By CHARLES M. ARLINGHAUS
True health care reform will allow more options and more choices. The current plans in Washington create a central control that transfers authority from the people to the government and from the state to the federal government. Whether you believe in greater government spending or not, this is exactly the wrong approach.
Anytime Washington gets involved in any policy decision, Washington writes all the rules and tells everyone what to do. Health care is no exception. What started as a plan to find ways to cover people who don't have insurance transformed into thousands of pages of new regulations, mandates, prohibitions, oversight and general central control.
The federal government does not currently set mandates for health insurance; each state does to varying degrees. The new health care bills would transfer most of that authority to Washington. Washington will write the rules because Washington knows best.
Does Washington want to set up a few basic minimums that should be included? No. It wants to set up minimum coverage levels higher than many people's insurance today, maximum coverage levels, specific programs that every policy must include and a new administrative office to review and approve plan designs, plan changes and premium changes.
Generally, the more things a health insurance plan covers, the more expensive it is. Higher co-pays or deductibles will reduce the amount of financial risk and, therefore, the amount of the premium. More expensive plans will cover a higher percentage of "actuarial value," the amount you are expected to cost by statistical averages.
A high-deductible plan might make a lot of sense for a healthy young person, who will be covered against a catastrophe, but still have an affordable premium and, therefore, will buy insurance rather than avoiding it.
However, under the proposed reform, high deductibles are not allowed. New plans must cover at least 70 percent of value. You can keep the plan you have unless it's a budget plan. Budgets and cost-sharing are not going to be permitted. Never mind that most economists think that consumer involvement in costs is a good way to reduce the rate of premium increase.
On the other hand, while we want you to have insurance, we also don't want it to be too good. If your insurance coverage is too good, we're going to tax it. At the levels being considered in the Senate bill, New Hampshire state employees' coverage is about 25 percent too generous. In addition, about 25 percent of employers in New Hampshire give a benefit that the government thinks is too generous. Too nice to your workers? We'll tax that.
It's Goldilocks government at its best. We don't want plans that are too big or plans that are too small. Every plan needs to be just right.
Instead of Goldilocks making these judgments, we'll have a health choices commissioner. The commish will be assisted by the creation of more than 100 new bureaus and federal programs, including the Health Benefits Advisory Committee.
Our new health choices commissioner will have the authority to decide what falls into the just-right range of policy choices that are preapproved for you to choose.
Whether the final bill includes a government-run "public option" or not, the new regulations on private policies amount to more or less the same thing as the government actually running the plan. The "choices commissioner" will be able to approve or deny premiums, dictate coverage levels and "negotiate" prices. So the government will decide what coverage you can have, what it will cost and how much providers will get paid.
There are other ways to make changes in health care that don't involve a large new office in a concrete building in Washington making the rules for everyone in America.
Louis Brandeis believed that change could come from a single state serving as a laboratory of democracy to "try novel social and economic experiments without risk to the rest of the country." In theory, we could watch what happened in a state like Massachusetts and decide if it would work here.
The current proposals in Washington are the exact opposite of Brandeis' approach. A giant new bureaucracy won't allow different states to experiment with different things. Limiting plans to a narrow range of choices -- not too expensive, not too cheap -- eliminates any choices and innovation even in the design of individual plans. Centralized government planning with strict limits on thinking outside the government box does not traditionally lead to innovation.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.
Showing posts with label Charlie Arlinghaus. Show all posts
Showing posts with label Charlie Arlinghaus. Show all posts
Wednesday, November 18, 2009
Thursday, November 12, 2009
Health Care Reform Hits Home
New Hampshire Public Radio tackles health care reform this morning on "The Exchange".
"The Exchange" airs from 9am to 10am, and reairs at 8pm.
Guests
* Ned Helms, director of the New Hampshire Institute for Health Policy and Practice at the University of New Hampshire
* Charlie Arlinghaus, president of the Josiah Bartlett Center for Public Policy
"The Exchange" airs from 9am to 10am, and reairs at 8pm.
Wednesday, November 11, 2009
Arlinghaus on your TV
Well, if you live in the Manchester area anyway. Charlie Arlinghaus will be talking about the Verizon Wireless Arena bonds and municipal retirement stories this evening on "Two Live Joes" on MCAM, Channel 23 from 8:00 to 8:30.
Armistice Day
Posted on behalf of Charlie Arlinghaus
Today used to be called Armistice Day in remembrance of the armistice signed on the 11th hour of the 11th day of the 11th month that ended what was called The Great War in 1918. The moving poem "In Flanders Fields" was written by a soldier and is the reason we wear poppies at remembrance ceremonies.
In Flanders fields the poppies blow
Between the crosses, row on row,
That mark our place; and in the sky
The larks, still bravely singing, fly
Scarce heard amid the guns below.
We are the dead. Short days ago
We lived, felt dawn, saw sunset glow,
Loved, and were loved, and now we lie
In Flanders fields.
Take up our quarrel with the foe:
To you from failing hands we throw
The torch; be yours to hold it high.
If ye break faith with us who die
We shall not sleep, though poppies grow
In Flanders fields.
Today used to be called Armistice Day in remembrance of the armistice signed on the 11th hour of the 11th day of the 11th month that ended what was called The Great War in 1918. The moving poem "In Flanders Fields" was written by a soldier and is the reason we wear poppies at remembrance ceremonies.
In Flanders fields the poppies blow
Between the crosses, row on row,
That mark our place; and in the sky
The larks, still bravely singing, fly
Scarce heard amid the guns below.
We are the dead. Short days ago
We lived, felt dawn, saw sunset glow,
Loved, and were loved, and now we lie
In Flanders fields.
Take up our quarrel with the foe:
To you from failing hands we throw
The torch; be yours to hold it high.
If ye break faith with us who die
We shall not sleep, though poppies grow
In Flanders fields.
Charles M. Arlinghaus: City's revenue sharing loss was inevitable
By CHARLES M. ARLINGHAUS
The state's decision to freeze revenue sharing payments was not a criminal act. It doesn't constitute fraud. It isn't unconstitutional. It shouldn't send your town into turmoil, and it's not even a bad idea. It may have a negative impact on the Verizon Wireless Arena, but every change in state law shouldn't lead to a lawsuit.
