Thursday, September 10, 2009

Budget Storm Clouds Looming--Latest News & Notes from Jeb Bradley

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 narcotic 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.

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