New Hampshire's unbalanced budget

New Hampshire is one step closer to finalizing its budget for the next two years, although a final plan may still be a long way off.
A Committee of Conference has pieced together a compromise $3.2 billion general fund plan for the next two years, starting July 1. These select members of the state House and Senate reached the required unanimous approval for their report, but that does not guarantee their colleagues will go along with it. The full House and Senate are scheduled to vote on the budget—and dozens of other Committee of Conference reports—on Wednesday, June 24. 

Meanwhile, a new lawsuit filed on the final day of budget negotiations seeks an injunction that would keep the Legislature’s hands off a critical $110 million it has claimed. Gov. John Lynch and legislators plan to tap surplus funds from the N.H. Medical Malpractice Joint Underwriting Association. But more than 200 JUA policyholders say the insurance money is rightfully theirs.

If Belknap County Superior Court grants the injunction before the budget passes, the lost funding would send budget writers back to the drawing board. That’s also where they could end up if either the House or Senate votes down the Committee of Conference report next week. 

shaping up

More contentious than how to spend money in this debate is how to raise it. The Senate’s suggested casino-style video slot machines were shot down by the House, which in turn lost its bet on the “gas tax” and new levies on capital gains and estates. A new tax on refinanced mortgages was also killed late in the game, and proposed suspension of the Business Enterprise Tax credit was defeated. The N.H. Business and Industry Association claims a win on its scorecard for the latter.

But the BIA is still licking a wound from a “mystery” amendment that it says amounts to double taxation. This development, which was not revealed to the public in advance, passed the committee easily and is expected to bring in at least $15 million in new taxes from the state’s Limited Liability Companies. According to Dept. of Revenue Administration Commissioner Kevin Clougherty, it merely closes a loophole that lets LLC owners off the hook for a 5 percent interest and dividends tax paid by other businesses.

Major spending cuts also helped close the $190 budget shortfall. Some of what fell to the floor surprised the N.H. Hospital Association. Funding was lowered for medical education, which, coupled with the loss of matching federal funds, will result in a $5.4 million hit for four teaching hospitals. Another $6 million came from limiting Medicaid caseload growth to 1 percent.   

More cuts will come from state employees. The Legislature is not empowered to issue furloughs on its own, so Gov. Lynch will have to do that work. Lynch is now directed to negotiate layoffs and/or furloughs totaling $25 million with the State Employees Association and other unions, in addition to the 200 layoffs already approved.

The state will also scale back its contributions to municipal employee retirement accounts from 35 to 25 percent in two years. Those workers won’t lose money, but the contribution responsibility will shift to towns.

The Rooms and Meals Tax has also been bumped up from 8 to 9 percent, affecting customer tabs at restaurants, hotels and campgrounds. A similar tax was proposed for all entertainment purchases, such as concerts, but that measure failed. A new 10 percent tax on gambling winnings did make it through, along with a 45-cent tax increase on cigarettes. Car and boat registration fees will double under the new plan, but toll increases stalled. The committee also approved the sale of liquor at eight grocery stores.

It wasn’t nickels and dimes that balanced this budget, however. A last-minute revision to expected tax revenue eliminated no less than $75 million in the budget shortfall. And a move to bond $87 million in school funding took that much out of the operating budget, for a cost of $14 million in debt service per year.

shaking down

In all, the $3.2 billion general fund is only about a third of the overall state budget. With money from the federal government, education trust fund, highway fund and other sources, New Hampshire’s expenses will come to about $11.6 billion over the next two years. Those other sources are mostly dedicated funds for pre-determined spending, the general fund gets the most attention. 

The lion’s share of general fund spending—nearly half—goes through the Dept. of Health and Human Services. General government costs follow at about one fifth, with education and justice expenditures not far behind. The committee’s compromise budget includes a change that allows the Dept. of Corrections to implement a program designed to reduce criminal recidivism, thereby lowering inmate numbers and reducing personnel needs. Plans are already underway to close the state prison in Laconia. 

A proposed 850-student cap on public charter schools has also been repealed, thanks to restoration of $6.6 million in aid to those schools. The two-year moratorium on approving new charter schools remains in place, and state officials have been directed to investigate how future cuts in state aid to charter schools may affect New Hampshire’s standing with the American Recovery and Reinvestment Act. 

New Hampshire’s Constitution requires a balanced budget. There’s no law, however, against using old numbers if you can’t figure out new ones. If the conference committee’s budget fails, the Legislature would work off of the current 2008-’09 biennial budget until a new compromise is reached.

The Senate will vote first on June 24, but opposition remains strong among Republicans. This numbers game could last well into summer.

Front Door Politics is a weekly legislative update for everyone affected by New Hampshire laws. An online learning center, additional reporting, and a blog subscription are available at www.frontdoorpolitics.com.