Manchester's bond payments on the arena are guaranteed by the city's portion of the state meals and rooms tax revenue. Neither the state nor the city is on the hook for anything other than the city's share of that payment, about $4.6 million last year.
It is a risky setup for bondholders because the state meals and rooms payments are not guaranteed and have gone up and down in their short history.
The meals and rooms tax was passed in 1967 to provide additional revenue for the state, but also for the towns. The state tinkered with the share going to towns and eventually took it all. Starting in 1995, state lawmakers decided to bring back some degree of revenue sharing.
They created a formula that started small, but dedicated most of the annual rise in revenue toward increasing the share sent to the towns. In theory, the town share of the total revenue would increase until municipalities were finally receiving 40 percent of the total. Right now, they are up to about 25 percent.
In the last budget, the governor originally proposed suspending revenue sharing entirely for two years. In the end, the Legislature proposed freezing it at 2009 levels for two years.
The state canceled the other major municipal revenue sharing program anyway, and lawmakers were convinced they couldn't cut too much more without burdening towns. Manchester Mayor Frank Guinta at the time fought to restore some of the funding for fear of defaulting on the arena's bond payments.
Any revenue sharing program goes up and goes down. This program has a history over 42 years of rising, sometimes declining, sometimes disappearing entirely. Strangely, bondholders were willing to invest in a proposition secured by such an unreliable source.
If the state behaved as it had in the past, payments would go down. If it behaved as most states do in difficult economic times, payments would go down. If the state ever passed a tax cut (less likely), payments would go down.
The city's bond counsel warned the state that changes to state law might cause a lawsuit. He cited a Washington case to suggest the state can't repeal a tax the city used to pay bonds. But while a state might be obligated if it used a tax to secure a bond, it is just not reasonable to think that state action can be vetoed because of what one city decided to do with its aid payment.
Just as important, there's no reason for anyone to be surprised by this action. The governor's spokesman told the Josiah Bartlett Center when we broke the story on Monday that "Moody's raised this as a risky funding scheme when this was put together, pointing out that meals and rooms revenues are not guaranteed to be constant." There's some fear that bondholders might sue, but they knew the risks at the time and don't have much cause for surprise.
The bond counsel's proposed solution is even sillier than a lawsuit. He suggests that the old version of the law be grandfathered for any city that used the payment to secure bonds. In other words, Manchester would be rewarded for taking a risky decision, while the rest of the state would operate under a different law. Payments to your town would be frozen, but not payments to Manchester.
To be fair, paying for the arena is going to be difficult for Manchester, but every city and town in the state faced similar struggles and similar budget uncertainty. Many towns noticed the financial difficulties the state was having. I think I even wrote about it once or twice.
My own town of Canterbury is a good example of the common sense of citizen selectmen. Canterbury is not particularly frugal, just average. Our taxes have gone up by an average 5 percent each year for the last 15 years. But selectmen knew that state aid was going to be cut, so they didn't count on getting it. Instead, they cut the town budget by 6 percent, and the school budget declined as well. The end result was that our property taxes went down by 8 percent, which was needed relief to people fighting a recession.
The recession has been tough on every budget. It was expected that the state would freeze aid. The right approach is the one fiscally responsible towns have taken. Long-term obligations put pressure on the rest of your budget, but it doesn't have to stop you from cutting taxes even when state aid is frozen.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.
The state's decision to freeze revenue sharing payments was not a criminal act. It doesn't constitute fraud. It isn't unconstitutional. It shouldn't send your town into turmoil, and it's not even a bad idea. It may have a negative impact on the Verizon Wireless Arena, but every change in state law shouldn't lead to a lawsuit.
Manchester's bond payments on the arena are guaranteed by the city's portion of the state meals and rooms tax revenue. Neither the state nor the city is on the hook for anything other than the city's share of that payment, about $4.6 million last year.
It is a risky setup for bondholders because the state meals and rooms payments are not guaranteed and have gone up and down in their short history.
The meals and rooms tax was passed in 1967 to provide additional revenue for the state, but also for the towns. The state tinkered with the share going to towns and eventually took it all. Starting in 1995, state lawmakers decided to bring back some degree of revenue sharing.
They created a formula that started small, but dedicated most of the annual rise in revenue toward increasing the share sent to the towns. In theory, the town share of the total revenue would increase until municipalities were finally receiving 40 percent of the total. Right now, they are up to about 25 percent.
In the last budget, the governor originally proposed suspending revenue sharing entirely for two years. In the end, the Legislature proposed freezing it at 2009 levels for two years.
The state canceled the other major municipal revenue sharing program anyway, and lawmakers were convinced they couldn't cut too much more without burdening towns. Manchester Mayor Frank Guinta at the time fought to restore some of the funding for fear of defaulting on the arena's bond payments.
Any revenue sharing program goes up and goes down. This program has a history over 42 years of rising, sometimes declining, sometimes disappearing entirely. Strangely, bondholders were willing to invest in a proposition secured by such an unreliable source.
If the state behaved as it had in the past, payments would go down. If it behaved as most states do in difficult economic times, payments would go down. If the state ever passed a tax cut (less likely), payments would go down.
The city's bond counsel warned the state that changes to state law might cause a lawsuit. He cited a Washington case to suggest the state can't repeal a tax the city used to pay bonds. But while a state might be obligated if it used a tax to secure a bond, it is just not reasonable to think that state action can be vetoed because of what one city decided to do with its aid payment.
Just as important, there's no reason for anyone to be surprised by this action. The governor's spokesman told the Josiah Bartlett Center when we broke the story on Monday that "Moody's raised this as a risky funding scheme when this was put together, pointing out that meals and rooms revenues are not guaranteed to be constant." There's some fear that bondholders might sue, but they knew the risks at the time and don't have much cause for surprise.
The bond counsel's proposed solution is even sillier than a lawsuit. He suggests that the old version of the law be grandfathered for any city that used the payment to secure bonds. In other words, Manchester would be rewarded for taking a risky decision, while the rest of the state would operate under a different law. Payments to your town would be frozen, but not payments to Manchester.
To be fair, paying for the arena is going to be difficult for Manchester, but every city and town in the state faced similar struggles and similar budget uncertainty. Many towns noticed the financial difficulties the state was having. I think I even wrote about it once or twice.
