By GARRY RAYNO
For the last two bienniums, the state has been swimming in revenue with large budget surpluses despite some social service spending issues.
But the gravy train appears to be slowing especially for the four taxes leading the growth over the last five years.
All four taxes, the two primary business taxes — profits and enterprise — along with the rooms and meals tax and the real estate transfer tax, are showing signs of slowing down or leveling off meaning money to pay for priorities will not be as readily available.
Revenue growth has allowed the state to invest heavily to fight the tenacious opioid addiction crisis, add personnel for child protection and mental health programs, fix highways and bridges, and a few public education sectors.
While it is early in the 2018 fiscal year, there have been signs for a while the four foundation taxes have been trending at a slower pace and essentially leveling off.
The NH Center for Public Policy Studies analyzed state General and Education fund tax receipts and determined the strong revenue returns from fiscal year 2016 and the first half of fiscal 2017 have begun to trend more towards a straight line.
“This is due to a marked slowdown in the growth rates of our four ‘workhorse’ revenue streams,” said the center’s economist Greg Bird.
The other 15 revenue sources for the general and education funds have been static for the last two-and-a-half years, Bird said.
“This doesn’t mean the sky is falling,” he said. “The state revenue picture is still strong. But what this may signal is that, in the current biennium, the state may have less leg room to deal with unexpected expenses and potentially less likelihood of a significant revenue surplus than it had in the recent past. Growth in State Revenue has come to a halt.”
In crafting the current biennial budget, Gov. Chris Sununu had wanted to create a special fund to pay for kindergarten expansion, highway and bridge work at the state and local level, and allow the school building aid program to begin taking on new projects for the first time in a decade.
The first-term governor did not receive all that he wanted, but did receive at least a little of what he proposed including additional funding for health and human services programs, some of which were running at a substantial deficit due to budget miscalculations two years before.
Going forward a leveling off of revenues could mean some tough times for some agencies and programs.
The biggest gaping hole in current funding is the University System of New Hampshire, which receives the same funding it had the year before for this and next fiscal year or $81 million annually.
The Community College System, received substantially more money for the biennium than the one before continuing what has been a legislative trend over the past few budgets to reward the community colleges and their students while being less generous with the university system.
With additional funding, the community college system has reduced tuition for its students, but the university system students either froze or increased tuition over the same period pushing higher education at the four public colleges and universities more and more out of reach for many state students and increasing student debt which is already the highest in the country.
The 2011-12 legislature cut funding for higher education in half. The community college system has returned and surpassed state funding levels prior to the cut but the university has not.
In the prior year’s budget, the university system received about $100 million and that was slashed in the 2012-13 budget to $50 a year.
State funding has increased since that budget but only to $81 million a year.
Another area likely to to feel the impact of future flatline revenues will be the New Hampshire Health Protection Program, or the state’s Medicaid expansion program under the Affordable Care Act. The program provides private health insurance for low-income, working adults paid for through the Medicaid program.
Earlier this year the Center for Medicaid Services told the state it could no longer fund the program using its current method of having insurance companies and hospitals foot the state’s share of the bill – about $40 million annually for the 50,000 people on the program.
The CMS told the state the Medicaid law forbids donations from service providers unless there is a mechanism that would return the money to the provider.
“In the case of the New Hampshire’s arrangement, CMS believes there is a relationship between the donations and Medicaid payments because Medicaid expansion is conditioned on the receipt of donations as articulated in New Hampshire legislation,” wrote Brian Neale, CMS Director in a letter received July 25.
The letter set off a firestorm of political bickering over who knew and who was to blame, etc., but the message is clear: if the program continues it will need to be state dollars not money from providers.
With revenues growing by leaps and bounds, lawmakers could have at least partially funded the program, but now that will be more difficult if expansion continues beyond its current end date of Dec. 31, 2018.
The issue may be moot if President Trump continues his executive orders gutting the ACA which if not addressed by the end of the year will result in a self-fulfilling prophecy to implode the health insurance expansion program.
The state’s priorities of fighting the opioid addiction crisis, and fixing the mental health and child protection systems, and highways and bridges will have to compete with other state programs for money.
Lawmakers are going to have to make some difficult choices in the coming years.
That the four foundational revenue streams are slowing down should not really be a surprise.
Several economists noted the recent slowdown is partially driven by the lack of skilled workers to fill positions. If businesses cannot fill positions with qualified workers as the state aging population retires, they will look elsewhere to expand.
The Department of Administrative Services’ September revenues report shows $111.9 million in business taxes, which is $2 million below what was collected last September.
And the Department of Revenue Administration says businesses sought $8 million in refunds, which indicates their estimates for their tax bills were too high, another indication growth is slowing down.
Another reason for decreasing business tax revenue is lawmakers cut rates the last two terms in bringing them more in line with surrounding states that also have income and sales taxes which New Hampshire does not.
The rooms and meals tax in September actually reflects August sales so it would not surprise anyone if revenues were down given the cold and dreary weather for much of the month.
However for the year the rooms and meals revenues are about $4 million more than a year ago, but are not growing at the rate they were.
The real estate transfer tax has been the biggest grower over the past four or five years as property sales have rebounded nicely from the great recession driven by the financial industry’s love affair with high-interest sub-prime mortgages that nearly crashed the world’s financial system.
Real estate transfer tax revenues are about the same as last September. However, the DRA says there were fewer sales but prices are 7 percent higher making it a wash.
The next few months are not large revenue producers but December is as are March and April. December ends the first half of the fiscal year and should paint a fairly accurate picture of where state revenues are heading.
A rebound would be good news for budget writers, but is probably unlikely.
Three years ago economists told state budget writers the high-water mark for state revenues would be fiscal 2015 and then expect a slowdown, but the state blew through that barrier and continued to grow for another two years.
The growth slowdown is here and difficult choices are on the horizon for lawmakers.
Garry Rayno can be reached at firstname.lastname@example.org
Garry Rayno’s Distant Dome runs exclusively on Manchester Ink Link and InDepthNH.org, where Rayno will explore a broader perspective on State House – and state – happenings. Over his three-decade career Rayno has closely covered the NH State House for the New Hampshire Union Leader and Foster’s Daily Democrat, and his coverage spanned the news spectrum, from local planning, school and select boards, to national issues such as electric industry deregulation and Presidential primaries. He is former editor of The Hillsboro Messenger and Assistant Editor of The Argus-Champion. Rayno graduated from the University of New Hampshire with a BA in English Literature and lives with his wife Carolyn in New London.