Budget Breakdown

April 12, 2010

Facing a $210-220 million budget shortfall, Gov. John Lynch has released a three-part plan to cut spending, restructure debt and increase revenue for New Hampshire. He’ll present ideas requiring immediate action to the House and Senate Finance Committees on April 15. Further action will be left to the entire Legislature.

Explaining the shortfall, Lynch acknowledged the $110 million impact of the N.H. Supreme Court’s ruling that the state could not tap into surplus funds of the Joint Underwriting Account. The malpractice insurance pool had glimmered as a partial solution to anticipated budget shortfalls last spring when the current budget was written. The medical practitioners who had funded the pool with their malpractice insurance premiums, however, won their lawsuit claiming that the state did not have a right to the money just because it helped set up the system.

Several lawmakers last spring, when the current budget was written, questioned the legality of the JUA funding option. Some also claimed that other revenue projections were inflated due to an overly optimistic vision for economic recovery, and predicted the budget would come up short.

In his Power Point presentation to an invitation-only group of reporters April 8, Gov. Lynch did cite the recession—lower tax revenues and increased demand for services—as part of the problem. He did not question how realistic the monetary projections had been on which the budget was founded.

Part 1—Reduce Spending

The spending cuts will start more slowly in FY 2010 (a Fiscal Year in New Hampshire runs July 1 to June 30) and ramp up the following year.

Hovering at about 2 percent reductions starting this summer for each of the 24 departments targeted, over $20 million would be saved. Agencies will mostly give up personnel costs—either in the form of delayed hiring, reduced reliance on part-time help and consultants, deferred pay raises, or transferring certain positions to be funded from other sources.

The Department of Health and Human Services accounts for nearly $14 million of the projected savings. About three-quarters of that savings is thanks to the American Recovery and Reinvestment Act of 2009, which granted states a temporary and partial reprieve in what they owe back to the federal government for Medicare prescription drug coverage.

Cuts for Fiscal Year 2011 will get more rigorous, totaling close to $70 million and affecting three extra departments—the Judicial and Legislative branches and the Retirement System. Reductions more often hit 8 percent of General Fund appropriations, with a 16 percent blow to Education outlined here:

• personnel reductions
• reduced in-state travel, organizational dues, employee training, current expenses, provider training, transcription services, subscriptions and maintenance
• catastrophic aid ($7.8 m)
• tuition and transportation aid ($602k)
• dropout prevention ($139k)
• statewide special education ($23k)
• local education improvement ($39k)
• career tech student organizations ($9k)
• court-ordered placements ($119k)
• state testing ($239k)
• school nutrition ($16k)
• adult education ($102k)
• eliminate funding for Parents as Teachers ($65k)

Part 2—Restructure Debt

Taking advantage of lower rates of borrowing, a large portion of Lynch’s plan involves issuing $45 million of debt restructuring bonds to decrease debt service by $39 million in FY 2011. The move would save an additional $3 million in FY 2010.

More debt service would be tweaked with a $25 million payment to the state from the University System of New Hampshire. The money would come from operating funds set aside for deferred maintenance. The state would use the money to help offset $38 million in debt service the General Fund currently holds for USNH.

Part 3—Raising Revenue

The recently passed national health care reform bill might be another source of funding for New Hampshire. Lynch is hoping so. The Legislature and state agencies are still sorting out exactly the impact it will have on the Granite State, but for now Lynch has placed the optimistic estimate of $8.3 million in savings for the state’s retiree health care savings into his plans.

A 20-cent increase in the tobacco tax is the only permanent and structural measure in Lynch’s plan that brings more money into state coffers. It’s projected to raise $2 million in FY 2010 and $10 million the following year.

Last year’s extension of the meals and rooms tax to campsites, which would have raised an additional $17.5 million next year, has been repealed by both the House and Senate, but is not yet signed into law. Lynch’s proposed budget changes take the repeal into account, in effect “paying for” the lack of revenue.

Another change last year that is now facing repeal is the extension of the Interest & Dividends Tax to Limited Liability Companies. Lynch’s plan also “pays for” for the reduced revenue the repeal would mean for the state.

The Senate easily passed this repeal at the end of March with Senate Bill 497, and the House Ways & Means Committee will hold a public hearing on it April 13.

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Filed under: Government, Money, state budget, taxes

Tags: 2010, budget, JUA, LLC tax, meals and rooms tax, New Hampshire, NH, state house