Charlie Arlinghaus- We took from the town and gave to the school

By CHARLES M. ARLINGHAUS

The governor's latest communications piece highlighted what he believes are some important accomplishments of his budget, but it also served to underscore a few troubling, long-term trends in New Hampshire's budget writing.

In recent opinion pieces, the governor touted increases in transfers from the state budget to local government. The level of acrimony in Concord is great enough that my phone rang off the hook with people asking "How can he say that? Isn't it a lie?" He can say that because it's true.

The legislative budget office published a helpful summary of state aid programs to cities, towns and schools over the last dozen years. It shows quite clearly that the total of the 26 different state aid programs, ranging from "adequacy aid" to landfill closure grants, are $2.377 billion or $44 million higher in the 2010-11 budget than they were in 2008-09, an increase of 1.9 percent.

So why is local government up in arms if they're getting more money? Essentially because aid to schools is crowding out aid to municipal government. The 16 different aid programs to schools (15 of which aren't part of the Claremont kerfuffle) have risen to more than $2 billion in the next two-year budget, an increase of $102 million or 5 percent. However, in difficult budget years, a large increase in one place requires sacrifice in another. Aid to cities and towns themselves took a big hit. State aid to run city and town government was reduced by 19 percent. In essence, we took from the town and gave to the school. In a few cities, the budget is done together so it doesn't matter. But in most towns across the state, towns and schools are separate and have separate government or separate town meetings. So a 19 percent cut isn't offset in any way by the school budget.

In broader terms though, the state has been moving to separate the local and state budgets for the last decade. In the 2000 budget, transfers to cities, towns and schools were 36 percent of the total budget. In 2010, they will make up about 21 percent. It's not that we haven't increased total aid. It just hasn't increased as fast as the rest of the budget. In some ways at least, this change is healthy. The state used to pay 35 percent of the retirement cost for a local employee. Reducing that share gradually will require a town to pay a larger share of the cost of anyone it decides to hire instead of a portion of that cost being passed on to the people of other towns.

Another change though is unhealthy. One aid program crowds out all others and not because we've made a policy choice, but because we think we have no choice. Adequacy aid is a complicated formula policymakers wrote to try and satisfy a court decision. We increased spending on that one formula by more than $100 million while everything else was flat or cut. So an aid formula that no one likes goes up, but special education aid is cut by 7 percent, municipal revenue sharing is cut by 19 percent.

The other troubling trend relates to the governor's claim he cut the budget. Of course, it isn't true. We're spending more in 2010-2011 than we spent in 2008-2009. You can pretend there's a cut by saying it's less than we hoped to spend but weren't able to last budget. In addition, $208 million that we spent in the operating budget, the general fund, last time was transferred offline to dedicated funds. Of course we're still spending it, just calling it a different "fund."

It used to be that most of the budget was in the general fund with some small dedicated funds to segregate hunting license fees or gas taxes. Ten years ago, 58 percent of the non-federal portion of the state budget was in the general fund, the state's basic operating account. That percentage keeps decreasing. In FY2010, the current fiscal year, only 40 percent of the non-federal portion of state spending will be in the general fund.

The problem is not just statistical. Moving spending offline means lawmakers look at it differently at budget time and when there's a problem. Cuts and spending freezes apply only to general fund spending and general funded employees. The trend forces cuts and freezes to a smaller base. It also masks increased spending and hides the majority of the budget from the more intense scrutiny that comes from cuts and hiring freezes.

Hiding some spending from budget scrutiny and elevating one of the 26 local aid programs to special status over the others obscures decision making. Both create a class of spending with special status that forces tough decisions on an increasingly small pool of programs.

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