Distant Dome: The Good Times May Be a Distant Memory

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


CONCORD – Gov. Chris Sununu may have known something was coming when he announced last year he was not going to run for an unprecedented fifth term.

When he came into office the state was on a run of some fairly significant surpluses with an economy fully recovered from the depth of a major recession if not close to depression.

However, his luck did not hold for his second term when COVID-19 bared its teeth and tanked state finances for about 18 months.

But the infusion of billions of dollars of federal recovery and relief money soon shot up business tax revenues and some others to provide some amazing surpluses, that along with the federal pandemic money allowed the state to do some things it never would have accomplished otherwise.

But as he and budget writers knew, the good times can’t last forever as economies have cycles.

An indication of the changing economic picture sits in the state revenue numbers for the shortest month of the year.

The best way to describe the returns released last week is flat.

There have been some troubling indicators that the economy on steroids was not permanent like the once white hot real estate market had been a tremendous boost to state revenues for several years, but is down $21 million from what budget writers estimated it would be.

The market has slowed significantly and the estate transfer tax reflects that due to high prices, low inventory and higher-than-used-to mortgage rates.

Indicators of business activities such as the communications tax, the tobacco tax, and transfers from the Liquor Commission, have been flat or headed in the wrong direction and the warm, nearly snowless winter has added to the woes.

There are two unexpected highlights over the past few months, the Lottery Commission earnings for the Education Trust Fund, which will need it with the rapid expansion of eligibility for the Education Freedom Accounts, expected to grow to about $50 million to $60 million if the bill the House passed makes it through the Senate and the governor signs it as he said he would.

The larger than anticipated revenues are courtesy of large jackpots from national lottery games and sports betting, mostly on the Super Bowl.

The other unanticipated pocket of money comes from the “other” category from interest earned from investing all that federal money and surplus revenue in short-term vehicles which February netted $9 million more than budget writers estimated.

However, the big driver of the state’s “good times” has been business taxes, one which reflects national and international economic trends and the other more localized to the state’s economy. 

Business taxes are the single biggest source of state revenue accounting for about 40 percent of all state revenue. 

The Business Profits Tax is largely paid by multinational conglomerates and large national companies which have all had record profits since the federal pandemic money helped fuel their businesses and consequently the state’s business tax receipts along with many other states’.

The Business Enterprise Tax, a form of a value added tax, is reliant on state businesses and more reflects the state’s economy than the BPT.

Companies that pay both taxes have an offset so the numbers don’t always directly reflect the economic health of the state’s businesses.

The two business taxes are combined in reports, and for the last three months have been below what budget writers estimated for returns, although they have generally been above what was collected a year ago.

February is not a big month for business tax receipts, but December is, as are March, April, June and September.

While business tax revenues were $2.4 million below estimates of $22 million in February, for the year to date, collections are above estimates by $30.4 million, and above last year’s revenues by $15 million.

The state’s budget plan anticipates business taxes will produce $1.247 billion this fiscal year.

According to the Department of Revenue Administration, the increase in business tax revenue over prior year in February was due to strong estimates, returns and extensions, however business tax refunds were $116.5 million compared to $57.4 million last fiscal year.

Beginning in tax year 2022 the amount of any overpayment that a business may claim as a credit for future liability is capped at 500 percent of their total tax liability.

The agency said in the year to date, the refunds due to the cap are 45 percent of total refunds.

Along with the cap, the agency has seen the requests for refunds increase recently, which is a drag on the business tax returns but also means those companies will be submitting smaller estimates and returns in the future.

According to the DRA’s quarterly report, refund requests have been growing recently.

The requested refunds for business taxes requested for the last quarter from October through December was $63.2 million from 2,238 businesses, while $52 million was paid out in the quarter to 2,137 businesses.

At the end of December, $11.1 million in refund requests were outstanding to 242 businesses.

During the second quarter last year, refunds were $28.2 million.

The first quarter of this fiscal year from July to September is a similar picture with the refunds $30 million in the 2024 fiscal year, compared to $16.2 million a year ago.

Refund requests have been trending steadily upward over the prior year since the beginning of fiscal year 2022, growing from $12.7 million in the first quarter of 2022 to $52 million in the second quarter of 2024.

This does not necessarily indicate the country is heading for a recession, but it certainly does indicate New Hampshire should not expect to experience the record surpluses it has seen since coming out of the pandemic slowdown.

With four months remaining in the 2024 fiscal year, state revenues are $114.6 million in surplus, while a year ago the revenue surplus stood at $268 million.

The revenue surplus at the end of the 2023 fiscal year was $518 million.

This fiscal year with three of the five highest business tax return months ahead, the revenue picture could be good or bad depending largely on how the business tax receipts go.

If they are about what budget writers anticipate, an over $100 million revenue surplus is certainly not bad, but not comparable to the past three fiscal years.

However if the business tax returns reflect a slowing economy, most likely there will not be a deficit but that will be a problem as there are some significant needs to be addressed before the end of the fiscal year June 30.

The Youth Development Center settlement fund is likely to run out of money soon and will need even more money with proposed changes intended to have most claimants go through the settlement program and not through the courts.

And there are the two court orders on the education funding system that could cost the state an additional $500 million plus.

Yes, the governor may be leaving state politics at a good time for him.

The next budget is not going to be as easy to pass as the last few and a bipartisan plan approved on a voice vote without a committee of conference is not likely either as happened last year.

The good times may be gone and may be but a memory for the next legislature and its budget writers when they sit down to craft the next biennial budget next year.

Garry Rayno may be reached at garry.rayno@yahoo.com.

 Garry Rayno may be reached at garry.rayno@yahoo.com. Garry Rayno may be reached at garry.rayno@yahoo.com

Distant Dome by veteran journalist Garry Rayno explores a broader perspective on the State House and state happenings for InDepthNH.org. 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.

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