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New Hampshire’sNew Hampshire s Budget JourneyNH CARES Community MeetingsMarch 2011

J ff M L hJeff McLynchExecutive DirectorNew Hampshire Fiscal Policy [email protected] c y c @ p o gwww.nhfpi.org

New Hampshire’s Budget JourneyNew Hampshire s Budget JourneyOverview

Where are we?

How did we get here?g

Where are we going?Where are we going?

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New Hampshire’s Budget Journey

Where are we?

How did we get here?


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What is the New Hampshire Budget?What is the New Hampshire Budget?FY 2012-2013 General & Education Fund Appropriations,

as recommended by Governor Lynch: $4.7 billion

Health & Social Services$1,513M

31%

Education$2,275M

47%

ResourceProtection &

Transportation$2M 0%

Administration

Protection &Development

$63M 1%

General Government

$521M 11%

of Justice$467M 10%

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Source: NHFPI calculations based on Governor’s Executive Budget Summary

What is the New Hampshire Budget?What is the New Hampshire Budget?Lynch Administration Projections -

FY 2012-13 General & Education Fund Collections: $4.7 billion

Property Taxes$784.2 16% Real Estate

Transfer Tax$182 4

Liquor Commission

$272.8 6%

Gambling Revenue

$162.0 3%

Other $615.9 13%

$182.4 4%

Other Consumption

Taxes$212.1

4%

6%

BPT & BET$1,122.0

24%Tobacco Tax

$480.0 10%

4%

Insurance Tax$172.9

4%

Interest & Dividends Tax

$189.9 4%

Meals & Rooms Tax

$548.0 12%

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S i l S i B d t A t B htSpecial Session Budget Agreement Brought FY 11 Revenue and Expenditures into Balance …. Total General and Education Fund Revenue & Expenditures in $M, FY 2011

2 400

2,500

2,300

2,400

2,200

2,100Revenue Expenditures

Source: Office of the Legislative Budget Assistant, Comparative Statement of Undesignated Surplus, January 6, 2011

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… But Only TemporarilyTotal General and Education Fund Revenue & Expenditures after Adjusting for

Temporary and One-Time Changes, FY 2011

2,500

$40M from debt restructuring

2,300

2,400

of d

ollar

s

$180 M in temporary revenue adjustments

(inc. $60M from "monetization",

$100M from federal i l )

g

2,200

2,300

Milli

ons o stimulus)

2,100 Revenue Expenditures

Source: NHFPI calculations based on Office of the Legislative Budget Assistant data

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P d L h B d t R li U d l i RProposed Lynch Budget Relies on Underlying Revenue Growth, Spending Reductions to Achieve Balance

General & Education Fund revenues & expenditures in billions of current dollars

FY11 ongoing revenue

2.6

revenue

Revenue growth relative to FY11

2.2

2.4

Expenditures

Reductions in expenditures

2.0 e pe d u esrelative to FY11

1.8 FY 2011 FY 2012 FY 2013

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Source: NHFPI calculations based on LBA data & Governor’s Executive Budget Summary

Proposed Lynch Budget Relies on Underlying Revenue Growth, Spending Reductions to Achieve Balance

o Proposed Lynch budget would eliminate state

General Government Expenditures (General Fund only; millions of nominal dollars)

eliminate state contribution for public employee pensions$650

- 200 400 600 800

FY10-11Appropriations

o Contribution expected to total $97 million during the

t FY10 11

$618FY10-11Actual &

Authorized

current FY10-11 biennium$521FY12-13

Recommended

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o Under the Governor’s proposed budget, General Fund support for

Education Expenditures (General & Education Fund only; millions of nominal dollars)

500 1 000 1 500 2 000 2 500 community colleges would be reduced $18 million - or more than 20% - from current levels $2,321

- 500 1,000 1,500 2,000 2,500

FY10-11Appropriations

o General Fund expenditures for the state’s university system

$2,310FY10-11Actual &

Authorizedy y

would fall $33 million -or 17% - compared to FY10-11

$2,275FY12-13Recommended

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o Implementing the Governor’s proposal for Medicaid Managed Care will

Health & Social Services Expenditures (General Fund only; millions of nominal dollars)

- 300 600 900 1,200 1,500 1,800 produce $16 million in General Fund savings - or 2.5% of total Medicaid expenditures

$1,562FY10-11Appropriations

o Closing New Hampshire Healthy Kids will reduce

$1,330FY10-11Actual &

Authorized

Kids will reduce expenditures by $6.6 million by converting enrollees to Medicaid

$1,513FY12-13Recommended

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Where are we?