My own town of Canterbury is a good example of the common sense of citizen selectmen. Canterbury is not particularly frugal, just average. Our taxes have gone up by an average 5 percent each year for the last 15 years. But selectmen knew that state aid was going to be cut, so they didn't count on getting it. Instead, they cut the town budget by 6 percent, and the school budget declined as well. The end result was that our property taxes went down by 8 percent, which was needed relief to people fighting a recession.
The recession has been tough on every budget. It was expected that the state would freeze aid. The right approach is the one fiscally responsible towns have taken. Long-term obligations put pressure on the rest of your budget, but it doesn't have to stop you from cutting taxes even when state aid is frozen.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.
Monday, November 9, 2009
WMUR tackles downshifting in Health Care Bill
WMUR's Josh McElveen reports on opposition to the Pelosi Health Care Bill because of its reliance on state budgets to pay for many of its mandates.
Video at the link.
The question of what it could cost states has piqued Gov. John Lynch's interest. He spoke with House Speaker Nancy Pelosi about his concerns last week.
Analysts said they believe governors will play a major role in health care reform before anything is passed.
"There's little question that the current bill does cost-shift to the states," said Charlie Arlinghaus of the Josiah Bartlett Center for Public Policy. "The question is how much. So, I think you are going to see some pressure to try and eliminate some of that cost shifting."
Video at the link.
Wednesday, November 4, 2009
Charles M. Arlinghaus: NH can do better than an 'F' in transparency
By CHARLES M. ARLINGHAUS
New Hampshire routinely ranks among the worst states in the country on the transparency and responsiveness of its government. This one blind spot in an otherwise accountable government almost certainly contributes to the bitterness of recent policy confrontations.
In general, the people of New Hampshire have long subscribed to the philosophy that transparency, open meeting laws and public access to government records form the basic cornerstone of holding its government accountable. Our right-to-know law was an early sign of our commitment that the government is an agency of the people and its records and meetings should be readily available to us.
Our legislative Web site is a model of easy access to information, providing bill text summaries and access to any legislator's voting record with a convenient drop-down menu. In some states, watchdog groups spend hundreds of thousands of dollars developing this information privately so citizens can know what their elected officials do. Our elected officials provide it readily.
2009Arlinghaussig_135px
On the other hand, much of our government's information is difficult to find or difficult to access. While the somewhat archaic language of our right-to-know law does provide access to data eventually, our state is only beginning to catch up in the technology to make that access easy.
In any state, there are two aspects of transparency. The first is the nominal strength of a state's freedom-of-information laws -- what areas are covered, what are excepted, what form the data are available in. By this measurement, New Hampshire is something of a middling state.
The Better Government Association, an Illinois-based group originally founded to thwart the growing influence of gangster Al Capone, conducts national studies. By its freedom-of-information ranking, New Hampshire's right-to-know law places us 31st in the country. It's not great, but not horrible.
The Better Government analysts also understand that state governments are a little behind the outside world in transitioning to the computer age when it comes to accessibility. In virtually every state, information is available through a gatekeeper. I am entitled to the government information, but I have to request it and wait for a bit while it is gathered, processed and sent.
In the BGA's responsiveness study -- how quickly the information is accessible, etc. -- New Hampshire received an F. To be fair, slightly more than half the states received an F, so we are not alone.
Most of us who have dealt with state administrators on right-to-know requests would not have guessed at these rankings. The administrators I've dealt with have been responsive and helpful. I think that is generally true. What we discover, however, is that many other states are doing a much better job. Part of the reason is more modern computer systems. The state's transition to a new system will dramatically improve the process.
For example, the Josiah Bartlett Center's effort to put the state's entire detailed transaction register online in a gatekeeper-free database is six months into a right-to-know request despite a strong working relationship between our staff and the state's. If I had to guess, the same data request that takes six months now will probably take days next year, after the new system is running and bugs are sorted out.
One example of why this matters is the current friction between the State Employees' Association and the administration. The SEA has become a huge supporter of placing all the state's financial information in a free and open database because so much of the union's disagreements with management are governed by information disputes.
The most recent issue happened when the union claimed the state has 1,400 part-time employees making $75 per hour. Its source is a summary statement a state department did for the Legislature. The department denied that data in a newspaper column. There's no way to know who's right without independent access to detailed payroll records. A public database would sort this out simply. However, the only option today is to submit an official request to people whose workload is stretched, and wait.
When a list of every detailed exception to the spending freeze was submitted to the Joint Legislative Fiscal Committee, legislators of all stripes eagerly pored over and questioned every check and every dollar. Easily accessible information without gatekeepers would make that kind of activity not an unusual sight, but typical and commonplace.
The current dreadfulness of our budget demands every available tool. We have the culture and soon the technology to at least be one of the states that doesn't get an F.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.
New Hampshire routinely ranks among the worst states in the country on the transparency and responsiveness of its government. This one blind spot in an otherwise accountable government almost certainly contributes to the bitterness of recent policy confrontations.
In general, the people of New Hampshire have long subscribed to the philosophy that transparency, open meeting laws and public access to government records form the basic cornerstone of holding its government accountable. Our right-to-know law was an early sign of our commitment that the government is an agency of the people and its records and meetings should be readily available to us.
Our legislative Web site is a model of easy access to information, providing bill text summaries and access to any legislator's voting record with a convenient drop-down menu. In some states, watchdog groups spend hundreds of thousands of dollars developing this information privately so citizens can know what their elected officials do. Our elected officials provide it readily.
2009Arlinghaussig_135px
On the other hand, much of our government's information is difficult to find or difficult to access. While the somewhat archaic language of our right-to-know law does provide access to data eventually, our state is only beginning to catch up in the technology to make that access easy.
In any state, there are two aspects of transparency. The first is the nominal strength of a state's freedom-of-information laws -- what areas are covered, what are excepted, what form the data are available in. By this measurement, New Hampshire is something of a middling state.
The Better Government Association, an Illinois-based group originally founded to thwart the growing influence of gangster Al Capone, conducts national studies. By its freedom-of-information ranking, New Hampshire's right-to-know law places us 31st in the country. It's not great, but not horrible.
