The State Budget 2010 -2011 Presentation to New

The State Budget 2010 -2011 Presentation to New Hampshire Association of Counties February 6, 2009 Steve Norton Director, NHCPPS “…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future. ” 1

Board of Directors Donna Sytek, Chair John B. Andrews John D. Crosier William H. Dunlap Shelia T. Francoeur Chuck Morse Todd Selig Stuart Smith New Hampshire Center for Public Policy Studies All of our reports are available on the web: James Tibbetts Brian Walsh Kimon S. Zachos www. nhpolicy. org Martin Gross Staff “…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future. ” Steve Norton Dennis Delay Ryan Tappin 2

Decisions on State Budget will Affect Counties 3

2009 4

The Good News? 5

What is the State Budget? 6

NH’s Budget • Biennial Budget – 24 Months • 2 fiscal years per budget • Fiscal year runs from July 1 – June 30 th 7

The 2008 -2009 Biennium You are here July 1 st 2007 July 1 st 2008 June 30 th, 2009 January With an unresolved GF deficit Of $125 -$150 Million 8

First, some history: 9

The General Fund in 2008 (est): 10

NHCPPS Model Showing a $300 m+ Revenue Shortfall Will the state have to revise revenue estimates down? 11

What’s Next for 2009? • Budget has been squeezed with relatively ‘limited’ impact to program areas. • Next round of budget cuts will depend on April business taxes and federal government decisions r. e. ‘bailing out’ states. • Next round of budget changes unlikely to avoid significant program impact. • Rainy day funds are available, but it is likely to ‘rain’ harder in the next biennium. • Significant constraints in 2009 mean that traditional approaches to constraining expenditures at the margin are not available for 2010 -2011. 12

2010 13

The State Budget Context for 2010 -2011 • Economic Dislocation • Primary Budget Drivers – – Medicaid Retirement System Corrections State Participation in Local Education • Uncertainty – Very little information on business revenues to project future. – How low will we go? 14

When Will it End? (Economy. com) 15

Consumers aren’t (and maybe won’t) spend disposable income 16

Maybe worse in NH? 17

A 1990 -1991 style recession, without tax changes, equals no State Revenue growth for five+ years 18

Economic Change and Revenue? 2010 -2011? $500 Million Biennium Shortfall 19

Drivers Unlikely to Slow 20

The 2010 -2011 Budget Process • November – Agency Budget Hearings scheduled for November 20, 21 and 24 • December – Senate & House organized on December 3 rd; 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 15 th; later in the month, House Finance Committee begins deliberating • March – House Finance Committee takes action • Negotiations until June 30 th …. ? 21

The 2010 -2011 Budget Process and Biennium You are here 2010 -2011 Biennium Jan 2008 July 1 st 2009 June 30 th, 2011 June 30 th, 2010 Decisions for 2010 and 2011 will be made in the next 6 months and policy changes will have to be implemented now, not later to meet budget obligations. 22

Agency Maintenance Requests (Have Come In) • Maintenance Requests ask: “What do you have to spend to maintain existing services? ” – Estimate included growth in county long term care cap and hold-harmless appropriation. Agencies Answered: 12. 5% increase from 2009 to 2010. 23

Deficits 24

Spending 25

State Appropriated $5. 2 Billion in 2007 (all funds) 4 26

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Levels of budget compulsion and discretion Most • • • Least 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) 28

Changing Spending: Process (e. g. Methods) • Many different methods for changing spending that legislators can choose from: – Shift Financial Burden to property tax by eliminating programs supporting local government finances, offsetting shift with a state-funded property tax circuit breaker for low income. – 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) 29

To control spending: have to focus on …. • Medicaid (~$450 million in general funds) • Corrections (~$350 million in general funds) • Local Aid (~700 million) – – – State Education Contribution ($500 m? ) Local Retirement Costs Catastrophic Aid to towns for special aid School Building Aid Meals and Rooms sharing • Education Finance Reform – Adequacy defined, but will cost an additional $100 million in spending under current law. • Layoffs will happen: 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. 30

