Hugh Gregg deserves attention now, too

By CHARLES M. ARLINGHAUS

The wrong Gregg is in the news today. Instead of paying attention to the job prospects of our current senior senator, we should be looking to the common sense advice of his father, a man who served as governor during difficult economic times.

Hugh Gregg's advice and actions during the state's economic troubles 60 years ago and then again during the last recession can provide a useful road map for Gov. John Lynch and the Legislature today.

When the senior Gregg became governor in 1952, his predecessor, Sherman Adams, had proposed sales taxes in each of his two budgets. Adams had been so adamant that many opinion leaders decried Gregg as naive when he pledged to balance the budget without any tax hikes or broad-based tax.

At the time, the state had a huge surplus built up during World War II. It had been whittled during the intervening years, and people assumed Gregg would run operating deficits and draw down the state surpluses. Instead, he balanced the budget by keeping spending essentially flat for two years and ended up adding to the surplus.

Fast forward 50 years. The state was again facing a similar problem. An income tax had passed each house in 1999, but was narrowly defeated on reconsideration by the House. Headed into a recession and facing a budget shortfall, Gov. Jeanne Shaheen had a tax commission look at alternatives for raising money.

Hugh Gregg worried that New Hampshire would walk away from "its unique and admirable fiscal history." In an opinion piece for the Josiah Bartlett Center, he argued that there were alternatives to finding the "least onerous source of new taxation."

Having watched the boom and bust cycles of state spending for half a century, he argued that "When business is good and help wanted signs are posted everywhere, governments tend to be profligate and don't worry too much about tightening their budgets." That certainly sounds like the recent fiscal history of the state.

Gregg pointed to former Gov. Hugh Gallen for a solution. Gallen had formed a commission to study government efficiency and find ways to reduce or consolidate programs. It proposed $58 million worth of efficiencies -- more than 10 percent of the budget at that time -- but few of its suggestions were implemented.

Seizing on Gregg's advice, a few years later Gov. Craig Benson formed an efficiency commission headed by respected business executive Mike Hickey. The commission recommended changes that would save $400 million over five years. Many of its suggestions were not implemented.

We needn't adopt the exact forms Hugh Gregg suggested, but the ideas are valid.

In the face of a recession, we shouldn't raise taxes. Even the Obama administration is proposing cutting rather than raising taxes to spur economic activity. Raising taxes raises the price of economic activity. We want more activity, not less of it. Let's take tax increases off the table. Let's extend that same consideration to cigarette taxes as well.

Smokers are an easy target, but we've hit them three times in the last four years. The cigarette tax rate is 160 percent higher than it was four years ago and has tripled in the last decade. The people most likely to smoke are also the most economically vulnerable, especially during this economic downturn. Taxing them first doesn't seem like sensible policy.

Gov. Lynch seems to be taking a page out of Hugh Gregg's playbook in his public statements about the budget he's preparing. Closeted in budget negotiations, he's spoken publicly about reducing the size of government and ruled out most forms of taxation.

The governor has at his disposal a better efficiency commission. Theoretically, the heads of each department know the details of the state budget better than anyone else. Directed to do so by the governor and the Legislature, department heads can find and implement efficiencies better than any individual legislator hunting and pecking through thousands of pages of budgets.

Recent budgets have always included directed management cuts. Instead of specific cuts, the budget will include a footnote telling the commissioner of a department to find and report to the Legislature on, say, $3 million of additional cuts beyond the budgeted amount. This is a good way of using the expertise of those most familiar with government operations.

The budget problem is larger than it has ever been. Even if we manage to freeze spending at current levels for two years, the Legislature will have to find $538 million of additional reductions (or revenue increases).

But the task is not insurmountable. The amount of revenue we will raise in fiscal year 2009 and probably next year is the same amount we spent in 2007.

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