The Better Government analysts also understand that state governments are a little behind the outside world in transitioning to the computer age when it comes to accessibility. In virtually every state, information is available through a gatekeeper. I am entitled to the government information, but I have to request it and wait for a bit while it is gathered, processed and sent.
In the BGA's responsiveness study -- how quickly the information is accessible, etc. -- New Hampshire received an F. To be fair, slightly more than half the states received an F, so we are not alone.
Most of us who have dealt with state administrators on right-to-know requests would not have guessed at these rankings. The administrators I've dealt with have been responsive and helpful. I think that is generally true. What we discover, however, is that many other states are doing a much better job. Part of the reason is more modern computer systems. The state's transition to a new system will dramatically improve the process.
For example, the Josiah Bartlett Center's effort to put the state's entire detailed transaction register online in a gatekeeper-free database is six months into a right-to-know request despite a strong working relationship between our staff and the state's. If I had to guess, the same data request that takes six months now will probably take days next year, after the new system is running and bugs are sorted out.
One example of why this matters is the current friction between the State Employees' Association and the administration. The SEA has become a huge supporter of placing all the state's financial information in a free and open database because so much of the union's disagreements with management are governed by information disputes.
The most recent issue happened when the union claimed the state has 1,400 part-time employees making $75 per hour. Its source is a summary statement a state department did for the Legislature. The department denied that data in a newspaper column. There's no way to know who's right without independent access to detailed payroll records. A public database would sort this out simply. However, the only option today is to submit an official request to people whose workload is stretched, and wait.
When a list of every detailed exception to the spending freeze was submitted to the Joint Legislative Fiscal Committee, legislators of all stripes eagerly pored over and questioned every check and every dollar. Easily accessible information without gatekeepers would make that kind of activity not an unusual sight, but typical and commonplace.
The current dreadfulness of our budget demands every available tool. We have the culture and soon the technology to at least be one of the states that doesn't get an F.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.
Wednesday, October 28, 2009
Watchdogs sound alarm on spending
Kevin Landrigan writes up yesterday's "Stop the Spending Summit", featuring some of the leading state budget experts in New Hampshire who are also my boss.
Charles Arlinghaus, president of the Josiah Bartlett Center for Public Policy, said lawmakers in 2012-13 face a shortfall of $637 million when one-time stimulus grants totaling $550 million go away as well as other one-time fixes.
To close the current budget, lawmakers deeply cut aid to cities and towns for revenue sharing and retirement costs but those get restored after July 1, 2011.
“That’s the starting problem for the budget next year,” Arlinghaus said. “I don’t know how many of you have decided to run for re-election or not; God help you.”
Presentations from "Stop the Spending Summit"
The House Republican Office has posted the powerpoints from Steve Norton, Charlie Arlinghaus, and John Stephen from yesterday's "Stop the Spending Summit".
Steve Norton's is full of great charts showing how New Hampshire spends money compared to the rest of the nation. John Stephen's contains specific suggestions for curbing spending growth in New Hampshire. And Charlie Arlinghaus looks at the size of New Hampshire's budget hole both this biennium and next.
Steve Norton's is full of great charts showing how New Hampshire spends money compared to the rest of the nation. John Stephen's contains specific suggestions for curbing spending growth in New Hampshire. And Charlie Arlinghaus looks at the size of New Hampshire's budget hole both this biennium and next.
Time has run out on the budget
By CHARLES M. ARLINGHAUS
Last week it was a tax summit, this week a spending summit. With all the talk about taxes and spending, you might think New Hampshire had another budget problem. And you know what? You'd be right.
New Hampshire often has a budget problem. In this year's version, we have both an immediate problem and a longer term problem. We have to find another $200 million to save in the next few months and then face another $600 million deficit going into the next budget.
With those sorts of extraordinary numbers on the table, no one party, branch of government or side of the bargaining table is going to be able to provide a solution. The economy isn't going to grow its way out of the problem; the federal government won't bail us out; and there isn't one silver bullet to fix everything.
The current budget includes fixing the shortfall at the end of Fiscal Year 2009 and balancing the current two-year budget. There are a lot of smaller issues that could add to the size of the problem, but there are three big issues that make up about $200 million.
First and foremost is the medical malpractice raid. The state is counting on taking $110 million from the malpractice fund known as the Joint Underwriting Agreement (JUA). Some of the money is for last year and some for the current budget, but all of it would have to be replaced. The Superior Court has ruled that the money is private property and can't be seized by the state simply because the state wants it. The governor and legislators are banking on the Supreme Court overturning the ruling.
If the ruling stands, as is more likely than not, the state is $110 million short of its budget. In addition, to balance the 2009 figures the state moved $18.4 million in stimulus funding forward from 2010, leaving the current budget another $18 million short. On top of that money, state revenues are coming in below the estimates used to balance the budget.
Based on the first quarter of returns, we will likely end the first year of the two-year budget $40 million short. Because the 2011 revenue growth was built off the 2010 base, that same shortfall would occur again in the second budget year unless the economy recovers more rapidly than expected.
The revenue shortfall, stimulus and JUA issues combine to create a $200 million gap between currently expected revenue and projected spending.
The problem is all the more important because of a fiscal time bomb waiting for us in the next budget. The current budget was balanced with hundreds of millions of one-time stimulus dollars from the federal government. Regular revenues and regular spending are $188 million apart in Fiscal Year 2011.
In addition, the budget includes a number of one-time spending reductions that are delays rather than cuts. For example, borrowing money to pay for construction aid isn't a spending cut, and municipal aid was suspended only for the current biennium. All told, the temporary reductions are $251 million over the biennium. That money is restored in the next budget.
The operating imbalance ($376 million for two years) and the temporary spending reductions mean the next budget starts out with a $625 million deficit -- if we manage to first cut $200 million out of the current budget and don't add to the problem.
The governor has suggested that a return to normal revenue growth in a robust economy will solve the problem. However, 4 percent revenue growth would mean just $92 million in 2012. Worse, because of the imbalance, typical growth in taxes and also in spending would make the deficit worse, not better. Three percent growth in spending and in taxes actually adds $18 million to the deficit. Economic growth only helps if spending is also restrained.
