While the mid-term elections significantly changed NH's political landscape, the struggles with the state budget remain. The state faces a potential budget shortfall that, depending on the pace of economic recovery and federal decisions regarding aid to states, will require significant choices about spending or revenue changes.
Under a worst-case scenario, the state could face a 15 percent budget deficit in the next biennium. By this measure, balancing the state budget is a challenge of such magnitude that small changes in spending will be insufficient to meet it. If the Legislature looks at spending cuts to balance the budget, it will need to make significant changes to programs that account for the lion's share of the state's resources and to those programs that have historically grown quickly.
Aid to local communities is a significant driver of state expenditures. Local communities can expect-at best-level funding of state aid. According to the most recent data available from NH's Legislative Budget Office, the state appropriated more than $770 million in 2010 for local communities in various forms of state aid.
The single largest distribution to communities is to meet the state's responsibility for funding an adequate education. In 2010, approximately $578 million in state aid was appropriated for local schools. The three next largest community appropriations were the distribution of municipalities' portion of the state's meals and rooms tax ($59 million), state support of the retirement system for police officers, firefighters and teachers ($51 million) and funding to support the education of disabled children in local schools ($32 million). We can expect renewed policy debate about the role of the state in funding those local activities.
What else? Between 1999 and 2009, growth in state appropriations from the NH's general fund was dominated by four parts of state government: the Department of Health and Human Services (primarily the Medicaid program), the NH Retirement System, the Department of Corrections and the Department of Education. Together, these four parts of state government accounted for 72 percent of the growth in appropriations. If legislators are interested in controlling spending in the long term, they will need to address the underlying factors driving these expenditures. Given the sheer size of the expense (slightly more than $900 million across all funding streams), Medicaid will likely face significant legislative scrutiny. In fiscal year 2010, including all funding streams, the state paid almost $370 million to hospitals, physicians and others for acute medical services, $96 million to community mental health centers for care to those with mental health issues, $199 million to developmental services agencies for care to the disabled, $182 million for nursing home services and $55 million to other providers. Slightly less than half of this $900 million dollars is funded by locally raised taxes (in the general fund) with the remainder coming from counties and from the federal government.
The conversation about the introduction of Medicaid managed care that began in the gubernatorial debate will continue, as will conversations about reductions in Medicaid reimbursement rates to providers.
Reorganizing State Government?
We can expect heated discussion about the size and efficiency of state government. According to the NH Center for Public Policy Studies' analysis of state spending in 2009, approximately 18 percent of the state budget was attributable to wages and benefits.
In 2010, general fund expenditures for full-time wage employees were slightly less than $280 million as well as $145 million for benefits. Legislators are sure to debate how to accomplish the goals of state government with fewer personnel or by changing the salary and benefit structure. Can government be run more efficiently in terms of administrative costs?
Administrative costs are not a primary driver of state government expenditures. They include information technology management and travel, among others, and accounted for 12 percent of state spending in 2009. However, any strategy to control costs will begin with an assessment of administration, if only because it is the least politically charged.
There is little question that tax policy will be, as it always is, a topic of considerable debate. Policymakers will face a series of efforts to repeal and/or change existing tax policies. Broad-based taxes will not likely be a part of the conversation; however, the capitalization of the state's stream of liquor and tobacco settlement dollars and expanded gambling might.
Most members of the new majority in the NH House and Senate ran on platforms that emphasized cutting spending and taxes. Making the numbers work may be easier than the larger challenge to revise the state policies driving spending decisions.
Steve Norton is executive director of the NH Center for Public Policy Studies, an independent, nonprofit, non-partisan organization that pursues data-driven research on public policy issues. Norton may be reached at snorton at nhpolicy.org.