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Looking Ahead to the Next State Budget

Published Tuesday Jan 15, 2019

Author Phil Sletten

Looking Ahead to the Next State Budget

The process for planning NH’s next two-year state operating budget is already well under way, but high-profile proposals, debates and decisions will begin in earnest soon. Although state agencies have been drafting their budget proposals since the summer, the governor’s budget proposal is not due until Feb. 15. It then moves to the House of Representatives, and on to the Senate. A new budget must be in place by June 30, and several key issues will likely be debated.

Medicaid Reimbursement Rates
Medicaid, which helps low-income people access health care, will likely be an issue once again. With the entire NH Medi-caid program, including state and federal funds, amounting to $2.1 billion during FY 2017, any changes can have a large fiscal impact. Medicaid reimbursement rates define the amounts that providers are paid for services.

Legislators agreed in last session’s reauthorization of Medicaid expansion to revisit reimbursements for certain services.

Much of the savings expected from moving to the new managed care model for Medicaid expansion stems from shifting to the relatively low rates offered through Medicaid from the higher rates previously offered in the current model. For some health care providers, these reimbursements do not cover the cost of delivering services, and some have not received rate increases in many years.

Despite the expertise often required to deliver complex services to those in need, wages for some direct service providers are often low and can be similar to those earned in fast food or retail. The combination of some providers reporting serious trouble finding workers after years with no rate increases, the Legislature revisiting certain rates under the new Medicaid expansion law, and reduced reimbursements for Medicaid expansion providers will likely prompt debate around this issue.

Education Funding
The system for funding public schools is again moving to the forefront of policy debates. Communities with lower levels of property wealth are facing reductions in state aid due to declining enrollment and the phasing out of grants provided to stabilize funding for certain districts.

During the 2017-2018 school year, state adequate education grants provided a base amount of $3,636.06 per pupil, with upward adjustments for certain students. However, the grant does not come close to the average amount school districts pay to educate each student, which was about $15,804 that year. Much of the gap is covered with local property tax revenue, raising concerns in cities and towns over the funding structure.

Revenue Projections
Although there is uncertainty in every budget, legislators may have a particularly difficult challenge projecting state revenue this cycle. An estimated 22 percent increase in combined business profits tax and business enterprise tax receipts, following the federal tax overhaul in late 2017, was likely due in part to businesses repatriating profits from overseas.

However, it is not clear how much of this rise in revenue is due to one-time shifts of business profits, growth in the tax base during a continued economic expansion, or money businesses overpaid in an unsettled corporate tax environment and will apply as a credit to future tax liabilities or request through refunds.

Given the unpredictability of these key state business tax revenues, projecting overall revenues for the next State Budget will be a difficult task. The Legislature already opted to spend much of the surplus collected in the months following the federal tax overhaul in off-budget appropriations, but with the sustainability of higher revenues in question, legislators may have difficulty planning for new initiatives or expanding commitments in the next state budget. Other revenue sources, such as Keno gaming revenue, are far less volatile but present uncertainty as well.

Meanwhile, the U.S. continues to experience the second longest economic expansion since at least the 1850s. While the economic recovery had a slow start, planning for the next recession is a prudent step for budget writers, including preparing for potential impacts on revenues and ensuring the sustainability of needed services as needs rise during economic downturns.

With potentially large fiscal items on the table, as well as discussions over funding Medicaid expansion, paid family and medical leave, and continued efforts to mitigate the opioid crisis and bolster the state’s mental health system, legislators already have plenty of issues to tackle in the state budget. Which issues they decide to address, and the extent to which they choose to address them, will affect the lives of all Granite Staters during the next two years and for many years to come.

Phil Sletten is a policy analyst at the NH Fiscal Policy Institute, an independent nonprofit, nonpartisan public policy research organization based in Concord. Learn more at

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