a costly long term migraine.
The Senate cuts total $32 million – like the House barely 10% of the overall deficit. The Senate continues to load costs onto property taxpayers -- though less than the House. The Senate raises taxes on tobacco products but avoids other tax hikes. Instead the Senate relies on $80 million of licensure fees from new gambling and $50 million from the sale of unspecified state assets.
Regardless what one may feel about gambling, the recently released gambling study warns that appropriate regulatory infrastructure must be in place before proceeding. If the Governor relents from his veto threat and the necessary time is taken to get the regulations right, garnering the $80 million licensure fee in this budget cycle is highly questionable.
The $50 million sale of state assets is almost laughable as the only detail provided is a study committee to make it happen. Toss in the $65 million of unsustainable borrowing and the Senate has produced almost $200 million of what can easily be termed voodoo budgeting.
While hard to believe it actually gets worse -- in fact much worse. After being stung by criticism from local officials who have strenuously objected to Concord Democrats cost-shifting of nearly $100 million to property taxpayers, Democratic leaders have offered a fig leaf. Only problem is that this fig leaf is a frontal assault on one of the largest group of employers in New Hampshire – the hospitality industry.
Legislative leaders would give communities the ability to tax rooms and meals over and above the 9% statewide tax. This local option is just more happy tax talk. Towns would be pitted against each other and our state would be far less competitive for tourism, conventions, functions, tours and weddings to say nothing of working families in our state who would pay more to eat out.
I have been flooded with calls from restaurant and hotel owners many of whom are barely surviving the recession and the recent increase in the Rooms and Meals Tax from 8 to 9%. They tell me diners are much more price conscious, curtailing orders, and tipping wait-staff less. These small business owners believe this local tax may be the straw that breaks their backs.
Small business owners are also appalled that like the LLC Tax and Camp Ground Tax, they had little chance to comment on the Local Rooms and Meals Tax. The LLC Tax and Camp Ground Tax led to a raucous revolt. Even the Democrats, who voted for those taxes without a public hearing, now disavow them as loudly as possible. These same Democrats now confront their inability to cut the spending they voted to raise just a short time ago and are reduced to flipping coins to determine what to do next.
The rest of us know where this is heading --- Welcome to NEW TAXSHIRE.