By GARRY RAYNO, Distant Dome
The early turmoil in the Republican House caucus over the Majority Leader’s position does not bode well for what lies ahead for the GOP majority in the upcoming session.
The majority’s primary job will be to craft a two-year budget that meets the needs of the state’s citizens and is balanced, something that has been relatively easy over the Sununu reign with billions of dollars of federal rescue and recovery money filling state coffers.
That money is all but gone while the Republican majority over the last four terms cut business tax rates, voted to eliminate the interest and dividends tax at the end of this calendar year — the levy produced $185 million last fiscal year — and cut the rooms and meals tax rate.
Now they are going to have to pay the piper for their actions that reduced state revenue by an estimated $750 million over that time period.
A look at state revenues for November reveals a dire picture facing first-term Gov. Kelly Ayotte and the solid Republican majority in the House and supermajority in the Senate.
And unlike two years ago when the House was almost evenly split between Republicans and Democrats, there is little incentive for Democrats to help pass the barebones budget plan that will likely be produced.
While the official budget figures for the last fiscal year will not be available until later this month, the surplus for that year is not likely to be anything near what was produced in the three prior years, one fiscal year topping half a billion dollars.
Instead, the November revenue numbers reinforce an emerging trend of significant reductions in business taxes — the single biggest source of state revenue, reductions in interest earned on the surpluses and banking of the federal money which have saved the state the past six months as business taxes have collapsed, and the flattening of real estate transfer tax revenue which also helped drive past surpluses.
At the same time, the trend for declining liquor and tobacco sales continued in November to put revenues totals in jeopardy for the 2025 fiscal year as well as the next budget.
The biggest problem for budget writers in the coming months will be finding a way to replace the $185 million lost with the interest and dividend tax elimination and the hundreds of millions of dollars lost in business tax revenue.
November is not a huge month for business tax review like December, March, April and June, but the monthly figure of $16.5 million was 58.5 percent below the anticipated return of $39.7 million and 60 percent below the prior fiscal year at $40.3 million.
For the fiscal year to date, one month shy of a half year, business tax collections are $60.3 million below anticipated revenues or 17.3 percent and impact both the general fund and the Education Trust Fund, which has a healthy surplus but more and more money is being drawn out of the fund due to the Education Freedom Account program.
The fund’s chief purpose is to pay for adequacy grants to school districts,
According to the Department of Revenue, the lower returns for business taxes is “due to a decrease in corporation estimates and returns coupled with increased refunds,” as has been the trend for some time.
The 17.3 percent deficit translates into about a $225 million shortfall on anticipated revenues of $1.3 billion for the year in business taxes, which likely means a deficit for this fiscal year that will also have to be addressed in the upcoming budget work before crafting a new biennial budget.
Adding to the problems is the amount of interest the state earned on its banked money from federal recovery and rescue money and surpluses has begun to trend down meaning it will decrease in the future due to lower deposits and anticipated lower interest rates from the federal reserve.
While revenues are trending in the wrong direction, lawmakers have some pretty significant obligations to address in the upcoming budget work.
Chief among the demands for state money is the $75 million in additional money lawmakers have pledged to add yearly to the Youth Detention Center fund to compensate victims of sexual and physical abuse at the hands of state employees at the Sununu Youth Services Center in Manchester in the past.
While the estimate is now $750 million over the next 10 years, the figure may be much higher depending on decisions in the next few court cases.
There is also the commitment of $50 million a year for a new men’s prison projected to cost $450 million to $500 million.
And the newly established Hampstead children’s mental health center may require significantly more money as the state wants Dartmouth Health to take over operations at the facility.
The state is also sparring with hospitals over the distribution of the Medicaid enhancement tax with a 10-year agreement about to end.
The agreement was reached after the state attempted to retain more of the tax that was redistributed back to the hospitals that paid it on patient services.
The Sununu administration wants to use some of the money to prop up mental health centers and other services instead of returning the money to the hospitals that paid it so the money could be used as a match for federal money in what has been known as Mediscam.
The state is still facing growing demands on mental health services since the pandemic began and has not lived up to a court agreement to end hospital emergency room boarding of adults and children in mental health crisis while they wait for rooms to open at treatment facilities such as New Hampshire Hospital.
The housing crisis has not gone away, and it appears more and more government help may be needed beyond what has been accomplished with the federal rescue and recovery money if young people are going to be able to live in the state to offset the growing elderly population.
The child-care crisis that prevents so many young women particularly from participating in the workforce also needs additional money to reach a solution.
And the other elephant in the room is education funding as the state Supreme Court has heard two of the three arguments it will hear on a lower court’s finding the system is inequitable and unconstitutional using local property taxes to pick up the state’s failure to pay enough money to cover the cost of an adequate education, the constitutional right of every child in New Hampshire.
It is not a pretty picture and if lawmakers approve universal vouchers for every parent regardless of income as is a real possibility, you can add about another $100 million a year to what is already a very unbalanced equation.
Government living within its means without new or increased revenues will be very ugly for many of the state citizens from one-parent families to college students and from the elderly to children living in poverty.
Elections have consequences and New Hampshire citizens are about to learn what those consequences are.
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.
