1

“…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.”

Tailwinds to Headwinds

Democratic Business Caucus

April 9, 2013

Board of DirectorsSheila T. Francoeur, Chair

David Alukonis

William H. Dunlap

Eric Herr

Dianne Mercier

Richard Ober

James Putnam

Stephen J. Reno

Stuart V. Smith, Jr.

Donna Sytek

Brian F. Walsh

Mike Whitney

Martin L. Gross, Chair Emeritus

Todd I. Selig

Kimon S. Zachos

Directors Emeritus

2

Summary

• NH is a low tax, high income state with about average levels of spending when you control for major drivers of state spending (e.g. poverty).

• NH has been the benefactor of significant demographic tailwinds.

• What’s next?

3

Levels of Spending

Total Fund Spending in New Hampshire 1982 and 2012

$5,244,850,965

$791,476,281

$0

$1,000,000,000

$2,000,000,000

$3,000,000,000

$4,000,000,000

$5,000,000,000

$6,000,000,000

1982 2012

6.5% Per year

Per Capita Inflation Adjusted Total Fund Spending

$2,049

$3,984

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

1982 2012

State Spending Drivers

1.2%

5.8%

6.3%

2.9%

6.5%

0%

1%

2%

3%

4%

5%

6%

7%

Population Title XIX MedicaidCaseloads

State PrisonInmates

Inflation Total Fund Spending

Annu

aliz

ed In

crea

se 1

982

to 2

012

4

Changing Distribution of Spending

Total Funds 1982

General Government,

$115,906,615, 15%

Administratin of Justice and

Public Protection,

$60,692,695, 8%

Resource Protection and Development, $25,562,267,

3%Transportation, $152,238,886,

19%

Health and Social Services, $245,740,743,

31%

Education, $191,335,075,

24%

Total Funds 2012 General Government,

$469,417,441, 9%

Administratin of Justice and

Public Protection,

$598,270,251, 11%

Resource Protection and Development, $306,866,699,

6%Transportation, $571,009,903,

11%

Health and Social Services, $1,923,582,741,

37%

Education, $1,375,703,930,

26%

55

Low Spending? Size of State Government (Spending)

Total State Expenditures per Capita, SFY2007

New Hampshire, $3,459.69

United States, $4,773.04

$0.00

$2,000.00

$4,000.00

$6,000.00

$8,000.00

$10,000.00

$12,000.00

$14,000.00

$16,000.00

$18,000.00

Alaska

Wyo

ming

Hawaii

Alabam

a

Louis

iana

Mas

sach

uset

ts

Wisc

onsin

Arkan

sas

Orego

n

North

Dak

ota

New Je

rsey

Miss

issipp

iIo

wa

Mon

tana

Was

hingt

on

Nebra

ska

South

Car

olina

North

Car

olina

Kansa

s

Tenne

ssee

South

Dak

ota

Idah

o

Illino

is

Miss

ouri

Colora

do

Nevad

a

Source: www.statehealthfacts.org

66

Fewer Problems?

Percent of Population in Poverty (2007-2008)

0%

5%

10%

15%

20%

25%

30%

Miss

issipp

i

New M

exico

Arizon

a

Alabam

a

South

Car

olina

Arkan

sas

Florida

Mich

igan

Miss

ouri

Rhode

Islan

d

Nevad

a

Main

e

Nebra

ska

Was

hingt

on

Wisc

onsin

Verm

ont

Minn

esot

a

New H

amps

hire

77

Additional Spending Measures?

