1. 1 The State Budget NH Children’s Summit December 8, 2008 Steve Norton Director, NHCPPS “…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.”

2. 2 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.”

3. 3 The Good News?

4. 4 What is the State Budget?

5. 5 NH’s Budget Biennial Budget – 24 Months 2 fiscal years per budget Fiscal year runs from July 1 – June 30 th

6. 6 The 2008-2009 Biennium July 1 st 2007 June 30 th, 2009 July 1 st 2008 You are here With an unresolved deficit Of $150 Million January

7. 7 The General Fund in 2008 (est):

8. 8 NHCPPS Model Showing a $300m+ Revenue Shortfall Will the state have to revise revenue estimates down?

9. 9 What’s Next for 2009? Budget has been squeezed with relatively ‘limited’ impact to program areas. Next round of budget cuts will depend on year end revenues and federal government decisions r.e. ‘bailing out’ states. Next round of budget changes unlikely to avoid significant program impact.

10. 10 The State Budget Context for 2010-2011 Economic Dislocation Long Term Strategic Questions – Income and Education are the best indicators of a child’s future well being. –Economic Change Agriculture-> Manufacturing-> ? –The World is Flat - Information, Communication, Transportation –Environmental Change - Climate, Water, Conservation –Aging

11. 11 Age Distribution: 1970

12. 12 Age Distribution: 1995

13. 13 Age Distribution: 2020?

14. 14 When Will it End? (Economy.com)

15. 15 The 2010-2011 Budget Process November – Agency Budget Hearings scheduled for November 20, 21 and 24 December – Senate & House organized on December 3rd; legislative leadership makes committee assignments; Governor begins to craft budget Late January – Governor’s budget is being finalized February – Governor presents budget to the Legislature on February 15th; later in the month, House Finance Committee begins deliberating March – House Finance Committee takes action Negotiations generally occur at 11:00pm on June 30 th ….

16. 16 The 2010-2011 Biennium Dec 2008 June 30 th, 2010 July 1 st 2009 You are here June 30 th, 2011 2010-2011 Biennium Decisions for 2010 and 2011 will be made in the next 6 months

17. 17 Agency Maintenance Requests (Have Come In) Maintenance Requests ask: “What do you have to spend to maintain existing services?” Agencies Answered: 12.5% increase from 2009 to 2010.

18. 18

19. 19 What about 2010-2011? $500 Million Biennium Shortfall

20. 20 Deficits

21. 21 Spending

22. 22 4 State Appropriated $5.2 Billion in 2007 (all funds)

23. 23

24. 24 Levels of budget compulsion and discretion Federal constitution –(e.g., elections for federal offices) State constitution –(e.g., indigent defense, Secretary of State, adequate education) Federal law or regulation – mandate on all –(e.g., special education) Federal law or regulation - quid pro quo –(e.g., Medicaid, child care, vocational rehabilitation) Court order against the State –(e.g., state prison system, community developmental services, juvenile services) State law mandating the activity –(e.g., vital records, parole board hearings, dam inspections) Revenue-producing and deficit-neutral activities –(e.g., DRA auditors, child support enforcement, liquor stores) State or federal law authorizing activity –(e.g., school building aid, hunter education program) Agency regulation authorizing activity –(e.g., complaint investigations at the Veteran’s Home) Historic practice without specific authority in law or regulation –(e.g., National Governor’s Association & NCSL dues and meetings) Most Least

25. 25 Changing Spending: Process (e.g. Methods) Many different methods for changing spending –Shift Financial Burden to property tax by eliminating programs supporting local government finances; –Reduce administrative costs; –Eliminate Government Activities no longer reasonable in this climate; State Library Nursery –Last In, First Out; –10% Across the Board Reduction; –Eliminate whole programs that could be later reinstated; –Large scale reform of programs (longer-term)

26. 26 To control spending: have to focus on …. Primary drivers –Medicaid –Corrections –Local Revenue ‘Sharing’ including Catastrophic Aid, Building Aid and Meals and Rooms sharing Education Finance –Adequacy defined, but will cost an additional $100 million in spending under current law. Employees as major driver of corrections, state hospital (and salaries and benefits?) Public system transformational changes may take too much time to impact 2010-2011.

27. 27 A 10% Reduction

28. 28 Examples: Line Item Reductions

29. 29 Revenues

30. 30 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 –M&R 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

31. 31 New Hampshire State Revenue Options: Increase Ad Valorem Tax Rates Index per Unit Taxes to Inflation Increase the Tobacco Tax Federal ‘Bail-Out’ including Medicaid Enhancement Revenue or FMAP increase New State Revenue Sources –Estate & Legacy –Amusement Tax –Luxury Tax –Gambling –Capital Gains

32. 32 Existing Revenue and Spending Cuts are Likely Not Enough

33. 33 Existing Revenue, Spending Cuts, Federal Bailout and New Revenues Likely Required

34. 34 Policy Opportunities (Likely towards the end of 2011)

35. 35 Out of the darkness … Federal Level –Healthcare reform? –Who’s preparing middle and low income families for the green revolution and the Obama ‘Green Deal?’ Fear of Change < Fear of Severe Budget Cuts –What can Michelle Rhee and Education Reform in DC tell us about our new accountability system for NH’s education finance conversation? Modernize State Government? –Are there things that state government is doing that we can rethink? Aligning interests –Workforce housing and NH Businesses? –Educated workforce and NH Labor needs? –Enhancing management of chronic care for Medicaid for low income children (decreasing costs?) –Financial planning for middle and low income families?

36. 36 Putting It All Together 2010-2011 will be a difficult budget as estimated deficits are large How to Weather the Storm? Big Decisions –$100 Million in new money for education adequacy for communities; –Change in existing revenue streams; –Development of new revenue streams (gambling, estate tax); and –Spending reductions. Spending will likely have to remain flat or very slight increase over the next 3 years. –Initial impact will be on non-profit community with mission to serve families. History suggests crisis creates change …. opportunity

37. 37 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.”