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Wednesday, May 6, 2009

Lou has three weeks to save NH


The guy you have to feel sorry for in the state budget process is Sen. Lou D'Allesandro, D-Manchester. The state's budget is a mess, and the whole mishmash has been dumped in his lap to fix.

Normally, a sitting governor proposes a budget he thinks is a complete document. The House then makes changes and puts its own policy stamps on the bill, also creating a budget that could be final. By the time the Senate receives the budget bill, it is essentially complete, allowing the Senate to balance the policy choices it makes by changing spending or tax decisions.

This year, neither the governor nor the House passed what they considered a finished product. Apparently they figured it was too difficult and Senate Finance Committee Chairman D'Allesandro could be counted on to bail them out.

When the governor submitted his budget, he said twice in his budget address that this was just one possibility and he encouraged people to look for other solutions. This was one of the few times in modern political history when a politician actually talked down his own proposal. "This is what I came up with, but I'm sure you can think of something better," was the governor's message.

The House described its budget as a work in progress and hoped the Senate would make important changes. The representatives would be sorely disappointed if the Senate just passed what they sent over. They and the governor are counting on Sen. D'Allesandro to fix everything.

As an example, both the House and the governor have said they want school construction aid to be put back in the budget. The governor didn't include money in his budget for it. He suggested the state borrow more money to pay for it. The House sensibly eliminated that borrowing.

House leaders said they hope the Senate finds a way to put it back in even though they couldn't. The governor has said it really ought to be included, but he has no suggestions for what to do. So it all falls to Lou.

The bigger difficulty is that there are other significant problems with the budget. The budget as passed by the House raises taxes in a recession and uses huge, one-time windfalls to pay for spending, creating larger problems in the future.

Almost everyone expected this budget to be a transition from the mess created by last year's budget to a balanced budget in a few years. Over the two years of the budget now ending, revenues will have been a combined $350 million or so below the amount budgeted. Even after some spending cuts and borrowing $40 million, the budget for the last biennium will end up with a $170 million deficit.

That deficit will be paid off with stimulus money, the rainy day fund and the controversial raid on a medical malpractice fund that is by law supposed to be refunded to the doctors who paid the premiums. Regardless, it is obvious that this budget should transition so that regular revenues are not $170 million lower than spending. At a minimum, we might have expected budget writers to do something like reduce the operating deficit to around $100 million in the first year of the budget and closer to $50 million in the second. We might have objected that they hadn't achieved balance, but at least they would be moving in the right direction.

Unfortunately, the budget punted over to Lou does nothing of the kind. It moves in the wrong direction. It uses $600 million of one-time revenue to hide the problem and make the operating deficit worse, not better.

By the final year of the budget, FY 2011, the gap between revenues and spending will grow to $211.5 million. That doesn't include some programs that have been temporarily suspended or replaced with federal stimulus money but will be back in the next budget.

As if that weren't bad enough, the only reason the operating problem isn't greater is that the House budget writers counted on increased revenue from a series of tax increases, such as a hike in the tax on tourism (the room and meals tax) and new taxes, such as a job-discouraging capital gains tax.

No one envies Sen. D'Allesandro's monumental task. He needs to find a way to reduce the operating deficit so it's much smaller in the final year of the budget than it is coming in. He needs to roll back at least some of the tax increases that will cost us jobs. And he's essentially starting from scratch with only three weeks to work.

Good luck!

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

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