NH Sen Bradley - Budget Storm Clouds Looming

The ink is barely dry on the New Hampshire budget signed into law by Governor Lynch on June 30. Only 2 months have elapsed in the 24 month spending blueprint, but problems Republicans warned about are intensifying like a hurricane ready to make landfall. More ominously, a Plan B strategy dealing with budget problems is not even discussed in the polite company of Democratic legislative leaders.  In fact the chair of the House Finance Committee said publically a Budget Plan B is not even necessary. 

Here is why Budget Plan B is more urgent every day. Tax revenues are well below expectations.  When the budget was negotiated among House and Senate Democratic leaders, a funding gap between desired spending and available revenue was papered over when budget negotiators inflated revenue expectations by $75 million in the dark of night. Observers warned this $75 million was optimistic. Two months into the budget, those warnings are reality. Action needs to be taken now but Democratic leaders seem smug with happy talk that the budget will magically balance.

Here are the facts: July’s revenue was $4.7 million below expectations.  August was even worse with total revenues $17.6 million below expectations. Rooms and meals was $3.7 million under estimates – even after the tax was increased from 8% to 9%. Tobacco taxes were $2 million less than predicted – even after a huge 45 cent increase on a pack of cigarettes.  Business revenues were off by nearly $3 million.

To be fair, the July and August $22.3 million revenue hole needs to be taken in the context of not being historically large revenue months. However, September’s revenue figures will be a bell-weather as many businesses and individuals make estimated quarterly payments.  If September underperforms and continues the July / August trend, New Hampshire is staring down the gun barrel of a very large revenue deficit.  And no one should forget that the $22.3 million hole comes despite 38 new or increased taxes or fees in this budget.

Revenue deficits are only one part of the problem. The state is in a losing streak in court cases. Superior Court Justice Diane Nicolosi ruled in favor of the New Hampshire Health Care Association and blocked the State from keeping $9 million that nursing homes claim they are entitled to.  Belknap County Superior Court Justice Kathleen McGuire ruled that a budget provision, which transferred $110 million from a fund controlled by the Joint Underwriting Association to the State’s General Fund to balance the budget, is unconstitutional.

Justice McGuire’s well researched, clearly written and completely unambiguous ruling, held that the politicians who supported this proposed $110 million transfer, are in violation of both the ‘takings’ and ‘contracts’ clauses of the New Hampshire Constitution and the Fifth and Fourteenth Amendments to the United States Constitution.

While the State has appealed Justice McGuire’s decision, nobody in Concord ---- except the Democratic cheerleaders who proposed this $110 million sleight of hand transfer ---- believe the state will win the appeal.

A third lawsuit is about to be filed by the New Hampshire Municipal Association over the budget downshifting of state expenses to towns and cities. The Municipal Association has estimated the downshift will increase local property taxes by $90 million which is why nearly 150 towns and over 50 school districts will join this lawsuit.

In the face of mounting budget problems, Democratic legislative leaders have spent the summer barn storming across New Hampshire on their “truth and responsibility” tour. These leaders are claiming that state spending has been reduced by 1%. If the assertion was true – the Democratic architects of the budget would deserve credit.

But --- it is always easier to fall for the n arcotic of believing your own spin rather than focusing on facts.  Again, here are the facts. Total state spending increased by nearly $1.1 billion or 10.48% according to the non-partisan Legislative Budget Assistant (LBA). Putting that spending hike in context, it is critical to recall that total state spending increased by 11.17% in the previous budget according to the LBA.

The responsibility part of the tour by Democratic legislators must be intended to remind voters they have an obligation to dig deeper into already thin wallets to pay for this explosive growth in state spending at a time people fear they will join the 50,000 unemployed New Hampshire citizens.  Thus Democratic leaders plead that the 38 new or increased fees or taxes are somehow responsible.

There is scant recognition in Concord how bleak our budget picture is. Nor will it improve until the national economy starts to grow out of ruinous deficits, bad debt, bailouts, government takeover of companies, and the bloated stimulus that has actually increased the unemployment rate to 9.7%.  Most experts believe the jobless rate will climb to over 10% before things begin to turn next summer.  These stark conditions should compel Democratic leaders in Concord to develop Plan B immediately.

