1. 1 Looking towards the Next Budget Conversation BIA Policy Committee 12-08-09 “…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.” Steve Norton Director, NHCPPS

2. 2 Intent to Spend: Change in General Fund Appropriations as Passed in HB1 Data are from HB1 as passed by the Legislature. These do not reflect actual expenditures which can be higher or lower. These figures make no adjustments for back of the budget changes, one time monies, changes in accounting methods, DSH payments, or foundation aid changes.

3. 3 Intent to Spend: Total Funds Data are from HB1 as passed by the Legislature. These do not reflect actual expenditures which can be higher or lower. These figures make no adjustments for back of the budget changes, one time monies, changes in accounting methods, DSH payments, or foundation aid changes.

4. 4 Why Engage in These Conversations? Revenues have declined considerably and spending has increased, though at slightly less than historic rates. Potential budget hole (this) next biennium will likely require hard choices. Size of the budget hole (and steps necessary) a function of –JUA decisions –Continuation of enhanced FMAP –Economic recovery –Existing efforts at controlling spending

5. 5 The Size of Government (Employees) -- 2007

6. 6 Size of State Government (Spending) Source: www.statehealthfacts.org

7. 7

8. 8 2012-2103: How much of a problem?

9. 9 How Big a Hole? The Crystal Ball JUA decision - $45 million –State closed 2009 books without JUA monies (found additional savings). Federal response - $250 million –Health legislation contains language continuing enhanced matching dollars. –Health legislation contains language that could cost the state $100 million unless the DSH program is changed. State Revenues  Economic recovery Efforts at controlling spending +Hiring freeze, other executive orders brought in almost $200 million ($70 million more than anticipated). –Three high risk areas Exposure to $180 million in new education expenditures 25% increase in general fund requirements for retirement system. Ongoing growth in caseloads in Medicaid

10. 10 Revenues

11. 11

12. 12 General and ETF Fund Revenue by Source FY 2008

13. 13 Comparing NH to New England and the US in FY 2008

14. 14 Comparing NH to New England and the US in FY 2008

15. 15 General Fund Revenue ($ million) New Versus Old Revenues Compound annual rate of increase: 3.8%

16. 16 General Fund Revenue ($ million) Compound annual rate of increase: 5.5%

17. 17

18. 18

19. 19 Future Revenues?

20. 20 How did the State respond to the 1990 recession? Early 1990’s recession was much worse in New Hampshire than in the US. Changes to state taxes were significant: –BET created in 1994 –Meals and Rooms tax increased from 7% to 8% in 1990 –RETT 30% 'temporary surcharge' in 1990 –Communications Tax revamped in 1991 –Utility Tax revamped in 1992 –Tobacco Tax increased in 1990 and again in 1991 (17 cents to 21 cents to 25 cents) –Medicaid Enhancement Revenue from $50m in 1991 to $250m in 1994

21. 21 And what about 2010? Increase in Fees: $58m –Motor Vehicle Registrations ($41m) Increase in Taxes: $103m –Meals and Rooms Increase: $27m –Tobacco Tax Increase: $24m –LLC Change: $15m Big increase in federal $ through stimulus

22. 22 What about 2012?

23. 23 State Spending in NH

24. 24 Where Do We spend?

25. 25 What is Driving Total Fund Spending?

26. 26 And General Fund Spending Only? NHCPPS: Fiscal Feast and Famine

27. 27 In other words If you really want to control spending (and demand for taxes) you must focus on –Education (adequacy, school building aid, catastrophic aid) –The Medicaid Program –The Corrections System –The Retirement System –Constraints on hiring, travel, purchasing (e.g. Governor’s Executive Orders)

28. 28 The Common Burden A significant portion of the state’s budget is funding local activities –Is eliminating the distribution of meals and rooms disbursement a reduction in spending? –Is eliminating or reducing state contributions to retirement a reduciton in spending? –Is eliminating or changing school-building aid a reduction in spending?

29. 29 Change in the burden?

30. 30 The Questions How to Control Spending? –What factors are driving costs forward? –Is the state doing things that it shouldn’t be doing? –Is the state doing things inefficiently? –How do we know if we’re spending too much/too little or just the right amount? Outcome measures are non-existent Comparisons across states are difficult due to reporting differences. Look at four areas as examples: Corrections, Medicaid, Education and Retirement Unless otherwise noted, state by state financial comparison data are from the U. S. Census Bureau, Annual Survey of Government Finances

31. 31 Prison Operating Costs

32. 32 State Corrections System Source: NHCPPS Analysis of Census data on Government Finance

33. 33 Change in Spending

34. 34 Are We at a 3 Biennium Decision Point. Build a New Prison? North Country Correctional Facility

35. 35 We are not without options Understand the issues associated with recidivism (Pew and the Justice Reinvestment Project). Review the state criminal justice code to ensure that the state has struck the right balance between public safety and incarceration. Continue to review and analyze the implementation of alternatives to traditional jail and prison sentences. Increase the focus on re-entry support, including substance abuse and job training for inmates, as well as community supports more broadly.

