Wednesday, June 30, 2010


"A Wish and a Prayer"

By Jeb Bradley

So said the Concord Monitor in their June 13th Editorial titled “Not a State Budget to be Proud Of.” How did the Democratic controlled New Hampshire Legislature get into such a predicament?

Spending has jumped by 10.5% while revenues fell through the floor --- $102 million behind the estimate for the first eleven months of this fiscal year. Leading the revenue plunge are business taxes – off $43 million, rooms and meals taxes ---off $20million, and interest and dividends taxes --- off a whopping $27 million. With the economic recovery anemic at best, revenues are not likely to improve any time soon.

On top of that, the effort to simply expropriate $110 million from a doctor’s medical liability fund (JUA) was deemed to be an unconstitutional taking of private property. All of which created a budget deficit estimated at $300 million by June 2011 when books close – up from a $220 million projection just in April.

Governor Lynch recently called a ‘Special Session’ of the Legislature to confront this alarming deficit – about 10% of the state’s General Fund. The package that emerged from the Special Session includes unprecedented borrowing and one-time revenue sources, uncertain receipt of federal funds, and unspecified sale of State property: The Credit Card.

The non-partisan Legislative Budget Assistant projects one-time revenue sources in the original budget and in the recent deficit package exceed $1 billion. Even excluding the $110 JUA raid and a $50 million reduction of funds that traditionally has gone to cities and towns to lower property taxes – this combined budget package relies upon a whopping 27% of one-time revenue for the General Fund. Nearly $200 million of that amount is unprecedented borrowing for operating expenses rather than capital investments such as buildings or bridges. Much of the balance of one-time revenue was federal stimulus funds.

Even stimulus funds may have reached their limit. Americans, fearful of a Greece-like debt crisis have sent Congress a message. Several incumbents have lost or barely survived recent primaries so Congress has yet to authorize more state aid. Thus $48 million of even more one-time federal money Legislators counted on is in limbo. Whoops – the check is not in the mail even though desperate Legislators are declaring it will be.

The deficit package also relies on unspecified sale of State property. While this idea may make sense, in a very soft real-estate market how likely is the State to receive reasonable value? When this idea was first proposed several weeks ago the estimated revenue proceeds were $50 million. Like magic, the revenue projections just jumped to $60 million. Presto: revenue grows when Legislators simply deem the real estate market has improved.

What about cuts? There were some cuts totaling $52 million but only 1.6% of the General Fund. This so-called $300 million deficit fix in reality is limited cuts, huge borrowing, and one-time revenue --- some of which may not even be real.

Where do all these maneuvers leave the budget? The authors claim the budget is now balanced, precisely what they predicted a year ago before it became a $300 million deficit. For the budget to balance now, they are counting on the unlikely prospect of revenue recovery.

The Prayer: what all the borrowing and one-time revenue does is allow the budget’s authors to cynically claim it is balanced for political purposes in November and pray they avoid the voter’s wrath for their spendthrift ways. But next year---facing nearly a billion dollar one-time revenue shortfall, New Hampshire will confront a fiscal train wreck.

While spending soared and the deficit grew, the numerous tax hikes over the last four years have hurt struggling families, besieged small businesses, while leaving New Hampshire less competitive for job growth or able to confront this looming deficit. In the previous budget, 29 taxes or fees were hiked. In this budget, 38 taxes or fees were raised including the job killing LLC Tax -- nothing more than an income tax on small businesses. The LLC Tax turned out to be so toxic to both small businesses and the Democrats who voted for it, that it was repealed. Even with the repeal, New Hampshire still has the worst corporate tax laws in the nation according to the non-partisan Tax Foundation.

Other warning signs from the Tax Foundation for our State include one of the highest levels of state debt per capita, being only slightly below the national average for state and local tax burden, and having among the higher levels of property taxes in the nation.

All these new taxes and warning signs in terms of national rankings are against the recent backdrop of 50,080 New Hampshire people being unemployed and the national pace of job growth anemic at best.

Four short years ago when change came to both Concord and Washington, the unemployment rate in New Hampshire was 3.6% and 26,865 people were unemployed. In April, the unemployment rate had soared to 6.7% and 50,080 were out of work. Having the worst corporate taxes and a Legislature willing to levy an income tax on small business owners is no way to get people back to work.

There are those legislators -- and now candidates -- who want to ignore the taxes, spending hikes, and deficits of the last four years and claim their stewardship of New Hampshire has been responsible. They point to other states in worse shape than New Hampshire, but ignore the fact that these other states have even higher levels of spending and taxation. Comparing New Hampshire to even more profligate states is no way to govern or help struggling families and small businesses.

The Wish: many of these same folks have always wished for income and sales taxes. Next year they will likely propose an income tax and a sales tax to close the budget hole they created. There could not be a clearer choice in November or a more important election for our State’s future.


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