The Governor’s Budget: A Good First Step. But There's More To Do.

By Rep. Neal M. Kurk

The governor is to be commended for putting forth a state budget for 2010/11 that, while growing by 12% overall, holds the line on state tax-funded spending. In the face of declining state tax and fee revenues, the governor’s budget eliminates or reduces some state government programs and associated staff positions, lowers health benefit costs, improves operating efficiencies and frees the state liquor commission to produce greater profits. Unfortunately, the governor’s budget is neither balanced by traditional standards nor is it sustainable into the future.

About $83 million of the state’s share of local school debt service on local school building bonds will no longer be paid from state taxes but will be paid by borrowing the money. While bringing in other funds to balance the budget, borrowing to pay for on-going operating expenses is bad public policy. It’s like borrowing to help pay the mortgage. Indeed, state law prohibits bonding operating expenses. By our traditional standards, the governor’s budget is not in balance.

The governor’s budget is not sustainable into the future. In the face of significant decreases in state revenues, state-funded spending for 2010/11 remains at about the same level as in 2008/09. A significant part of the difference is covered with one-time money. This includes selling state assets, like the Concord liquor warehouse ($4 million), receiving up-front payments for leasing land around state liquor stores ($27 million), reducing the surplus in a state medical malpractice insurance fund ($60 million) and selling 1.5 miles of I-95 in Portsmouth to the turnpike system ($125 million). This helps balance the next budget, but what happens in future budgets? It’s unlikely that stronger state revenues in 2012/13 will cover both inflationary increases and fill this one-time revenue hole.

Increased taxes and fees are also part of the governor’s proposal. Three tax increases boost the general fund: the tax on rooms and meals increases by 9% -- from 8% to 8.75% ($40 million); the tobacco tax goes up by another 35c ($70 million); and a new tax on gambling winnings raises $16 million. The highway fund gains from a $10 increase in the fee to register a vehicle ($24 million) and E-Z Pass changes ($8 million). These are legitimate ways to balance a budget, but they are inappropriate in a recession and run counter to federal efforts to lower taxes in order to stimulate the economy.

Downshifting -- lowering the state’s financial burden by increasing municipalities’ financial burden -- is perhaps the most difficult part of the governor’s budget to accept. State aid to cities and towns is cut in three areas.

First, the state’s share of municipal employees’ pensions is cut from 35% to 30%. Second, state aid for new water and sewer projects is eliminated. Third, and most significant, state revenue sharing, a decades-old program, has been eliminated, costing cities and towns and their property taxpayers a whopping $166 million over the next two years. Under the governor’s plan, the revenue-sharing money lost to municipalities is offset by additional federal stimulus money given to local school districts. In theory, higher municipal taxes will be offset by lower school taxes, and property taxpayers will be held harmless.

But even if property taxpayers’ total tax bill is unaffected, the spending/taxing balance between schools and towns will have been tilted, and tilted dramatically, in favor of schools. With lower tax rates, it will be easier for schools to increase spending. Conversely, with higher tax rates, it will be harder for cities and towns to increase spending. Municipal infrastructure and services will suffer.

The legislature has its work cut out for it.

Neal M. Kurk is Republican state representative who lives in Weare. He can be reached at 592-7253.