Major Sticking Points as Deadline Looms: Ed. Funding, Capital Gains Tax

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Garry Rayno is's State House Bureau Chief. He is pictured in the press room at the State House in Concord.

By GARRY RAYNO, Distant Dome

CONCORD – In the coming days, House and Senate negotiators try to breach their differences on 35 bills before Thursday’s deadline.

The two most important bills, House Bill 1 and House Bill 2, are their differing two-year, $13 billion operating budgets.

The major sticking points are obvious: education funding, a new forensic hospital and the capital gains tax.

Some other issues may create friction, but nothing like the friction that lies ahead between the Democratically controlled legislature and Republican Gov. Chris Sununu.

Last week, the governor held a press conference outlining his objections and agreements with the budgets passed by the House and Senate and proposed his “Roadmap to Common Ground.”
But common ground will be difficult to find, not for the legislature, but between lawmakers and Sununu.

He drew three-and-a-half red lines that would provoke a budget veto: a capital gains tax, halting reductions in business tax rates, paid family and medical leave, and across-the-board rate increases for Medicaid providers. He wants Health and Human Services officials to have the flexibility to determine which providers and the percentage increase while lowering the cost by more than $20 million.

Long-time observers saw a triangle developing near the end of the Senate’s budget work tilting toward an agreement and not a veto and the dreaded continuing resolution.

The House would give up the capital gains tax used to fund nearly all of its $160 million increase in state education aid, the Senate would give up the paid and family leave program Sununu claims is an income tax, and the governor would drop his opposition to retaining the 2018 business tax rates for this calendar year.

After the press conference, the deal evaporated, and in fact it was clear last Thursday when the Senate bounced against its midnight deadline to pass its budget plan that business tax rates were the deal breaker.

That night Republican senators left the chamber for the two hours before the deadline after senators voted down party lines not to divide the question as it had on the two amendments to house bills 1 and 2, allowing GOP members to vote for sections of the budget but not others.

That is a good strategy if you are Republicans running for reelection. You can tout your support for various programs and initiatives, but not if you’re Democrats because the GOP members refused to approve the revenue needed to pay for those programs and initiatives.

Needing only 13 votes for a quorum, Senate President Donna Soucy could have had the 14 Democrats take the final vote on the budget bills, but did not want to do that and the standoff went until the clock struck midnight and 23 senators voted down party lines approving the budget 14-9.

Going to the mat

The message is clear, the GOP is going to the mat over business tax rates and Sununu reiterated that.

The coming two-week budget battle is about Democrat and Republican bases.

The old mantra of no new or increased taxes or fees plays to the Republican base. That means opposition to the capital gains tax, the business tax rates and the income tax through the paid family and medical leave program.

The House and Senate plan assesses a .5 percent levy on salaries to pay for the paid leave program, which is very similar to the payroll assessment that is one of three components of the business enterprise tax.

If one is an income tax, so is the other. Democrats call it a premium assessment similar to paying for an insurance policy, but that is spin as well.

Paid family leave is very popular with state residents. According to a Carsey School of Public Policy survey, 78 percent of Granite Staters support a paid family and medical leave program.

Sununu proposed a twin-state plan with Vermont for state workers through existing insurers that would be available to private sector employers once established.

But Sununu’s plan was never introduced as a bill this session, never vetted in public hearings or pushed very hard by the governor after the Vermont legislature voiced its disapproval.

The Democrats look at the numbers and know giving up their family and medical leave would upset their base and beyond.

The same is true with business tax rates. Originally, state businesses pushed for rate reductions in the business enterprise and business profits taxes so they would more align with surrounding states.

With the higher rates, Granite State businesses had problems competing with surrounding states, but did not ask for additional rate reductions, although they were very happy to have them as anyone would be.

Sununu said now is not the time to be “raising tax rates” when business taxes show an $187 million surplus this fiscal year with two months remaining.


However, the governor and others do not expect business taxes to continue their robust returns into the next biennium. The boost in revenue is partly due to the federal business tax cut and also reflects the end of “loss carry-forwards” from the major recession a decade ago that businesses could use to offset their tax liability. 

Because of the major business losses, lawmakers approved increasing the loss carry-forward to $1 million for a 10-year window, up from $100,000 over three years.

Democrats also expect businesses taxes, which are the foundation and first story of the state’s three-story tax system, to slow down and that is another reason they want to retain the current rates.

The significant problem for Democrats and their budget plans is freezing the rates produces $90 million needed for their budget.

Senate Finance Committee chair Lou D’Allesandro, D-Manchester, noted last week, the budget cannot be constructed without the revenue from the business tax rate freeze.

Finding $90 million to cut in the House and Senate budgets would eat at the soul of what Democrats are trying to accomplish.

Where to cut: state education aid; higher education aid; enhanced child protection mental health and substance abuse programs; increased Medicaid provider payments; revenue sharing with communities; the new forensic hospital? 

Democrats do not want to dismantle those areas but delaying a new forensic hospital for two years to go through the capital budget process could save between $17.5 million and $25 million.

The governor and lawmakers are in agreement with business tax reforms changing the way the business enterprise tax is assessed, which will reduce taxes for New Hampshire-based businesses selling in other states while increasing the burden on out-of-state based businesses selling to New Hampshire residents and businesses.

The apportionment change was suggested by a commission several years ago and will bring the state in line with surrounding states and many others.

But that is not enough to avoid a veto.

Stakes are high

While the governor and legislators want to avoid a veto and a continuing resolution allowing state agencies to spend at current fiscal year levels, the stakes may be too high for both sides to avoid the red lines.

And both sides may view a veto as a political opportunity.

If you are the governor who survived a blue wave during the last election cycle and believe your base is large enough to win again in 2020, you veto the budget and blast the “tax and spend” Democrats saying they want to spend every last penny now and into the future.

You say you protected the state from an income tax and tax increases Democrats approved, although that argument has lost some of its sting of late but remains a major motivator for GOP voters.

The Democratic message will be Sununu cares more about the profits of big businesses, than helping families or educating our children.

And the governor is willing to give up greater child protection, additional resources to fight the opioid epidemic and eliminating the developmentally disabled wait list to protect increased business profits.

The ring of both parties’ messages will be enhanced by millions of dollars of money poured into the state during a presidential election cycle from numerous political organizations and special interests.

But maybe lawmakers will rediscover their center and close the gap between the two philosophies of government, but the odds are not good in this political climate.

The work may not be over in Concord July 1 when a new budget has to be in place. And if that is the case, how long does a stalemate last? That is the real crapshoot.

Garry Rayno may be reached at

Distant Dome by veteran journalist Garry Rayno explores a broader perspective on the State House and state happenings for Over his three-decade career, Rayno covered the NH State House for the New Hampshire Union Leader and Foster’s Daily Democrat. During his career, his coverage spanned the news spectrum, from local planning, school and select boards, to national issues such as electric industry deregulation and Presidential primaries. Rayno lives with his wife Carolyn in New London. is New Hampshire’s only nonprofit, online news outlet dedicated to holding government accountable and giving voice to marginalized people, places and ideas. 

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