The NH Legislature will work to pass a new state budget in 2025. After four budget cycles that began with surpluses, the next cycle may be more challenging due to factors within the state and potential federal policy changes.
Revenue Downturn
Two key state funds, the General Fund and the Education Trust Fund, share several revenue sources and are considered important barometers for state finances.
These two funds ended State Fiscal Year (SFY) 2024 with an unaudited $126.4 million revenue surplus, (a 4% increase from what was budgeted). From July to November of SFY 2025, cash revenues were $20.8 million, 2.3% below planned amounts. Last year’s surplus could help cover a potential deficit this year.
Although these figures do not directly indicate immediate challenges, the composition of the surplus suggests future risks. In SFY 2024, 99% of the surplus was attributable to interest the state earned on cash holdings and higher-than-expected revenues from the Interest and Dividends Tax.
Both revenue sources are likely temporary. The Interest and Dividends Tax, which accounted for 8.8% of unaudited SFY 2024 General Fund revenue, will be repealed in 2025 as part of a planned phaseout. State interest collections will go down as interest rates decline and the one-time federal grants the state currently holds are depleted.
Additionally, overall average monthly revenue collections over the last 12 months were lower than during the previous 12-month period.
Big Ticket Items
Maintaining current services funded by the $15.17 billion 2024-2025 budget may be challenging. State agencies have requested a combined $16.95 billion to meet identified needs for SFYs 2026 and 2027. But even keeping current services, eliminating one-time expenditures, and adjusting for projected inflation and differing accounting methods would produce a budget totaling about $15.35 billion for the next biennium.
However, the state may face costs beyond funding current services. Most immediate are the ongoing legal cases and settlements associated with alleged abuses inflicted on youth in the state’s care. The Youth Development Center Claims and Administration Settlement Fund reported that 206 of 676 filed claims were settled through the end of September 2024.
The state’s total cost of resolved settlements so far is about $102 million, with another $469.6 million in pending filed claims, and potentially more claims coming through June 2025. State policymakers set aside $160 million for settlements and capped annual payouts at $75 million. Court cases outside of the settlement process may also generate large liabilities for the state.
The State Supreme Court is also considering legal arguments surrounding funding for public education. While the Court’s decisions could have widely varying impacts, aid for local public education is the second-largest program operated by the state. Court-ordered changes to policy could necessitate more resources from the state budget. In SFY 2000, the first year after the Court’s second Claremont school funding decision, the state raised $729.3 million, or $1.35 billion in today’s dollars, to support the newly created Education Trust Fund.
The state is also beginning the process of building a new men’s prison, with an estimated cost of $500 million to $600 million. While that amount will not be paid up front, annual bond payments may be significant.
Federal Funds
In 2025, federal lawmakers will consider the next budget, raising the debt limit, expiring health insurance subsidies, and key components of the 2017 tax overhaul. With these deadlines, Congress will likely be diving deeply into federal fiscal policy, including aid to state governments.
About one-third of NH’s State operating expenses are funded by federal transfers, totaling about $3.8 billion in SFY 2023.
Changes to federal programs could have a substantial impact on state budget funding, and in turn, the amount of aid the state provides to local governments, thus putting pressure on property taxes. Policymakers may have to make difficult choices to balance the budget while optimizing investments for the people of NH.
Phil Sletten is the research director at the NH Fiscal Policy Institute. For more information, visit nhfpi.org.