The good news is that the immediate problem we face will actually help us deal with the $600 million problem on the horizon. Spending cuts made to the current budget will have a triple effect. They reduce spending in the current budget and then in each year of the next two-year budget. So $100 million in cuts has a $300 million effect.
The size of the state's budget problem is as large as we've faced in our history. Last year, we faced the same problem but were able to delay it for two years because of the extraordinary federal bailout. That bailout or stimulus plan didn't fix anything. It merely bought us time. And now time is up.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.
Last week it was a tax summit, this week a spending summit. With all the talk about taxes and spending, you might think New Hampshire had another budget problem. And you know what? You'd be right.
New Hampshire often has a budget problem. In this year's version, we have both an immediate problem and a longer term problem. We have to find another $200 million to save in the next few months and then face another $600 million deficit going into the next budget.
With those sorts of extraordinary numbers on the table, no one party, branch of government or side of the bargaining table is going to be able to provide a solution. The economy isn't going to grow its way out of the problem; the federal government won't bail us out; and there isn't one silver bullet to fix everything.
The current budget includes fixing the shortfall at the end of Fiscal Year 2009 and balancing the current two-year budget. There are a lot of smaller issues that could add to the size of the problem, but there are three big issues that make up about $200 million.
First and foremost is the medical malpractice raid. The state is counting on taking $110 million from the malpractice fund known as the Joint Underwriting Agreement (JUA). Some of the money is for last year and some for the current budget, but all of it would have to be replaced. The Superior Court has ruled that the money is private property and can't be seized by the state simply because the state wants it. The governor and legislators are banking on the Supreme Court overturning the ruling.
If the ruling stands, as is more likely than not, the state is $110 million short of its budget. In addition, to balance the 2009 figures the state moved $18.4 million in stimulus funding forward from 2010, leaving the current budget another $18 million short. On top of that money, state revenues are coming in below the estimates used to balance the budget.
Based on the first quarter of returns, we will likely end the first year of the two-year budget $40 million short. Because the 2011 revenue growth was built off the 2010 base, that same shortfall would occur again in the second budget year unless the economy recovers more rapidly than expected.
The revenue shortfall, stimulus and JUA issues combine to create a $200 million gap between currently expected revenue and projected spending.
The problem is all the more important because of a fiscal time bomb waiting for us in the next budget. The current budget was balanced with hundreds of millions of one-time stimulus dollars from the federal government. Regular revenues and regular spending are $188 million apart in Fiscal Year 2011.
In addition, the budget includes a number of one-time spending reductions that are delays rather than cuts. For example, borrowing money to pay for construction aid isn't a spending cut, and municipal aid was suspended only for the current biennium. All told, the temporary reductions are $251 million over the biennium. That money is restored in the next budget.
The operating imbalance ($376 million for two years) and the temporary spending reductions mean the next budget starts out with a $625 million deficit -- if we manage to first cut $200 million out of the current budget and don't add to the problem.
The governor has suggested that a return to normal revenue growth in a robust economy will solve the problem. However, 4 percent revenue growth would mean just $92 million in 2012. Worse, because of the imbalance, typical growth in taxes and also in spending would make the deficit worse, not better. Three percent growth in spending and in taxes actually adds $18 million to the deficit. Economic growth only helps if spending is also restrained.
The good news is that the immediate problem we face will actually help us deal with the $600 million problem on the horizon. Spending cuts made to the current budget will have a triple effect. They reduce spending in the current budget and then in each year of the next two-year budget. So $100 million in cuts has a $300 million effect.
The size of the state's budget problem is as large as we've faced in our history. Last year, we faced the same problem but were able to delay it for two years because of the extraordinary federal bailout. That bailout or stimulus plan didn't fix anything. It merely bought us time. And now time is up.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.
Friday, October 23, 2009
Charlie Arlinghaus talks taxes on Bulldog Live
Josiah Bartlett Center President Charlie Arlinghaus will join Bulldog Brian Tilton this afternoon at 1:05pm to talk about the recent Tax Summit.
Tune into "Bulldog Live" on 107.7 WTPL, or listen live at WTPLFM.com
Tune into "Bulldog Live" on 107.7 WTPL, or listen live at WTPLFM.com
No quick-fix on state tax issues
Tom Fahey wraps up two days of Tax Summit with a story in the Union Leader, in which he turns to a certain think tank for a little history on tax reform in New Hampshire.
Josiah Bartlett Center on Public Policy president Charles Arlinghaus said it's been more like 40 years since the last real tear-down of state tax code. The work in 1970 produced the business profits tax, now a mainstay of state revenues. He said the BPT "created a sea change" by shifting state tax policy to encourage business investment, and set the stage for an economic boom that lasted through the 1990s.
Arlinghaus said he takes issue with the conservative Tax Foundation's rankings that put New Hampshire at the bottom of the heap in terms of business taxes. He said the foundation, in its rankings, doesn't count a key business enterprise tax credit that companies can take.
Wednesday, October 21, 2009
Charles M. Arlinghaus: Instead of whining, let's debate taxes
By CHARLES M. ARLINGHAUS
Today the political circus comes to town. As the House Ways and Means Committee begins two days of meetings about state tax policy, we may finally be able to put an end to the whining and screeching that passes for political debate in this country.
The Ways and Means Committee discusses taxes. Its name is the old British designation for revenues, taxes and fees -- the ways and means of funding the spending that government undertakes. As such, its mandate is to look at taxes, whether they are too high, whether they should be changed in some way.
Should the Ways and Means Committee discuss ways and means? Of course it should. Oddly, a number of conservatives in the state have been annoyed by this. They oppose an income tax, but rather than wanting an open debate about it, they object to any discussion of it. And if a discussion is to take place, they object to supporters of an income tax being on the agenda. This is nonsense.
First of all, the tax committee should discuss taxes. Second, if the committee invites presentations, those presentations should be from a broad spectrum. The committee sensibly invited three national groups. One is the left-wing Institute on Taxation and Economic Policy. ITEP has written that New Hampshire needs an income tax. The group is partially funded by liberal George Soros.
That a liberal billionaire funds liberal groups ought not to shock people. That the liberal presenter at a tax conference wants an income tax also is not news. The other two national groups on the same panel are the American Legislative Exchange Council, the organization of conservative state legislators, and the Tax Foundation, which is less ideological but whose work is constantly used by those of us on the right. One right, one left, one center.
