Distant Dome: State Budgets Are Not Written in Stone

Budgets are living documents that reflect the priorities of the legislature that enacts them.

And as living documents, they are snapshots in time.

The picture you see today is not what it may look like in the future because budgets have two components, revenues and appropriations and both can change and do frequently.

The budget adopted by the legislature this year for the next two fiscal years spends $13.4 billion when you remove the interagency transfers which are double counted in the bottom line, and if you don’t, the budget totals $13.5 billion. 

Whichever way you look at it, this biennium’s budget is about $210 million more than the last biennium or about a 1.6 precent increase no matter what the press releases said after the House and Senate passed last month — down nearly party lines — and went home until the fall.

The difference is in the general fund spending, which is slightly lower, but not really.

The two-year total of state general and education tax money is $5.5 billion while the budget passed two years ago was projected to spend $5.5 billion as well but raised more than that largely due to a $300 million surplus for the 2021 fiscal year more than making up for the $144 million revenue deficit in 2020 due to the pandemic.

The actual deficit for the 2020 fiscal year was $81.5 million due to reduced spending by state agencies during the early days of the pandemic.

So once the deficit is erased, the state had about a $220 million revenue surplus for the 2021 fiscal year.

The Senate budget — which is essentially the budget lawmakers approved — used a lot of that money for various things like increased spending on mental health and affordable housing upping the total spending for the 2021 fiscal year to $2.9 billion, which is how some budget writers can claim the two-year spending levels are about $200 million less than the previous budget.

Yes, budgets are living documents and they change over time as the pandemic reminded everyone.

Off Budget

Another budgetary tool to reduce the overall spending for a budget is to take various items off line, or off the balance sheet.

That is what was done with revenue sharing with communities.

When the state overhauled its tax system under former Gov. Walter Peterson, it eliminated the stock and trade tax which went to communities and replaced it with the rooms and meals tax and promised cities and towns they would have a share.

The state never quite lived up to its promise but did send money back and it grew thanks to former state Sen. John King, D-Manchester, but that stopped when a recession whacked state venues.

Prior to the passage of this budget, the state was to send 40 percent back to communities, but has not been doing that since the Great Recession.

This budget sets the amount at 30 percent, something Senate President Chuck Morse said the state could live up to, about $50 million more, but puts all the revenue sharing money into a dedicated fund.

The dedicated fund is not included in the operating budget so the $188.2 million in it is not counted against the total.

Communities are grateful for the additional money, although what budget writers did makes it appear the state is spending less money than it actually is.

Education Funding

There is no doubt there is less money going to school districts in this budget than in the one that just ended June 30.

Some would say that is as it should be because enrollment is less than it was and many students left public education during the pandemic to go to private or religious schools or for homeschooling.

But most people believe the large drop is a one-time thing.

State education aid is determined by average daily attendance among several factors, and also the number of students on the free-and-reduced-lunch program, used as an indicator of poverty.

The federal government waived the requirement parents fill out the forms for the program and consequently a number of parents did not, reducing those numbers as well.

The budget does account for the enrollment and free-and-reduced-lunch numbers so school districts will not lose about $30 million in state aid but did not replace $90 million in disparity aid targeted to the poorest school districts in the last budget.

The budget includes a similar program with $35 million over the biennium that would come out of the education trust fund and would also be off budget, which the disparity aid was not.         

And the budget includes a one-time reduction in the Statewide Education Property Tax of $100 million that is about one-third of what is raised by the state property tax that remains in local communities to help pay for the state’s education funding obligation.

This is across the board so it reduces property taxes for all communities rich and poor.

The property wealthiest communities in the state raise more money than they need to offset the state education aid share but retain that money so there are no “donor towns.”

With the $100 million reduction, these communities will be missing out on the extra money beyond the state obligation, so about $15 million is included to help the wealthiest communities so they are “held harmless.”

And the great unknown for education funding is what the school voucher plan included in the budget package is going to cost. 

The Department of Education estimates it will draw $3.45 million from the trust fund over the two years, but some people think it will be far greater than that and the state’s exposure could well be in the $70 million to $80 million range, probably not at first but in time.

That is why budgets are living documents.

Tax Reductions

According to the New Hampshire Fiscal Policy Institute, the budget contains $247.1 million in tax reductions through rate cuts as well as increasing the threshold for paying the business profits tax.

That figure includes the $100 million in statewide education property tax reduction but does not include an estimated $70 million lost by waiving the state law that would cover grants businesses received through the federal Paycheck Protection Program.

Under current law the grants would be considered revenue for businesses but will not with the passage of Senate Bill 3.

The Department of Revenue Administration estimates the waiver could reduce state revenues by $100 million now and into the future.

Some businesses paid their tax liabilities based on the current law and included the revenue in their filings. The state will have to return that money.

Just how much money that is, is hard to quantify.

House Appropriations Committee members noted the payments may be inflating the state’s revenues for the 2021 fiscal year. If that is true, the budget writers may have spent money needed to return to taxpayers.

And again, budgets are living documents.

Consequently, today’s political spin often becomes fodder for political ads 18 months later.

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.