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New Hampshire is Not AloneNearly Every State in the Union Expects to Face a Budget Deficit in FY 2012

Source: Center on Budget and Policy Priorities

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National Recession Has Battered State Tax Revenue

Source: Center on Budget and Policy Priorities, February 2011

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M t M j S f T R i NHMost Major Sources of Tax Revenue in NH Have Declined Since Start of Recession

Projected Real Aggregate Change in Select NH Taxes, FY 2008 – FY 2011j gg g g ,

-21.5%

-40.0% -30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0%

BPT/BET %

10.2%

27.8%

/

Meals & Rooms

Tobacco

-26.8%

-19.1%

Interest & Dividends

Insurance

-10.6%

-26.0%

Communications

Real Estate Transfer

Source: NHFPI calculations based on NH DAS & US Bureau of Labor Statistics data

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St t R t L t L lState Revenues at Lowest Level Since the Creation of the Education Fund

General & Education Fund Collections in Millions of FY 11 Dollars, FY 2000-2013,

$2,600

$2,200

$2,400

$2,000

$1,8002000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: NHFPI calculations based on NH DAS & US Bureau of Labor Statistics data

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Where are we?



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H B d t M M kHouse Budget May Make Further Spending Reductions of $522 Million

Anticipated FY10-11General Fund Expenditures by Category, $MAnticipated FY10 11General Fund Expenditures by Category, $M

Administration of Justice & P bli P t ti

General Government

Transportation

Resource Protection & Development

& Public Protection

Education

Health & Social Services

$0 $250 $500 $750 $1,000 $1,250 $1,500

Proposed House Spending Cuts

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Proposed Lynch Budget Would Make Sizable Reductions in Aid to Local Governments

State Aid to Cities Towns and School Districts by Biennium Constant FY13 $BState Aid to Cities, Towns, and School Districts by Biennium, Constant FY13 $B

$2.7

$2.1

$2.4

$1.5

$1.8

$1.2 FY04-05 FY06-07 FY08-09 FY10-11 FY12-13

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Source: NHFPI Calculations based on LBA, BLS data

Lynch Administration Expects Revenue Growth from FY10,House of Representatives Anticipates None

Projected General & Education Fund revenue in millions of nominal dollars

2,400

2,700FY 2010

collections

2,100

1,500

1,800

1,200FY 2011 FY 2012 FY 2013

House Governor

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Source: Governor’s FY 2012-2013 Executive Budget Summary; HR 11

A Statement of Priorities?“…a list of tax cut and repeal

bills that would reduce state revenues by more than $240

illi h million over the next two years.”

- NH Union Leader, January 30, 2011

“…a goal to cut further taxes or rebuild our depleted rainy da f nd sho ld e en es day fund, should revenues appear.”

- House Speaker William O’Brien, February 3, 2011

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A St t t f P i iti ?A Statement of Priorities?Tax Legislation Approved by NH House through March 18

HB37Reestablishing the monthly exemption to the communications services tax

$4 M

HB154 Increasing a threshold amount for taxation under the BET $12 M

HB213 Reducing the BPT rate to 8.0% by 2012 $27 M

HB166 Reducing the rate of the meals and rooms tax to 8% $54 M

HB156 Reducing the cigarette tax rate from $1.78 to $1.68 $30 M

HB557Regarding the reasonable compensation deduction for certain entities (LLCs et al ) under the BPT

$100 Mcertain entities (LLCs, et. al.) under the BPT

HB187Increasing the carry forward periods for the BET credit against the BPT

unknown

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TOTAL at least $227 M

Industries Affected by Meals & Rooms Tax Performing in Line with New Hampshire Economy

