By GARRY RAYNO, Distant Dome
In the old days, like 15 years ago, you often heard, “We don’t have a revenue problem, we have a spending problem.”
Today that has been replaced by “Taxation is theft.”
You can pick your poison, but the state and Kelly Ayotte and the Executive Branch are facing some life altering problems in this the second year of the biennium.
For the past five or six years, the state cruised along living on federal money, the economic activity it fueled, and the interest earned on the “surplus money” the state had from the federal COVID rescue and relief funds, and the infrastructure money that flooded the economy.
But rather than put money away for a looming rainy day that was inevitable when the federal money dries up, led by Gov. Chris Sununu, Republican lawmakers and a handful of Democrats cut the rates of the two businesses taxes that supply the largest amount of state generated revenue, eliminated the state’s only tax on wealth — the business and interest tax — and lowered the rate of the second biggest state generated revenue source, the rooms and meals tax.
The effects of those tax reductions was over $1 billion of state revenue permanently lost, never to fund child care, nursing homes, the university system, affordable housing or Medicaid for children, poor mothers and the working poor.
When budget writers sat down to begin work on this biennium’s budget last year they faced a gap of $500 million to $700 million of state revenues that had been in play in the previous biennium.
They chose to deal with the shortfall by cutting state spending including shorting the university system of $35 million resulting in tuition increases, staff and faculty layoffs, program cuts across the system and declining enrollment.
They didn’t stop there. At Gov. Kelly Ayotte’s urging, the state upped copays for Medicaid recipients and others on the state and federal health insurance program had to pay premiums for their coverage.
The Council for the Arts was all but eliminated, as were the full-time right-to-know ombudsman, money for affordable housing, and general fund money for the Youth Development Center (YDC) settlement fund to compensate victims of physical, sexual and mental abuse at the hands of state employees.
Budget writers didn’t stop there. They included $112.7 million in back-of-the-budget, across-the-board reductions for state agencies, with the Department of Health and Human Services bearing the largest burden at $51 million.
While they did not raise any tax rate, they raised nearly 90 fees, many involving vehicles like registration and license plates, but also across state government from the Department of Agriculture to the Department of Environmental Services.
If you are not impacted by these fee increases, you probably don’t reside in New Hampshire, but own a summer home or skiing condo.
And on the second day of the House session last week, what did the Republicans do but decide to cut the rate of the Business Enterprise tax from .55 to .50 percent reducing revenues this fiscal year by about $5 million but by $20 million the next fiscal year and growing.
You could say that is not fiscal responsibility, but instead fiscal insanity unless your goal is to keep reducing state revenues so either essential services end or are downshifted to local property taxpayers who already are burdened with high school taxes because the state of New Hampshire ranks dead last in the country for state support for public education.
This fiscal responsibility of reducing state revenues impacts more than just social services, it impacts roads and bridges which are funded through the Highway Fund, which is chronically underfunded with vehicles having higher gas mileage and electric cars as a large portion of the money comes from the gas tax, and the 4.2 cent surcharge is not permanent.
Most of the $34 million a year the increase produced helped to pay for finishing the I-93 widening project from Salem to Manchester and allowed the state to move money around to dedicate more money to the project while also maintaining work on state roads and bridges and municipal infrastructure.
The increase was tied to a $200 million federal Transportation Infrastructure Finance and Innovation Act (TIFIA) loan with the state only owing interest for the first 10 years, but this fiscal year must begin paying off the principal which is about $23 million a year versus the interest at $2.2 million a year.
Lawmakers have yet to address two education funding lawsuits that would require the state to spend an additional $500 million a year to increase state support to the level needed to meet the state’s constitutional obligation to provide the children of the state an adequate education — and the key — and to pay for it.
This current crop of lawmakers led by the Free Staters have not shown any interest in meeting the court’s requirements although the state Supreme Court has affirmed one of the rulings, any more than past lawmakers have in the 30 years since the court’s first Claremont school funding ruling.
Legislators made progress soon after the ruling, but the gains have been eroded and now the disparities between property wealthy communities and property poor communities is greater than it was when Claremont was filed.
At the same time, the Free Staters running the legislature are more than happy to open up the state’s coffers to anyone regardless of wealth to grab $5,000 or more for their child to attend a religious or private school or to homeschool, costing over $100 million this biennium without ever raising a finger to provide a new revenue source to cover the cost of the program.
The state was not paying anything to educate 90 percent of the 10,510 children currently reaping the spoils because they were never in public schools.
The other problem the governor and lawmakers face is their revenue estimates for many state levies are overstated.
Business taxes are expected to produce about 36.4 percent of the $3.09 billion general and education trust funds for the fiscal year.
For the first half of the fiscal year, they have produced $451.1 million, which is $21 million less than estimates or 4.4 percent.
The first half of the fiscal year produces 38 percent of the revenue anticipated for the year, while the second half historically produces 58 percent largely due to three large business tax returns in March, April and June.
The only large return in the first half is December, when business taxes were slightly ahead of estimates for the month was $168.1 million, which is $1.8 million to the good or 1.1 percent.
While that is better news than the other five months of collections, it could mean one or two multinationals had some banner sales leading up to Christmas.
The rooms and meals tax is also behind budget writers’ estimates by $1.5 million or a little less than 1 percent at $193.4 million for the first half of the fiscal year.
The biggest disappointment so far is revenue from video lottery machines or slot machines, which is expected to produce $60.1 million.
Video lottery is new this year. Lawmakers do not like to call it a tax, but it sure acts like a tax on gambling winnings like the one collected on winnings from PowerBall and other national and regional lotteries, scratch tickets and charitable gaming.
The state constitution requires the winnings from Lottery Commission games to go into the state Education Trust Fund, which was created when lawmakers first addressed the Claremont education decision.
However, the state’s take from slot machines is split between the state’s general fund and the Education Trust Fund with 75 percent going to the general fund and only 25 percent to education. House Bill 1409 has a public hearing Monday and would give all of the money to the Education Trust Fund.
When lawmakers approved slot machines in the budget, they did not expect the one-armed bandits to produce state revenue until October, but they have been waiting even longer than that.
The first revenues the machines have yielded to the state’s coffers were in December when they produced $1.4 million, while the state was anticipating $12 million at this point, putting slot machines 88.3 percent behind schedule.
The state’s monopoly on hard liquor sales has not been the pot of gold it once was and has been trending down as people drink less and competition is catching up.
Liquor sales produced $55.3 million so far this fiscal year, but that is $7.4 million less than anticipated or 11.8 percent under water.
On the other hand the Lottery Commission is producing far more than anticipated due to several national lotteries having billion dollar jackpots, and historic horse racing machines at charitable gambling casinos. To date the commission has raised $99.3 million for the Education Trust Fund, which is $21.5 million or 27.6 percent ahead of plan, but it is not stable month to month.
The biggest windfall is the state’s three-month, tax amnesty program from December to February, which was expected to produce at least $5 million but produced $45.8 million in January most of it from businesses that had failed to pay their state taxes.
Under the plan, tax slackers pay no penalty, 50 percent of the interest and the unpaid tax.
While the amnesty may help revenues look a little better, it is not enough to offset taxes performing below expectations.
Taxes are on a pace to be about $100 million below estimates and will add to the ugliness in this budget that will impact people, usually the most vulnerable.
And there are the federal funds that have been clawed back or reduced by the current administration in areas like food stamps, Temporary Relief for Needy Families and Medicaid.
The picture is grim and the governor and her administration have some very difficult decisions to make. It is not pretty.
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.