That is precisely why Republicans called upon Governor Lynch to release the results of his call nearly a year ago for agency heads to produce budget plans that spend 3% less than their department did in previous budgets. That is the responsible way to confront a growing budget deficit—with spending cuts.

Our parents always taught us to say what we mean and mean what we say. Unfortunately, the more Democratic leaders tout “truth and responsibility” in regards to their budget, the more they mean taxes.  The House Speaker recently said she was open to an income tax. Perhaps that’s honest.  But it should be a stark warning to everyone who wants our state to remain a low tax haven – that income tax proponents are lurking. And the only way to fight an income tax is with fiscal discipline and spending cuts.

NH Sen Bradley - Concord's Unconstitutional Budget Provision

New Hampshire residents weary of dreary summer rain received a frightening jolt of lightening when a Judge blocked Governor John Lynch’s attempt to transfer $110 million dollars of private funds to State coffers. Belknap County Superior Court Justice Kathleen McGuire ruled that an extremely controversial provision in the recently enacted New Hampshire Budget, which transferred $110 million from a fund controlled by the Joint Underwriting Association (JUA) to the State’s General Fund to balance the budget, is unconstitutional. Justice McGuire’s well researched, clearly written and completely unambiguous ruling, held that Governor Lynch and members of the Legislature who supported this proposed $110 million transfer, are in violation of both the ‘takings’ and ‘contracts’ clauses of the New Hampshire Constitution and the Fifth and Fourteenth Amendments to the United States Constitution. Governor Lynch has already indicated the State will appeal the decision but it is hard to imagine, given McGuire’s opinion, that the Supreme Court will overrule her.

The JUA was formed in 1975 to provide medical liability insurance to physicians and currently provides over 20% of the medical liability coverage in New Hampshire. The Judge ruled the JUA is independent from the State. More importantly, physicians, not the State, contribute to its funding and when the JUA faced a deficit in 1985 a surcharge on doctor’s policies was assessed to cover the gap--not State funding. Twice in the past, the JUA distributed surplus funds to policy holders--not the State. Given these facts, it’s political hubris and arrogance seldom seen in our State, for the Democratic supporters of this budget to simply expropriate $110 million. These unseemly political shenanigans, now defy both our state and federal constitutions .

The sanctity of contracts is one of the underpinnings of our society, as is the prohibition of the government taking a person’s property without just compensation. Good for Justice McGuire for upholding constitutional principles and shame on politicians who believe the State can simply break contracts and take property it doesn’t own, to enable the gravy train of a 10.5% state spending increase.

What does this $110 million hole mean for the New Hampshire Budget? First, the budget hole is not just $110 million. Recently Superior Court Justice Diane Nicolosi ruled in favor of the New Hampshire Health Care Association and blocked the State from garnering $9 million that nursing homes claim they are entitled to. Furthermore, the New Hampshire Municipal Association is set to file suit against the State for changes to pension contributions made in the recent budget. The State has historically contributed 35% of the cost of pensions for police, firefighters, teachers, and other employees. Under the recent budget the State’s contribution will drop to 25%, costing property taxpayers an estimated $27 million. Thus far, 143 towns and 53 school districts have agreed to join the Municipal Association lawsuit displaying the depth of anger at the Democratic leadership’s hike of property taxes.

In total, the State could be looking at a nearly $150 million litigation shortfall. As if misery did not already have enough company, when the budget was passed in June, its authors inflated revenue projections by $75 million to give the appearance it was in balance, at least on paper. The question now is if this budget, passed only a month ago, is even worth the paper it is written upon?

New Hampshire residents may quickly lose sight of the interminable Washington debate on new bureaucracies, taxes, and regulations involving global warming and government run health care and soon be consumed with t he budget wildfire in Concord that not even all this rain will stamp out.