Spending Per Person in Poverty 2008

$0.00

$50,000.00

$100,000.00

$150,000.00

$200,000.00

$250,000.00

Alaska

Delawar

eUta

h

Mas

sach

uset

ts

New Je

rsey

Was

hingt

on

Minn

esot

a

North

Dak

ota

New H

amps

hire

Nebra

ska

Main

e

Orego

n

New Y

ork

Kansa

s

Penns

ylvan

ia

Wyo

ming

Oklaho

ma

Mon

tana

South

Dak

ota

North

Car

olina

Mich

igan

South

Car

olina

Tenne

ssee

Florida

Arizon

a

Texas

NH Spends slightly more than the national average, per person in poverty

88

Low Tax Burdens

State and Local Taxes as a Share of Personal Income 2009

New Hampshire, 8.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

New Je

rsey

Conne

cticu

t

Rhode

Islan

d

Minn

esot

a

Main

e

Mas

sach

uset

ts

Illino

is

Nebra

ska

Orego

n

Kansa

s

Mich

igan

Delawar

e

India

na

Wes

t Virg

inia

Was

hingt

on

Florida

Virgini

a

Mon

tana

Oklaho

ma

Colora

do

New M

exico

South

Car

olina

Texas

Tenne

ssee

Nevad

a

99

Tax burdens flat when expressed as a function of our productivity

State and Local Tax Burden as a Share of Gross State Product

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

NH RateUS Rate Since the late seventies,

state and local tax burdens have declined slightly (through 2009)

10

Balancing the NH General Fund & Education Trust Fund, 1979-2013

$0

$250

$500

$750

$1,000

$1,250

$1,500

$1,750

$2,000

$2,250

$2,500

$2,75019

79

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

State Fiscal Year

Mil

lio

ns

of

Do

llar

s

Non-tax GF Revenue:Medicaid EnhancementTobacco SettlementFlexible Federal Grant (2003)

GF + ETF Expenditures

Merrill

GreggSununuGallen

Shaheen

Benson

Regular General Fund Taxes and Revenues

Statewide Property Tax

Other ETF Taxes

Lynch

Stimulus (ARRA of 2009)

Monetization

The Budget

11

Forecasting Revenue Growth Going Forwards

New Hampshire Unrestricted Revenue in Millions

$1,950.0

$2,000.0

$2,050.0

$2,100.0

$2,150.0

$2,200.0

$2,250.0

$2,300.0

$2,350.0

$2,400.0

2008 2009 2010 2011 2012 2013 2014 2015

Baseline (50% prob)

Stronger Near-TermRebound (10% prob)Mild Recession (25% prob)

Deep Recession (10%prob)

Actual Forecasts

The coming negotiations over the 2014-2015 state budget will be dictated, in large part, by forecasts for tax revenue growth in the next two years. These forecasts have proven tricky through the recession, with most years seeing zero or very modest increases in revenue. Predicting the state of the economy two years into the future is a tricky business. But budget writers will want to get the math right since those revenue forecasts will largely shape the spending options available in the next budget.

12

Growth in business tax receipts have fueled growth

General Fund Revenue from BPT & BET(In Millions)

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

State Fiscal Year

Tax

Rev

en

ue

($ m

illio

n)

Business Profits Tax

Business Enterprise Tax

$91.6

$143.3

$395

$325

13

What has changed?

14

GDP Growth Stalls

Percent Change in Real GDP in BEA Regions

50.9%

36.2%30.1%

40.3% 41.9%48.0%

57.8%

70.9%

41.6% 42.4%

11.8% 10.4%17.0%

1.7%

16.5% 19.9%

31.2%26.5%

17.1% 16.6%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

New Ham

pshir

e

New Engla

nd

Mide

ast

Great

Lake

s

Plains

South

east

South

west

Rocky M

ount

ain

Far W

est

US Tot

al

1990 to 2000

2000 to 2010

15

New Hampshire Productivity Growth by Decade

3.4%

30.6%

18.5%

12.5%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

1970 to 1980 1980 to 1990 1990 to 2000 2000 to 2010

Percent Change in Real GDP per Job in BEA Regions

12.5%14.5%

17.9%

12.6%

17.3%

20.9% 21.1% 20.1% 19.0% 18.2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

New Ham

pshir

e

New Engla

nd

Mide

ast

Great

Lake

s

Plains

South

east

South

west

Rocky M

ount

ain

Far W

est

US Tot

al

2000 to 2010

Tailwinds

To Headwinds

16

What’s Next?

16

17

What Should We Invest In?

