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Wednesday, November 26, 2008

Legislators can balance the budget if their priorities are straight


While the state still struggles to fix a $250 million budget deficit in the last year of this budget, a much bigger problem looms just after the new year. The next budget will start with the largest budget hole in recent history. Politicians of all stripes will need to put principle over politics and avoid the sniping that too often replaces debate in modern times.

Legislators dealing with the current two-year budget had to resolve a $71 million revenue shortfall in the first year and an additional $250 million problem in the second year. A series of spending cuts, small tax increases and borrowing has trimmed the second-year deficit to $75 million. However, some of these proposals have put problems off until next year's budget.

As the governor prepares a budget proposal due in February, estimates of the gap between current programs and likely tax revenues range between $250 million and $800 million. Although much depends on whether the economy recovers quickly, a good median estimate is that we face a $500 million problem. By almost any measure, this will be the most difficult budget in many years.

Many politicians and outside observers will be tempted to pick apart the details of any proposal to score points against their political opponents. Instead of squabbling over details, politicians should agree on broad goals to limit the games that can be played over small points selected out of context.

Broadly speaking, I think the vast majority of elected officials can agree on the end goal. At the end of the budget cycle, regular expenditures and regular revenues should be in balance. That may sound like a fairly simple goal to the average citizen who has no choice but to balance his or her own budget. However, New Hampshire's budget is not balanced that way and is not currently required to be balanced that way.

The last couple budgets, for example, have spent more than they hoped to raise. The current budget got in trouble because revenues fell quite a bit short of the estimates used to balance spending. However, even if revenues had come in as budgeted rather than $300 million short, the state's general fund had planned to spend $108 million more than it hoped to raise.

The extra spending was balanced with one-time revenue sources, notably surplus money from the previous budget. Generally, regular recurring programs should be paid for with regular recurring tax revenues, not one-time windfalls, just as you wouldn't pay for a mortgage payment with an unexpected lottery windfall.

Getting back to a truly balanced budget will take both years of the next two-year state budget. In the current economic climate, it is reasonable to expect the first year to be a transition period. Many unusual and one-time sources are being used to balance the current budget, and it will take some time to readjust.

The current budget will be balanced with $40 million of "bonded" or borrowed money. It also includes a series of one-time revenues, such as a large transfer from the Pease Development Authority and the governor's recent proposal to take $15 million from other dedicated funds to bail out the state general fund. In addition, the incoming President is likely to propose a bailout package that could include $50 million to $100 million in one-time aid to the state.

The one-time revenue and borrowed money cannot be expected on a regular basis. Therefore the state must wean itself from it. Adjustments to spending this year and next must be made so that spending and revenue in the second year of the next budget balance.

Once the budget is restored to balance, our sloppy balancedbudget law should be amended. Each year the budget should be in balance, and surpluses carried forward from the previous year should not be counted toward balancing current spending and revenue. The sloppiness of the existing law makes it possible to defer some decisions and put off problems into the second of the two budget years.

The legislative session will see many arguments and debates over raising taxes, cutting spending, finding new revenue sources and changing the budget process. But both parties and most factions ought to be able to agree on the ultimate goal of getting back to balance at the end of the second year. Agreement on that goal offers some hope that the real debates will center on differences of principle and put at least some modest limits on less productive political bickering.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.

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