The State Budget NH Children s Summit December 8

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. ” 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

The Good News? 3

What is the State Budget? 4

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

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

The General Fund in 2008 (est): 7

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

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. 9

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 10

Age Distribution: 1970 11

Age Distribution: 1995 12

Age Distribution: 2020? 13

When Will it End? (Economy. com) 14

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 generally occur at 11: 00 pm on June 30 th …. 15

The 2010 -2011 Biennium You are here 2010 -2011 Biennium Dec 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 16

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. 17

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

Deficits 20

Spending 21

State Appropriated $5. 2 Billion in 2007 (all funds) 4 22

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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) 24

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) 25

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. 26

A 10% Reduction 27

Examples: Line Item Reductions 28

Revenues 29

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 30

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 31

Existing Revenue and Spending Cuts are Likely Not Enough 32

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

Policy Opportunities (Likely towards the end of 2011) 34

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? 35

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 36

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 37