Percent Change in Employment, July 2009 through November 2010

3.0%

3.5%Accomodation& Food Services Industries

Total Non‐Farm Employment

1.5%

2.0%

2.5%

0 0%

0.5%

1.0%

-0.5%

0.0%

New Hampshire New England United States

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Source: NHFPI calculations based on US Bureau of Labor Statistics data

Most Businesses Owe Little or No BPT or BETShare of Combined BPT & BET Returns, by Range of Combined Liability, TY 2008

$1,000 to $10,000

28%

$10,000 to $50,000

5%Over $50,000

$500 to $1,00013%

2%

$0 35%

$1 to $50017%

Source: NHFPI calculations based on NH DRA data

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S S SState Business Taxes Are a Relatively Small Share of the Taxes Businesses Pay

Composition of State and Local Taxes Paid by New Hampshire Businesses, FY 2009

Property Tax59%

Excise & Gross Receipts

11%

Corporate pIncome

19%

Unemployment Insurance Tax

4%License and Other

7%

Source: Council on State Taxation

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A Fork in the RoadA Fork in the Road Public Supports Taking a Balanced Approach to Addressing New Hampshire’s Fiscal Crisis

Even Balance35%

Mainly Tax Increases, Some Spending Cuts“ Let’s turn to the Spe d g Cu s

9%Entirely Tax Increases

2%Unsure

…Let s turn to the state budget. Which approach would you choose for dealing Unsure

4%with the state’s budget shortfall?...”

WMUR Granite State Poll

Entirely Spending Cuts

Mainly Spending Cuts, Some Tax

Increases21%

- WMUR Granite State Poll, February 2011

29%21%

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A Fork in the RoadA Fork in the Road Revenue Options Are Available to Address State’s Budget Shortfall

Modify Existing Taxes Modify Existing Taxes

o Adopt a Business Profits Tax surchargePOTENTIAL IMPACT: uncertain, up to $30 million annually

o Expand the Interest & Dividends Tax to include capital gainsPOTENTIAL IMPACT: $90 million annually

o Adjust excise taxes (e.g. beer and/or motor fuels) to account for inflationPOTENTIAL IMPACT: $15 to $90 million annually

Reinstate Prior Taxes

o Bring back some form of an Estate Taxo Bring back some form of an Estate TaxPOTENTIAL IMPACT: $25 to $60 million annually

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Taxes in NH Very Low Relative to Aggregate Ability to Pay Total State and Local Taxes as a Share of Personal Income, FY 2008

20%

14%

16%

18% Effective difference between NH and national average in FY 2008:

$1.3 billion

US10.9%

NH8.7%10%

12%

14%

4%

6%

8%

0%

2%

AK WY ND HI NJ CA CT OH MN US PA UT IL IN MS AZ MA NC WA FL ID OK CO OR AL NH

Source: NHFPI calculations based on US Census Bureau, US Bureau of Economic Analysis data

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New Hampshire’s Tax System is RegressiveNew Hampshire s Tax System is RegressiveLow-income Granite Staters have an effective tax rate

that is four times that of the most well-off.Total State and Local Taxes in New Hampshire Non Elderly TaxpayersTotal State and Local Taxes in New Hampshire, Non-Elderly Taxpayers

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Source: Institute on Taxation and Economic Policy

New Hampshire’s Budget JourneyNew Hampshire s Budget JourneyReview

Where are we?Where are we?

NH faces a budget deficit of at least half a billion dollars; Governor Lynch’s proposed budget would close that gap through reductions in spending for education, environmental protections, and vital human services.environmental protections, and vital human services.


D h d t t ti li l d fi it t f t t ’Down economy has suppressed state revenue, creating a cyclical deficit on top of state’s long-standing structural deficit.

Where are we going?

NH should take a balanced approach to addressing its budget deficit, one that includes tax increases and does not rely solely upon spending cuts.

Yet, legislative leaders may give priority to tax cuts.

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economic opportunity, prosperity, and security for all New Hampshire residents

103 North State StreetConcord, NH 03301

603.518.4495www.nhfpi.org

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