After six months of debate, the Republican-controlled Legislature and the Democratic governor were at an impasse on a final state budget for fiscal year 2016-2017 by the June 30th deadline, despite a less than 2 percent difference in finances separating the two documents. And so it is easy to dismiss this debate as pure politics. But this budget conversation portrays a deep philosophical divide about how to move forward, particularly with respect to the state’s role in supporting economic activity in the state.
A Surplus in 2015?
When she introduced her budget, Gov. Maggie Hassan thought the state would end with a $13 million surplus, which would be carried forward to the FY 2016-2017 budget period. The Legislature believes that the surplus will be much higher, at $49 million.
Who’s right? The difference of opinion stems from uncertainty regarding how much state executive agencies spent versus what they were allocated in 2015. Virtually every year, state agencies spend less than what was appropriated. But 2015 is complicated by an accounting issue related to how the Department of Health and Human Services (DHHS) pays for services via the state’s Medicaid managed care program. That uncertainty amounts to about $30 million. Policy makers won’t have a firm grasp of these numbers until late August or early fall.
Spending Differences
The Legislature’s and the governor’s budgets both contain significant spending increases beyond the 2014-2015 budget. The governor’s proposed general fund budget was 12 percent higher than the amount spent in 2014 and authorized to be spent in 2015. The Committee of Conference budget is a 10 percent increase. The difference between the two, in dollar terms, is $54 million, or less than 2 percent.
The primary areas of policy difference are in DHHS, support for higher education, aid to local communities and the amount needed in the rainy day fund. With respect to DHHS, the primary difference is the Legislature’s decision not to reauthorize the state’s expansion of Medicaid. The NH Health Protection Program provided coverage to 37,206 individuals as of April. Instead, the Legislature has indicated it will review it in the next legislative session. With respect to the higher-education system, the Legislature funded the University System and the Community College System at 10 and 6 percent respectively below the governor’s budget. The Legislature also put an additional $20 million into the state’s rainy day fund.
Debating Business Needs
The strong economic growth that characterized NH’s economy over the past three decades has slowed, leaving many policy makers scratching their heads.
To a certain extent, the two budgets take different approaches to managing the potential weaknesses in the NH business environment: corporate taxation and workforce development. The Legislature’s budget reduces business taxes to the tune of $25 million in state taxes in the next budget period, and larger decreases in subsequent years.
The governor’s budget would spend about $24 million more on higher education, which would have gone toward freezing tuition at the University of NH (UNH), and supporting workforce development at UNH and the Community College System. Which matters most to NH’s economy? It’s not clear. Economists certainly agree that all else being equal, fewer taxes provide states with a comparative advantage. But there is little more than anecdotal evidence that changes in corporate taxation have an impact on businesses expansion or creation. And on the other side of the ledger is also uncertainty. Does an additional $25 million to our post-secondary institutions in NH increase the viability of NH’s workforce in a meaningful way?
In the end, the divide between the Legislature and the governor raises important questions about the role of state government in pushing economic development.
The state has many economic development levers at its disposal: Reducing corporate tax rates, increasing investment in workforce development activities, ensuring strong infrastructure, marketing the state to the next generation of workers, changing regulations and attacking the high energy costs in NH.
It is unlikely that any one change (and relatively small ones at that) will materially change NH’s economy. Helping support NH’s economy going forward in budget negotiations in the fall and beyond will require a thoughtful balancing of the options that state government has to encourage
economic activity.
Steve Norton is executive director of the NH Center for Public Policy Studies, an independent, nonprofit, non-partisan organization pursuing research on public policy. For more information, visit nhpolicy.org.
Current Issue - May 2024