So where does the State go from here? The option I support would be to cut spending to balance the budget with available revenue. Spending reductions of about 3.5% would be necessary to make up the $110 million gap. During budget debates, Republicans in the House and Senate proposed larger spending reductions and unfortunately each and every one were rejected on largely party line votes. If Democrats won't cut spending, then what other options will they pursue?

Are new taxes on the horizon? Unfortunately, that is more likely. The budget Governor Lynch signed increased tobacco taxes, taxes on rooms and meals, and numerous fees all while adding new taxes on gambling winnings, camping and owners of limited liability companies --- the latter two new taxes without even the courtesy of a public hearing. The House earlier voted to increase gas taxes and implement new taxes on capital gains and estates. The Senate earlier voted to increases taxes on New Hampshire businesses small and large. At a time that the New Hampshire unemployment rate stands at 6.8% and families are struggling to pay their bills, there is no shortage of Democrats in the Legislature ready, willing, and almost gleefully able to raise taxes.

What about gambling? There is little question the prospects for gaming just improved. The Senate already voted for gambling (though I voted in opposition). Would the House reconsider? Even if the House does reconsider, and gambling fills this $110 million crisis of today, larger budget problems loom in the near future.

The budget that just passed included $500 million of one-time funding sources—much of it federal stimulus money. Given that the federal budget deficit this year will approach an unheard of $2 trillion and federal budget deficits are estimated to top $1 trillion per year for the next 10 years (before health care reform), no state should expect more federal largess any time soon.

So, today’s crisis involving an unconstitutional attempt to simply grab $110 million will quickly become an even larger problem that gambling revenue will not fill. Bottom Line: our State is hurtling headlong towards an income or sales tax, possibly both, unless we meet the challenge of reducing state spending.

NH Sen Bradley - Is This A Balanced Budget or A House of Cards?

After two marathon weeks of discussions between House and Senate members charged with negotiating a budget, early Friday morning a package emerged. Its fate is uncertain as the full House and Senate must pass it before it reaches Governor Lynch for signature. Counting votes before the June 24th Session will be almost as daunting as reaching this compromise -- anything can and may well happen.

Let's first focus on what is in this package and what is not, then on the impact it will have on people and businesses, and lastly how this budget will affect New Hampshire’s future.

Like any compromise, this budget is a mixed bag of good news and bad news. Several very controversial new taxes and tax hikes that had previously been approved by either the House or Senate, were dropped. These include the capital gains tax, death tax, gas tax, insurance premium tax, and a specific increase in business taxes by loss of a tax credit. All of these taxes would have directly undermined New Hampshire’s ability to attract businesses, investors, or visitors to our state. Also dropped from the final package were expanded gambling and a controversial plan to use toll revenue for highway improvements all over the state. Several taxes rumored for late consideration never made the final package including an entertainment tax and a tax on mortgage re-financing.

There are new taxes galore however. The tobacco tax will go up by 45 cents -- the fourth hike in five years. Non-smokers may generally be callous to the impact this tax has, but smokers, especially low income people, justifiably believe they are carrying far more than their fair share of the tax burden. This increase will also undermine the cross border advantage New Hampshire has long enjoyed – attracting visitors to purchase tobacco products here and fill our revenue coffers. Convenience stores near the borders will be impacted, and meeting our re venue goals with this tax hike is questionable.

Any gambling winnings will be taxed at 10% including those garnered outside of New Hampshire. Will we be sending auditors to Foxwoods and Las Vegas -- or charitable events in New Hampshire -- to guarantee tax collection? Under those circumstances, is the $14 million of anticipated revenue farfetched?

The Rooms and Meals tax got increased 12.5%. I have written before that this huge increase will make our states less competitive for tours, vacations, conventions, and weddings. But budget writers slapped this tax for the first time on campgrounds – without a public hearing. Campground owners are outraged at this abuse of process. One owner felt so betrayed by the Legislature not having a public hearing, he told me the only people qualified to serve in the Statehouse are the janitors. Campers arriving this summer may be just as angry when they discover this new "marshmallow tax". Again, revenue projections may suffer if campers take their marshmallows elsewhere.