• Human Capital

• Economic Creativity

• Business Base

• Costs of Business?

• Infrastructure?

• Quality of Life?

18

Innovation and Costs

• Human Capital– Adults with a BA or Better– Per Pupil Spending– 2011 8th grade NAEP Math

Score– 2011 8th grade NAEP Science

Score• Economic Creativity

– Patents Per Capita– Venture Capital Per Capita– R and D (% of GDP)– Doctorates per Capita

• Business Base– Per Capita Income– High Tech Jobs as % of Total– Business Birth and Death Rate– Internet Usage

• Costs– Health Care Cost Per Capita– Commercial Energy Costs

Per Kilowatt– Housing Affordability– Mature Firm Tax Burden

• Infrastructure– State Debt per Capita– Percent of bridges in trouble– Transportation spending per

capita– Road conditions

(roughness)

19

Translate into Public Policy

Policy Focus - Innovation and Costs

State RankingHuman Capital

Economic Creativity

Businesss Base Costs Infrastructure Total

New Hampshire 4 9 6 38 42 10

Connecticut 5 5 14 44 45 18Maine 14 47 28 39 41 39Massachusetts 1 1 3 49 49 1Rhode Island 20 8 22 47 50 44Vermont 2 10 17 42 44 13

Policy Focus - Innovation and Costs

State RankingHuman Capital

Economic Creativity

Businesss Base Costs Infrastructure Total

Relative to New England 48% 63% 36% 86% 92% 43%Relative to US 16% 36% 24% 152% 168% 40%

With Whom Are We Competing?

20

Data on Composite Scores

21

Human CapitalHuman Capital

2009 Adults

with a BA or Better

Per Pupil Spending

2009-2010

2011 8th grade NAEP Math

Score

2011 8th grade NAEP

Science Score

New Hampshire 32.0 $12,383 292.1 162.3

Connecticut 35.6 $14,906 287.0 154.7Maine 26.9 $12,259 288.7 160.0Massachusetts 38.2 $14,350 298.5 161.2Rhode Island 30.5 $13,699 282.9 149.0Vermont 33.1 $15,274 293.9 162.9

United States 27.9 $10,615 282.7 150.7

State RankingNew Hampshire 9 11 6 4

Connecticut 4 6 19 25Maine 23 13 13 11Massachusetts 1 7 1 7Rhode Island 13 9 29 35Vermont 7 4 4 3

22

Economic CreativityCreativity

Patents Per 100k

Residents 2010

VC Investment Dollars Per

Capita 2011

R&D performed/GDP (%)

Doctorates Received

Per 100,000 Residents

New Hampshire 60.9 71.5 4.25 11.7

Connecticut 59.1 37.8 5.01 18.5Maine 16.6 29.1 1.03 4.0Massachusetts 80.3 452.7 5.49 38.1Rhode Island 33.6 38.4 2.60 28.0Vermont 106.8 39.7 2.22 9.9

United States 39.0 91.2 2.61 15.6

State RankingNew Hampshire 8 8 7 35

Connecticut 9 19 4 10Maine 34 24 39 50Massachusetts 4 1 3 1Rhode Island 19 17 15 2Vermont 1 16 22 42

23

Business BaseBusiness Base

2008 High-technology to

Total employment

(%)

2010 Internet Usage

Anywhere (%)

2009 Business Birth and

Death Rate

2011 Per Capita

Personal Income

New Hampshire 13.28 86.35 42.50 $45,787

Connecticut 12.90 81.95 23.73 $56,889Maine 7.87 81.72 47.38 $37,973Massachusetts 15.11 83.82 36.03 $53,621Rhode Island 9.70 79.84 45.11 $43,992Vermont 10.77 83.52 43.29 $41,832

United States 11.47 80.23 39.71 $41,663

State RankingNew Hampshire 8 4 18 8

Connecticut 11 20 50 1Maine 44 21 10 31Massachusetts 4 11 38 2Rhode Island 33 29 11 16Vermont 25 12 15 19

