Distant Dome: NH’s May Revenues Paint a Gloomy Picture for the Future

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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.

By GARRY RAYNO, Distant Dome

Lawmakers return to Concord for one more session day Thursday before going home for the summer, and either saying “I’ve done my part, I’ve had enough, let someone else represent my constituents,” or “I need to get my campaign up and running on all cylinders to win re-election.”
But both those hanging up their legislative pins and those who hope to return cannot be overjoyed about the financial picture for the state heading into the 2025 fiscal year that begins July 1.

Warning signs have been flashing red for a while, but were somewhat muted after last month’s revenues showed a rebound in business taxes that fund about one-third of state government and about 40 percent of the Education Trust Fund, which will experience a bigger draw during the next biennium if lawmakers agree to the negotiated agreement to expand the Education Freedom Account program Thursday, although it is not a sure thing having passed the House by one vote earlier this year.

The May revenue report shows business taxes about one-third below the 2024 fiscal year revenue plan with the business enterprise tax in negative numbers for the month.

Budget writers penciled in $43.2 million as the estimate for May returns, but the actual number was $28.6 million.

Business taxes, which helped fuel the hundreds of millions of dollars in budget surpluses over the past three or four years, are $52.7 million below what was collected a year ago at this time, totaling $1.1 billion, and $18 million below the revenue plan for the year.

According to the Department of Revenue Administration, the decrease in business tax revenue from the prior year was due to a decrease in estimates, returns, and extensions. That pretty well sums it up, businesses do not believe the good times fueling their past profits are going to continue into the next fiscal year.

The driver of much of those profits were the trillions of dollars poured into the country’s economy in COVID relief and recovery money for the past four years and that money is drying up.

The business taxes are not the state’s only problem as it has long employed “sin taxes” to pay for a good portion of state government and has the added value of attracting out-of-staters to contribute to the state’s coffers.

The tobacco tax has been an ongoing problem with fewer people smoking but is somewhat propped up by revenues from vaping.

The returns from liquor sales have also lagged as in recent years the state has had to compete more with on-line sellers that can match or beat New Hampshire’s discounted prices compared to surrounding states.

Both of these taxes were below estimates for May as was the real estate transfer tax, which until the inventory contracted about two years ago, was as big a driver in revenue surpluses comparatively as the business taxes.

Overall for May, state revenues couldn’t be much closer to estimates than they were, producing $141.7 million when $141.2 million was predicted by budget writers.

The state revenue picture was stabilized by the Lottery Commission with greater PowerBall sales due to huge jackpots and Historical Horse Racing offered by the charity gambling facilities.

Also adding to the overall picture, was a significant surplus in the “other” category, mostly driven by interest earned on the federal COVID money and state revenue surpluses, although both pools of money will decrease over time ending the windfall.

The other source of significant surplus funds is the interest and dividends tax which is $58 million above estimates, but that tax will end next year, reducing state revenues by at least the $165 million collected so far this fiscal year.

Of the $150 million collected in the other category this fiscal year with one month to go, $93 million is from interest earned on accounts. 

Currently the category is $86 million dollars ahead of estimates, while the Lottery Commission returns are $35.4 million more than estimates.

All of the money from the Lottery Commission goes into the Education Trust Fund, which will need the surplus to offset the losses on the portion of business tax revenues that flow to the trust fund.

Two other levies that flow part of their returns to the Education Trust Fund, the real estate transfer tax and tobacco tax, have also failed to perform to estimates.

The Education Trust Fund currently has an estimated $212 million surplus, which has not always been the case, but will not last long as the cost of the Education Freedom Account program has gone up significantly every year and will cost an estimated $50 million to $55 million next fiscal year if the expansion is approved Thursday.

The expansion would make about half the families in the state eligible and more than 60 percent of the school-age students.

The estimated program cost for the current fiscal year is about $25 million.

With one month to go in the 2024 fiscal year, the overall state revenue surplus stands at $143 million, down significantly from last year’s surplus of $518 million.

This year the House and Senate passed several bills that would reduce this year’s projected surplus.

Lawmakers added $60 million to the $100 million Youth Development Center Settlement Fund, and $27.5 million to address retirement system benefit shortcomings for Group 2 members resulting from the system overhaul more than a decade ago.

Group 2 members are law enforcement, firefighters and emergency medical workers.

The Senate killed more than $100 million for the education funding system the House passed to help those school districts with the lowest property values and highest poverty rates and the system overall, and an additional $35 million in 2026 fiscal year for special education costs.

That money would have come from the Education Trust Fund.

Budget writers in developing the current biennium’s budget, estimated state revenues would be about $10 million less in the 2025 fiscal year.

Given the drop off from fiscal 2023 to 2024 of $117 million to date, the $10 million estimate may be a best case scenario.

The last two bienniums have produced budgets that were easy to resolve because there was more revenue available than budget writers have had in the past, making decisions less difficult.

Developing the upcoming biennial budget in the new legislative session next year with a new governor is likely to be a return to more austere times. 

Adding to the picture is the ending of the federal COVID and infrastructure money that has allowed the state to do things it would not have been able to accomplish without it.

That money, much of it passing Congress without any or little Republican support, has allowed the Republicans in charge in Concord to tout their fiscal accomplishments, when they should have been thanking the state’s Democratic Congressional delegation for voting for the money.

But this is an election year and those elected in November will face some very challenging decisions as they write the state’s next biennial budget.

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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