The rest of the program is similarly balanced. Unfortunately, some conservative criticisms of this event sound either demagogic or nervous. They object to the left even being allowed to speak. They end up objecting to actually having a debate, which makes them seem embarrassed about their own positions.
I completely disagree with that approach. I don't want an income tax, and I'm happy to talk about it. Rather than objecting to anyone having a debate on the subject of income taxes, business taxes, excise taxes or anything else, we should look forward eagerly to an opportunity to explain our position.
You only object to the debate when you think you'll lose. I am confident in my positions and want the opportunity to explain them to a broader audience. I believe that I will persuade more people than not. Let's talk taxes. I think taxes are too high, and I want to talk about it. In July I wrote a report for the Josiah Bartlett Center titled "A Rising Tide of Taxes and Fees," and I want to talk about it. Often.
Silly criticism and whining by my conservative friends isn't the only problem with the debate. Our friend Joe McCarthy has reared his ugly head again. In an interview, Ways and Means Chairman Susan Almy accused her critics of "McCarthyism." When confronted about the silly criticism over ITEP speaking and where it gets its funding, Almy ended up calling her critics conspiracy theorists and discussing how Sen. Joe McCarthy's accusations ruined people's lives in the 1950s.
Until that point, she was right. She pointed out that almost every think tank or policy group survives on contributions from ideologically similar foundations or individuals, including the other organizations making presentations at today's hearing. She also asked rhetorically if the Legislature is only allowed to listen to the right, which was an accurate criticism of the most strident conservative critics. But then she joined those critics in silliness by dragging the McCarthy corpse out of its vault.
By and large, Rep. Almy deserves credit for organizing a good briefing for her committee. She's been up front about her own opinions about an income tax and about other taxes. More important, the list of speakers is largely balanced. You or I may not have picked the exact same people or scheduled two days worth of talking, but it is in general a good opportunity to make specific points about tax competitiveness, tax burdens and tax changes.
I think the Institute for Taxation and Economic Policy has the wrong idea for New Hampshire, but it has nothing to do with which foundations they apply to for grants. An income tax is a bad idea whether George Soros wants one or not. Let's have that debate, but let's leave George Soros and Joe McCarthy at home.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.
Today the political circus comes to town. As the House Ways and Means Committee begins two days of meetings about state tax policy, we may finally be able to put an end to the whining and screeching that passes for political debate in this country.
The Ways and Means Committee discusses taxes. Its name is the old British designation for revenues, taxes and fees -- the ways and means of funding the spending that government undertakes. As such, its mandate is to look at taxes, whether they are too high, whether they should be changed in some way.
Should the Ways and Means Committee discuss ways and means? Of course it should. Oddly, a number of conservatives in the state have been annoyed by this. They oppose an income tax, but rather than wanting an open debate about it, they object to any discussion of it. And if a discussion is to take place, they object to supporters of an income tax being on the agenda. This is nonsense.
First of all, the tax committee should discuss taxes. Second, if the committee invites presentations, those presentations should be from a broad spectrum. The committee sensibly invited three national groups. One is the left-wing Institute on Taxation and Economic Policy. ITEP has written that New Hampshire needs an income tax. The group is partially funded by liberal George Soros.
That a liberal billionaire funds liberal groups ought not to shock people. That the liberal presenter at a tax conference wants an income tax also is not news. The other two national groups on the same panel are the American Legislative Exchange Council, the organization of conservative state legislators, and the Tax Foundation, which is less ideological but whose work is constantly used by those of us on the right. One right, one left, one center.
The rest of the program is similarly balanced. Unfortunately, some conservative criticisms of this event sound either demagogic or nervous. They object to the left even being allowed to speak. They end up objecting to actually having a debate, which makes them seem embarrassed about their own positions.
I completely disagree with that approach. I don't want an income tax, and I'm happy to talk about it. Rather than objecting to anyone having a debate on the subject of income taxes, business taxes, excise taxes or anything else, we should look forward eagerly to an opportunity to explain our position.
You only object to the debate when you think you'll lose. I am confident in my positions and want the opportunity to explain them to a broader audience. I believe that I will persuade more people than not. Let's talk taxes. I think taxes are too high, and I want to talk about it. In July I wrote a report for the Josiah Bartlett Center titled "A Rising Tide of Taxes and Fees," and I want to talk about it. Often.
Silly criticism and whining by my conservative friends isn't the only problem with the debate. Our friend Joe McCarthy has reared his ugly head again. In an interview, Ways and Means Chairman Susan Almy accused her critics of "McCarthyism." When confronted about the silly criticism over ITEP speaking and where it gets its funding, Almy ended up calling her critics conspiracy theorists and discussing how Sen. Joe McCarthy's accusations ruined people's lives in the 1950s.
Until that point, she was right. She pointed out that almost every think tank or policy group survives on contributions from ideologically similar foundations or individuals, including the other organizations making presentations at today's hearing. She also asked rhetorically if the Legislature is only allowed to listen to the right, which was an accurate criticism of the most strident conservative critics. But then she joined those critics in silliness by dragging the McCarthy corpse out of its vault.
By and large, Rep. Almy deserves credit for organizing a good briefing for her committee. She's been up front about her own opinions about an income tax and about other taxes. More important, the list of speakers is largely balanced. You or I may not have picked the exact same people or scheduled two days worth of talking, but it is in general a good opportunity to make specific points about tax competitiveness, tax burdens and tax changes.
I think the Institute for Taxation and Economic Policy has the wrong idea for New Hampshire, but it has nothing to do with which foundations they apply to for grants. An income tax is a bad idea whether George Soros wants one or not. Let's have that debate, but let's leave George Soros and Joe McCarthy at home.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.
Sunday, October 18, 2009
For state, a $110 million question
Daniel Barrick recaps the JUA Lawsuit in the Concord Monitor, and examines what would happen if the state loses the $110 million it seized to balance the state budget.
"Am I concerned? You bet," House Speaker Terie Norelli said last week. "But am I afraid we're about to get knocked off a cliff? Not at all. There is not an immediate crisis."