Business owners were certainly dinged too. Business owners already are subject to an 8.5% tax on profits as well as a .75% tax on all payroll expenses. Now however, business owners organized as limited liability companies or as partnerships will be subject to an additional 5% tax on any income distributed to an owner. This significant change in the 1923 Interest and Dividends tax was also snuck in at the last minute – again with no public hearing. The estimate is that this change will raise $30 million of new taxes from business over the next two years. This dramatic increase in taxes on small business may prove to the biggest $30 million mistake that New Hampshire could make -- as it threatens to undermine New Hampshire’s ability to build new jobs at exactly the wrong time.

The ‘rest of the story’ behind this last minute business tax increase is that it is just the latest step by the New Hampshire Department of Revenue Administration to strangle small business in New Hampshire. Desperate to raise revenue, DRA has recently taken it upon itself to essentially determine how much compensation a business owner may pay him or herself. Should the business owner pay him or herself additional compensation beyond what DRA has pre-determined is allowed, the DRA with bureaucratic hubris will simply assesses the 8.5% Business Profits Tax on this so called excess compensation.

If people are concerned about the Administration in Washington determining pay levels for executives – well it has been happening here in New Hampshire – right under our noses – with questionable legal authority for DRA to determine what is profit and what is income for a business owner.

This attack against successful small business owners, hidden from the light of day behind the audit curtain, is by itself a terrible threat to New Hampshire’s ability to build new jobs here. But now under this budget it gets worse. The business owner will pay a new 5% tax on income on top of the 8.5% tax on the balance of income that DRA has determined is excessive. The Legislature may say it wants to attract business to New Hampshire, but in fact, the Legislature is sending business a strong signal: move to Massachusetts. When tax policy in Massachusetts is more attractive than ours—that is dangerous! The pink slips will follow for NH workers.

It is not just taxes – fees are going up dramatically. Drivers will pay at least $30 to $75 more for registering a car. Boat registration fees double. Condominium registrations will nearly double. There is even a new salt water fishing license fee and a permit to carry a concealed weapon for out of staters skyrockets from $20 to $100 which means people will no longer register firearms in NH and we will likely lose money.

What about property taxes? This budget spreads the pain to them as well as property taxes will climb across New Hampshire by nearly $90 million as this budget downshifts traditional state responsibilities onto the backs of already struggling property owners.

With all these new taxes, higher fees, and soaring property taxes – what happened to spending levels? I have maintained throughout this budget process that spending needs to be reduced to avoid raising taxes on families, small business, and property owners struggling to stay afloat. While this budget did make some last minute cuts to programs and personnel – it was still not enough in my view. Overall spending will still increase 10.5%.

Governor Lynch warned that projected revenue is going to fall to 2004 levels and will be 10% lower than 2008 levels. Business tax revenues alone are currently some 27% below the projections for expected revenue.

But budget writers were still short and desperate for revenue. So despite the Governor’s warning, budget writers magically inflated revenue expectations by $75 million in order to sustain spending. Lastly, $90 million of traditional state expenditures to reimburse school districts for construction projects was moved from the operating budget to the capital budget – meaning this $90 million will be borrowed! Experts have warned that borrowing of this magnitude is unsustainable.

So what does all this mean? Economically strapped New Hampshire residents will have to dig deeper into wallets filled with fumes rather than cash. The business climate will suffer significantly at a time that nearly 50,000 New Hampshire people are out of work and that New Hampshire’s unemployment picture has also darkened relative to other states.

But what has gone under the radar is this budget’s impact on future budgets. Not enough people realize that about $500 million of spending in this budget depends directly upon one time sources of revenue: federal stimulus funding, increased federal Medicaid funding, and a $110 million raid of New Hampshire doctor’s medical liability funds. (Litigation filed against this raid as well as the $75 million magical revenue projections are likely to leave this budget with a gaping deficit.) Can New Hampshire realistically expect future federal largess as Congress stares straight into the white eyes of indefinite trillion dollar federal deficits.