36. 36 Medicaid Spending = # of People Mentally Ill Disabled Elderly Family and Child * Benefit * Price/Unit * Utilization Eligibility Filter How Does Medicaid Work?

37. 37 Growth in Medicaid US Health Expenditure Accounts data from www.statehealthfacts.org

38. 38 Eligibility Generosity? Source: NH Center for Public Policy Analysis of Medicaid Enrollment Data from www.statehealthfacts.org

39. 39 Reimbursement (Physicians) The Urban Institute: Medicaid Physician Fee Analysis 2008

40. 40 2008 Reimbursement (Nursing Homes) NHCPPS Calculations of Data from “A Report on Shortfalls in Medicaid Funding for Nursing Home Care,” ELJAY, LLC

41. 41 Medicaid Benefits and Utilization? Source: www.statehealthfacts.org

42. 42 Options? Further benefits changes? –(Chiropractic is out, Podiatry is in?) –Prior authorization expansions (Currently occupational therapy, ambulance, wheel chair van?) Further reimbursement rate changes? –Reductions? –Prospective outpatient hospital payment? More intensive management of the utilization of services? –Accountable Care Organizations –Further intense disease management opportunities (low hanging fruit has been taken) Medicaid Eligibility (Dec 2011, ARRA ends. Or does it?) Reform (if it happens) may simplify Medicaid but will cost more …. Primary drivers in the future  the aging of the population.

43. 43 NH Retirement System Hit Hard by Stock Market Losses Source: NHRS CAFR

44. 44 Change funding requirements for retirement?

45. 45 NH Spends Slightly More On Average Per Student

46. 46 State of NH Contribution to aid low relative to the rest of the country.

47. 47 But state aid has grown the most quickly in NH (due to reforms of 1990)

48. 48 Education Finance: $183 million question Adequacy: $123 million question (in 2012- 2013) resulting from loss of stimulus funds Adequacy: $20 million in CPI adjustments (at 3%) Adequacy: ‘Collar’ will be eliminated raising a $45m dollar question. School Building Aid: $40 million question

49. 49 Summary Budget hole? Too early to tell, but risk is there for a sizeable problem. The size depends on: –Supreme Court and the JUA –Fed decision-making (DSH and Stimulus) –Economic recovery and revenues in NH –Spending changes likely in the mix Local Aid Education adequacy and school building aid Medicaid transformation Corrections policy Retirement system

50. 50 Spending Summary Reflecting our low tax burden, spending is low relative to the rest of the nation (4 th lowest, overall) Only in a few instances are we above the national average in level of spending or growth over time (on a per capita basis) –Corrections –Medicaid unit cost Opportunities for spending reductions exist, but will take political will and legislative action. –Constraining purchase, hiring, and other admin –What shouldn’t we be doing? –Transformational opportunities?

51. 51 Transformational Policy Opportunities Medicaid Care Management – Significantly broaden management of care (utilization) Medicaid payment reform (prospective payment for outpatient?) Retirement –Tiered system (new vs. old employees) –Change contribution amounts Corrections –Re-entry –Home-confinement –County vs. State management of the system –Reimplementation of good time Education?

52. 52 What Process Issues Can We Resolve? Have a conversation about outcomes instead of simply spending. What value do we receive for our expenditures? You can’t manage what you don’t measure. Pew gave the state a failing grade for our state management and we deserve it. We do not have monthly expenditure reports. Budget process/documents do not link up outcomes, with assumptions –Program efficiencies (aka reducing recidivism, implementing care management) may be available but will be politically difficult. –Bigger savings are available if the political will is there to make the legislative changes necessary to change what government offers.

53. 53 www.nhpolicy.org All of our reports are available on the web: www.nhpolicy.org New Hampshire Center for Public Policy Studies Board of Directors Donna Sytek, Chair John B. Andrews John D. Crosier William H. Dunlap Shelia T. Francoeur Chuck Morse Todd Selig Stuart Smith James Tibbetts Brian Walsh Kimon S. Zachos Martin Gross Staff Steve Norton Dennis Delay Ryan Tappin “…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.”