24

CostsCosts

Health Care Expenditures per Capita by

State of Residence,

2009

June 2012 Commercial

Cents per KWH

2010 Ratio

Housing Price to Income

Business Tax Cost Index for

Mature Firm

New Hampshire $7,839 $13.45 2.94 99.7

Connecticut $8,654 $14.55 3.12 93.9Maine $8,521 $10.76 2.86 100.4Massachusetts $9,278 $14.35 3.57 123.6Rhode Island $8,309 $12.29 3.23 129.1Vermont $7,635 $14.35 3.24 103.7

United States $6,815 $10.44 2.73 100.0

State RankingNew Hampshire 43 42 34 26

Connecticut 48 46 38 21Maine 47 38 33 27Massachusetts 50 44 46 44Rhode Island 44 41 42 46Vermont 39 44 43 31

25

InfrastructureInfrastructure

2009 State

Highway Spending

Per Person

2010 Pct of Bridges

Deficient or

Obsolete

Portion of Unacceptable Rough

Roads 2009

2010 State Debt Per Capita

New Hampshire $486.80 31.0 21.7 $6,341

Connecticut $608.04 33.7 24.5 $8,465Maine $491.12 32.2 25.4 $4,542Massachusetts $428.53 49.8 13.7 $11,310Rhode Island $369.46 52.3 34.2 $9,018Vermont $639.02 31.7 35.8 $5,585

United States $465.65 24.3 16.0 $3,614

State RankingNew Hampshire 23 39 35 44

Connecticut 13 43 38 47Maine 22 42 40 39Massachusetts 34 49 25 50Rhode Island 43 50 46 48Vermont 10 41 47 41

26

New Hampshire’s“Creative Class”

Creative Class Occupational Categories

New Hampshire and the United States

Source: Occupational Employment Statistics, BLS, for May 2009 NHNH US Loc Quot

Super Creative Core 86,500 17,259,210 1.06 Computer and mathematical occupations 19,220 3,303,690 1.23 Architecture and engineering occupations 12,190 2,412,730 1.07 Life, physical, and social science occupations 4,570 1,308,380 0.74 Education, training, and library occupations 44,990 8,488,740 1.12 Arts, design, entertainment, sports, and media occupations 5,530 1,745,670 0.67Creative Professionals 125,000 23,891,850 1.10Management Occupations 35,370 6,116,380 1.22Business and Financial Operations Occupations 28,110 6,063,670 0.98 Legal occupations 3,230 999,020 0.68 Healthcare practitioners and technical occupations 35,740 7,200,950 1.05 High end sales and sales management 22,550 3,511,830 1.35 (41-1011, 41-1012, 41-3031, 41-4011, 40-4012)

Total "Creative Class" 211,500 41,151,060 1.08Total All Occupations 619,390 130,647,610 1.00

27

Housing Relative to Income

StateRank (House Price to Median Income)

New Hampshire 7Massachusetts 44Maine 11Vermont 14Texas 15North Carolina 48Colorado 16Virginia 6

Less Affordable

28

Affordable Housing: NH Compared to Benchmarks

Percent of Owners With Incomes between 80.1 and 120% of Area Median Income with Severe or Moderate Housing Cost Burden (30% or more of Income)

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

New Hampshire Northern New England Competitor States Massachusetts

Worse

29

The Costs of Doing Business: Energy

StateResidential

Electricity Price Commercial Rank Industrial Rank Expenditures

Per Capita New Hampshire 9 8 6 18Massachusetts 11 12 11 7Maine 10 5 3 34Vermont 29 42 26 36Texas 22 30 31 5North Carolina 44 41 28 13Colorado 23 25 19 45Virginia 2 7 9 15

Prices and Expenditures (Higher Price/Expend higher Rank)

30

Arts and Dining GDP by State

2011 2011 2011

State GDPArts and

Accomodation PercentNew Hampshire $63,556 $2,573 4.0%

Maine $51,585 $2,363 4.6%Massachusetts $391,771 $15,018 3.8%Vermont $25,905 $1,455 5.6%

Colorado $264,308 $11,921 4.5%North Carolina $439,862 $13,897 3.2%Texas $1,308,132 $43,504 3.3%Virginia $428,909 $13,022 3.0%

United States $14,981,020 $585,705 3.9%

31

Survey data needs to be carefully assessed

• Surveys tell a very different story on regulatory status depending on what is measured and what is weighted more heavily– Forbes survey ranks NH 48th lowest in terms of

regulatory structure. – Kaufmann survey ranks NH high across a series of

regulatory structures small businesses.