Still, others say the tensions that accompanied last week's layoff announcement barely hint at the difficult decisions that will be necessary if the state loses its claim to the malpractice money. Some, including Republicans in the Legislature, are calling for Lynch to offer specific plans now in preparation for that outcome.
"Frankly, a hole of the magnitude we're talking about is going to require a top-to-bottom re-evaluation of the budget. You can't just tweak here and there," said Charlie Arlinghaus, president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord. "The difficulties get worse the longer you delay."
Wednesday, October 14, 2009
Charles M. Arlinghaus: Lynch should meet union heads and craft lasting savings
By CHARLES M. ARLINGHAUS
The fight over the state employee contract may generate a lot of hard feelings in the short term, but the solution that will come out of renewed negotiation should have more lasting benefits.
After the contract's rejection, the union wants to bring a few new ideas to the table that could help reduce layoffs and also provide significant long-term benefits for the taxpayers. The administration should follow suit with similarly creative proposals and craft a compromise agreement with the most promising ideas from each side.
The state government and the State Employees' Association negotiate a new contract every two years. This year's negotiation has been somewhat more contentious than usual. The state's budget difficulties have created significant pressure for reductions. A slow economy and revenues that continue to decline even below budgeted numbers have only made the situation worse.
As part of the state budget process, Gov. John Lynch asked for and received a requirement to cut $25 million over two years from employee salaries and benefits. The directed management cut does not specify what should be cut, but gives the governor discretion to reduce those line items in any way he deems most efficient. In addition, nine other general cuts in budget footnotes gave him similar flexible management authority in finding another $25 million to cut in specific departments plus an across-the-board overtime reduction.
In negotiations, Gov. Lynch has said that the directed management cuts require the union to choose between laying off 750 state employees or accepting 19 furlough days over two years. The rejection of the furlough-based contract means the governor will announce specific layoffs this week.
The SEA has publicly identified two areas it believes can save money without layoffs. Although the governor had talked publicly about curtailing consultants and association memberships as a first step to reducing the budget, the SEA's data found consultant contracts and contracted services had increased by $118 million in the current budget.
Most businesses during an economic downturn significantly curtail their consultants, eliminating them or reducing their contracts. No one would seriously suggest eliminating all consultants. Some no doubt are saving us money on other services. However, it seems likely that a $118 million increase could be slowed somewhat.
Just as important, greater scrutiny of each contract will allow us to better measure what each consultant delivers and at what cost. Is the $118 million increase delivering at least $118 million in benefits or savings?
The union contract covers most classified employees. Outside of the contract, there are a few hundred senior managers who are in unclassified positions at pay rates two to three times higher than the average state employee. In addition, the union has found 1,473 positions in the nebulous and poorly tracked area of "non-classified" state employees, which covers political appointees among others. The union claims they average $74 per hour (an annualized cost of $150,000) which seems a little high for irregular positions. However, clearly this is an area that is not well understood, hard to track and where some money might be saved.
Finally, as I wrote last week, the union correctly has suggested that a tighter hiring freeze and leaving vacant positions open can save money.
None of these ideas is a silver bullet that will solve the state's budget problem. But with growing pressure on this budget and a looming $625 million gap in the next budget, every idea is important.
Some furloughs may be part of the final package, but ultimately furloughs are a bandage. A furlough is a one-time savings that doesn't reduce the underlying cost. Next year's salary doesn't change, and the cost going forward is unaffected. If the state had saved $25 million through furloughs, the same $25 million would reappear next year and have to be dealt with again. A problem wouldn't be fixed, merely delayed for someone else to deal with.
To do something with a lasting impact, both sides should come to the table with open minds and new proposals. Some may be part of a new contract. Others should be looked at for longer term budget savings. Either way, the long-term budget problem will be one step closer to a solution.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.
The fight over the state employee contract may generate a lot of hard feelings in the short term, but the solution that will come out of renewed negotiation should have more lasting benefits.
After the contract's rejection, the union wants to bring a few new ideas to the table that could help reduce layoffs and also provide significant long-term benefits for the taxpayers. The administration should follow suit with similarly creative proposals and craft a compromise agreement with the most promising ideas from each side.
The state government and the State Employees' Association negotiate a new contract every two years. This year's negotiation has been somewhat more contentious than usual. The state's budget difficulties have created significant pressure for reductions. A slow economy and revenues that continue to decline even below budgeted numbers have only made the situation worse.
As part of the state budget process, Gov. John Lynch asked for and received a requirement to cut $25 million over two years from employee salaries and benefits. The directed management cut does not specify what should be cut, but gives the governor discretion to reduce those line items in any way he deems most efficient. In addition, nine other general cuts in budget footnotes gave him similar flexible management authority in finding another $25 million to cut in specific departments plus an across-the-board overtime reduction.
In negotiations, Gov. Lynch has said that the directed management cuts require the union to choose between laying off 750 state employees or accepting 19 furlough days over two years. The rejection of the furlough-based contract means the governor will announce specific layoffs this week.
The SEA has publicly identified two areas it believes can save money without layoffs. Although the governor had talked publicly about curtailing consultants and association memberships as a first step to reducing the budget, the SEA's data found consultant contracts and contracted services had increased by $118 million in the current budget.
Most businesses during an economic downturn significantly curtail their consultants, eliminating them or reducing their contracts. No one would seriously suggest eliminating all consultants. Some no doubt are saving us money on other services. However, it seems likely that a $118 million increase could be slowed somewhat.
Just as important, greater scrutiny of each contract will allow us to better measure what each consultant delivers and at what cost. Is the $118 million increase delivering at least $118 million in benefits or savings?
The union contract covers most classified employees. Outside of the contract, there are a few hundred senior managers who are in unclassified positions at pay rates two to three times higher than the average state employee. In addition, the union has found 1,473 positions in the nebulous and poorly tracked area of "non-classified" state employees, which covers political appointees among others. The union claims they average $74 per hour (an annualized cost of $150,000) which seems a little high for irregular positions. However, clearly this is an area that is not well understood, hard to track and where some money might be saved.
Finally, as I wrote last week, the union correctly has suggested that a tighter hiring freeze and leaving vacant positions open can save money.
None of these ideas is a silver bullet that will solve the state's budget problem. But with growing pressure on this budget and a looming $625 million gap in the next budget, every idea is important.