Transformational Policy Opportunities • Medicaid Care Management – Significantly Broaden management of care (utilization) • Retirement – Tiered system (new vs. old employees) – Contribution amounts • Corrections – – – Mental Health Management Re-entry Home-confinement County vs. State management of the system Reimplementation of good time 31

What are the Revenue Options Now? 32

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 $50 m in 1991 to $250 m in 1994 33

The Stimulus Package and the Medicaid FMAP Increase • How much will it be? – House: 4. 9% – Senate: 7. 6% – Unemployment provisions? • How will ‘excess’ match distributed? – a. k. a. what do the counties receive? – Diversion to general fund may/may not be limited by House or Senate language 34

New Hampshire State Revenue Options for the Legislature: • • Increase Ad Valorem Tax Rates Index per Unit Taxes to Inflation Increase the Tobacco Tax New State Revenue Sources – – – Estate & Legacy Amusement Tax Luxury Tax Gambling Capital Gains 35

5% Increase in Ad Valorem Taxes (2008 Revenues) All data in Millions of 2008 Dollars Business Profits Tax $19. 1 Business Enterprise Tax $11. 5 Meals and Rooms Tax $10. 7 Interest and Dividends Tax $6. 7 Real Estate Transfer Tax $5. 8 Communication Service Tax $4. 0 $57. 8 Million 36

Extra 2008 Revenue If Per Unit Taxes Had Been Indexed to Inflation for Five Years All data in Millions of 2008 Dollars Court Fines and Fees $4. 6 Board and Care $3. 0 Beer Tax $1. 9 Electric Consumption Tax $1. 0 Dog & Horse Racing $0. 5 Gas Road Toll Tax $20. 9 MV Registrations $11. 4 37

NH Cigarette Tax Increase of 25 cents. Increase in the Tobacco Tax on Cigarettes at Current Annual Sales Cents per Pack Increase $0. 25 =$38 m 38

New (and Renewed) Revenue All data in Millions of 2008 Dollars Estate & Legacy tax at 8% $24. 0 Amusement Tax at 5% $32. 0 Luxury Tax (Example 10% on Luxury Homes, $500 K) $60. 0 Gambling (Video Slot Machines) in New Hampshire Capital Gains Tax at 5% $100 -200 $0? 39

There is no crystal ball. But …. • If revenues are flat (no declines!) and the Governor’s request for a 97% (of ’ 09) and 100% (of ’ 09) An estimated $231 million problem remains. – When will federal FMAP arise? – Condundrum need to cut services in order to meet 97% budget, does that make it impossible to draw down new federal dollars given maintenance of effort requirements? – If no new federal revenues an additional reduction of spending of over 15%. • Demand for services will increase (given economic conditions). • Using the budget process to implement policy change will delay savings significantly, potentially out beyond 2010. Policy change needs to occur sooner rather than later. 40

Options: History would suggest … a little of everything? • ‘Balanced Budget’ law and rosy glasses RSA 9: 8 -B • Rainy Day Fund – When will it really start to rain? • Further accounting changes – Further bonding • Sale of Assets • Spending reductions of somewhere between 10 -20% compared to historic growth, depending on federal response, and other legislative actions. • Education • Revenue – Increase of existing revenue streams (e. g. the last three recessions) – New (or renew) streams 41

Longer Term Problems • • Corrections Retirement System – Health Inexorable growth in Medicaid associated with aging. 42

Decisions on State Budget Will Affect Counties 43

Board of Directors Donna Sytek, Chair John B. Andrews John D. Crosier New Hampshire Center for Public Policy Studies William H. Dunlap Shelia T. Francoeur Chuck Morse Todd Selig All of our reports are available on the web: Stuart Smith James Tibbetts Brian Walsh Kimon S. Zachos Martin Gross Staff www. nhpolicy. org “…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future. ” Steve Norton Dennis Delay Ryan Tappin 44