• Given the importance, we are looking to collect primary data on this topic.

32

Small Business Friendliness Survey

2013 Thumbtack.com Small Business Survey, in partnership with the Kauffman Foundation

StateOverall

Business Friendliness

Ease of Starting

Business

Regulatory friendliness

Employment, Labor, and

Hiring

Licensing Regulations

New Hampshire 3 2 4 6 2

Maine 40 33 11 8 15Massachusetts 30 32 32 33 31Vermont No Data No Data No Data No Data No Data

North Carolina 13 14 17 17 20Colorado 8 16 20 20 16Texas 5 8 6 3 7Virginia 6 7 7 5 5

33

Best States for Business

Forbes 2012 Best States for Business

State Overall Rank

Business Costs Rank

Labor Supply Rank

Regulatory Environment

RankEconomic

Climate Rank

Growth Prospects

RankQuality of Life Rank Population

New Hampshire 32 44 20 41 22 29 6 1,323,200

Maine 50 40 34 46 44 49 17 1,329,300Massachusetts 17 49 9 42 8 16 1 6,606,300Vermont 44 45 19 49 31 46 14 627,200

North Carolina 4 2 3 3 21 12 34 9,730,300Colorado 5 32 1 15 10 8 10 5,092,100Texas 7 23 12 15 1 3 33 25,899,600Virginia 2 22 2 1 10 18 4 8,128,900

34

State Bond Ratings

Standard & Poor State Credit Rating May

2012New Hampshire AA

Maine AAMassachusetts AA+Vermont AA+

North Carolina AAAColorado AATexas AA+Virginia AAA

35

Tax Foundation Business Tax Climate

StateIndex Score Rank

Index Score Rank

New Hampshire 99.7 26 91 22

Maine 100.4 27 87.3 20Massachusetts 123.6 44 128.2 43Vermont 103.7 31 79.2 12

North Carolina 80.8 7 79.9 13Colorado 105.4 33 135.1 47Texas 85.9 12 127.7 42Virginia 84.4 11 125.9 39

Mature Firms New Firms

36

State Business Tax Climate

37

Tax Foundation Overall Tax Climate

State

Overall

Rank

Corporate

Tax Rank

Individual

Income Tax

Rank

Sales Tax

Rank

Unemployment

Insurance Tax

Rank

Property

Tax Rank

New Hampshire 7 48 9 1 42 43

Maine 30 41 27 10 32 39

Massachusetts 22 33 15 17 49 47

Vermont 47 43 47 14 22 48

Colorado 18 20 16 44 39 9

South Carolina 36 10 39 21 33 21

Texas 9 38 7 36 14 32

Virginia 27 6 38 6 38 27

2013 State Business Tax Climate Index Ranks and Component Tax Ranks

3838

“…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.”

New Hampshire Center New Hampshire Center for Public Policy Studiesfor Public Policy Studies

Want to learn more?

• Online: nhpolicy.org

• Facebook: facebook.com/nhpolicy

• Twitter: @nhpublicpolicy

• Our blog: policyblognh.org

• (603) 226-2500

Board of DirectorsSheila T. Francoeur, Chair

David Alukonis

Michael Buckley

William H. Dunlap

Eric Herr

Richard Ober

James Putnam

Stephen J. Reno

Stuart V. Smith, Jr.

Donna Sytek

Brian F. Walsh

Martin L. Gross, Chair Emeritus

John D. Crosier, Sr.,

Todd I. Selig

Kimon S. Zachos

Directors Emeritus