This $500 million one-time spending crater is a ticking time bomb for the next budget. Will the re-financing tax, the entertainment tax, the gas tax, the capital gains tax, the death tax rise from the dead? Will existing taxes on business, hospitality, tobacco, interest and dividends, real estate sales, and communications continue on their relentless climb? Will the state dump more costs onto property taxpayers? Or will it be a sales tax or an income tax---how about both?

That is the bleak future for New Hampshire families, businesses, and property owners unless state spending, which will have grown by nearly 24% in three budget cycles, is not brought under control.

Jeb Bradley - Legislative Update

Latest News & Notes

Legislative Update

This past week the New Hampshire Senate considered numerous pieces of legislation that while not nearly as important as the looming debate on the budget, nevertheless affects citizens' lives from personal liberties to health care. I will briefly describe several significant legislative initiatives and my responses to them.

HB-391 which passed, authorized the Department of Transportation to install what is known as open road tolling---a faster version of E-Z Pass. Unfortunately it has a cost and will require higher tolls. While open road tolls are good idea, I voted No. I believe recent toll hikes have been dramatic and that scarce resources should be used to repair roads and bridges.

HB-90 which passed, will allow a veteran to take an unpaid leave from work to commemorate Veterans Day. While this may make scheduling more difficult for employers, I believe that it is vital to allow those who have so ably served our nation and defended our liberties to participate in Veterans Day ceremonies.

HB-392 which passed, will allow so called 'cigar bars' to serve liquor. In my view, those who enjoy a cigar ought to be able to also enjoy a drink in the company of friends. A number of these premium cigar retail establishments will be aided by this bipartisan legislation. Though you won't find me doing so, those who choose to frequent such an establishment should have that opportunity.

HB-384 which passed, will allow a waiver from extensive paperwork required when a logging operation enters into the buffer around a wetland. Simplification of the paperwork will not harm the environment as a waiver is by no means automatic. But compliance costs for the forest products industry will be lower at a time when preserving jobs in the forest industry is essential.

An amendment to HB 667 would have required voters to produce identification before voting. This amendment unfortunately failed. With all the problems of illegal immigration and voter fraud, correct voter identification makes good common sense. I will continue to fight for this necessary reform.

HB-580 which dealt with patients medical records passed the House but was killed by the Senate---correctly in my view. This legislation was intended to provide patients more control over their personal medical records. While well intentioned, this legislation could be unworkable for medical practitioners especially in emergency situations when accurate, though personal, medical information is indispensible in providing necessary care. Furthermore, this legislation would not have provided doctors any protection from medical malpractice lawsuits even if the physician were forced to treat a patient without having access to the patient's medical history.

Lastly, HB-572 which dealt directly with medical malpractice also failed--thankfully in my view. HB-572 sought to alter recently created medical screening panels which weed out frivolous lawsuits that drive up the costs of health care. Americans are struggling with the high cost of healthcare, so to me eliminating frivolous lawsuits only makes sense.

California adopted placing reasonable limits on punitive damages years ago and the result has been a much more rational system where medical liability costs have remained in check. New Hampshire has not taken this approach and as a result higher risk specialty doctors such as neurosurgeons and OBGYNs have been priced out of the market and have left New Hampshire. In my view this is an unacceptable outcome.

What New Hampshire has wisely done is to create medical screening panels. Frivolous lawsuits can be disposed of by these panels without expensive settlements due to fear of large jury awards and expensive jury trials can be minimized.

Since 2005 when screening panels were approved after much legislative wrangling, fully one third of the malpractice lawsuits were resolved before reaching the screening panel stage. ; Of the 48 panels actually convened, only five actual cases proceeded to a jury trial thus avoiding many lengthy and expensive jury trials. Given the initial success of screening panels, in my view it makes no sense to undermine that success by altering the panels as HB-572 would have done. These panels have been in place four years and should be allowed to work.

This is important because frivolous lawsuits drive up the cost of healthcare. Doctors are forced to practice defensive medicine which means they over diagnose, over prescribe, and over treat to protect themselves from lawsuit abuse. Not only does this make medical treatment more invasive for individuals, but it has an extremely high cost for our medical system as well.

Many thanks to all those who have responded to my blog posts. I appreciate your thoughts and ideas.

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.