Some furloughs may be part of the final package, but ultimately furloughs are a bandage. A furlough is a one-time savings that doesn't reduce the underlying cost. Next year's salary doesn't change, and the cost going forward is unaffected. If the state had saved $25 million through furloughs, the same $25 million would reappear next year and have to be dealt with again. A problem wouldn't be fixed, merely delayed for someone else to deal with.
To do something with a lasting impact, both sides should come to the table with open minds and new proposals. Some may be part of a new contract. Others should be looked at for longer term budget savings. Either way, the long-term budget problem will be one step closer to a solution.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.
Wednesday, October 7, 2009
Charles M. Arlinghaus: An interesting proposal from the union is worth a look
By CHARLES M. ARLINGHAUS
This week there are modest silver linings in economic news and a new idea from the state employees union.
Unfortunately, the news on the state budget for a few years now has been one bad thing after another. This week, we were treated to what passes for good news in the current climate. Things are bad, but the short term isn't as dreadful as we feared. The two-year projection is still horrific, but all hope is not lost.
The current budget covers two years and fixes any shortfalls from the one just ending. The federal government let us move $18 million ahead and spend it in FY2009 instead of 2010. In addition, revenues, while hundreds of millions below what we had planned a few years ago, were nonetheless $17 million less bad than we feared. That helps, too.
Spending freezes and deferred payments reduced spending by $65 million more than we thought just two months ago. This reduces the amount we have to withdraw from our reserves to $85 million or only $20 million if the court changes its mind on the state raid of the medical malpractice fund.
State revenues continue to fall short of budget, but tax collections through September were not nearly as bad as we feared. The bad news is that they are coming in below the budgeted amount by as much as $30 million to $40 million for the year.
There is one bit of good news from business taxation. Business taxes are the single largest part of our revenue structure, and the 2009 shortfall comes largely from their collapse. While overall taxes are on pace to be below budget, business taxes are on track to come in about $15 million ahead of the budgeted amount. They're listed as "below plan" largely because the month-to-month guesstimate is weighted differently than historical averages for technical reasons.
With the budget still out of balance, state officials are still looking for ways to cut spending. A legislatively mandated cut of $25 million in state employee costs is the focus of attention and a contentious contract issue.
To date the debate has been whether to achieve the two-year savings from furloughs (mandatory unpaid leave) or through layoffs of as many as 750 employees. Last week, the State Employees' Association suggested most of the savings could be achieved by keeping unfilled positions open longer. The administration has suggested the union is barking up the wrong tree.
The state's recent experience suggests the union is onto something here. There are more than 1,000 vacant positions in government. This isn't unusual. Over the last 10 years, more than 1,000 people leave state employment each year, and a thousand new ones are hired. At any given time, there are 1,000 openings, 8 or 9 percent of the total number of authorized positions.
The total number of vacancies went up a few hundred because of 18 months of a flexible hiring freeze. In the first 16 months of that "freeze," about 250 positions paid from the general fund were filled by waiving the freeze, but that's a few hundred less than might normally have been filled. Because the budget anticipated spending money on those positions and at least some of the other vacant slots, not filling them saves money.
In its report to the legislative fiscal committee, the administration has said that $13.34 million was saved in the general fund in a little more than one year (about 80 percent from hiring, 20 percent from other reductions). And that's despite making exceptions to the freeze that cost more than $10 million in annualized expense.
Can the state save $12.5 million each year to reach its goal by keeping vacant positions open longer as the union suggests instead of through layoffs? We can certainly get part of the way there. The savings will be less than the $13 million from last year, but a more aggressive freeze that doesn't make hundreds of exceptions can also help close the gap.
Some additional vacancies are found outside the general fund, the focus of the $25 million cut. Those savings should not be ignored. When some of the dedicated funds, such as the liquor fund, save money, general fund spending may not decline, but the savings return to the regular state budget as revenue. Part of balancing the budget in 2009 included millions from so-called other funds. In your own home, $10 you save on snowplowing is 10 additional dollars you can spend on groceries.
The budget is still a precarious house of cards. No one thing will fix it. Any idea for making reductions is important. The union's suggestion to more aggressively manage vacancies and new hiring is a good one.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.
This week there are modest silver linings in economic news and a new idea from the state employees union.
Unfortunately, the news on the state budget for a few years now has been one bad thing after another. This week, we were treated to what passes for good news in the current climate. Things are bad, but the short term isn't as dreadful as we feared. The two-year projection is still horrific, but all hope is not lost.
The current budget covers two years and fixes any shortfalls from the one just ending. The federal government let us move $18 million ahead and spend it in FY2009 instead of 2010. In addition, revenues, while hundreds of millions below what we had planned a few years ago, were nonetheless $17 million less bad than we feared. That helps, too.
Spending freezes and deferred payments reduced spending by $65 million more than we thought just two months ago. This reduces the amount we have to withdraw from our reserves to $85 million or only $20 million if the court changes its mind on the state raid of the medical malpractice fund.
State revenues continue to fall short of budget, but tax collections through September were not nearly as bad as we feared. The bad news is that they are coming in below the budgeted amount by as much as $30 million to $40 million for the year.
There is one bit of good news from business taxation. Business taxes are the single largest part of our revenue structure, and the 2009 shortfall comes largely from their collapse. While overall taxes are on pace to be below budget, business taxes are on track to come in about $15 million ahead of the budgeted amount. They're listed as "below plan" largely because the month-to-month guesstimate is weighted differently than historical averages for technical reasons.
With the budget still out of balance, state officials are still looking for ways to cut spending. A legislatively mandated cut of $25 million in state employee costs is the focus of attention and a contentious contract issue.
To date the debate has been whether to achieve the two-year savings from furloughs (mandatory unpaid leave) or through layoffs of as many as 750 employees. Last week, the State Employees' Association suggested most of the savings could be achieved by keeping unfilled positions open longer. The administration has suggested the union is barking up the wrong tree.
The state's recent experience suggests the union is onto something here. There are more than 1,000 vacant positions in government. This isn't unusual. Over the last 10 years, more than 1,000 people leave state employment each year, and a thousand new ones are hired. At any given time, there are 1,000 openings, 8 or 9 percent of the total number of authorized positions.
The total number of vacancies went up a few hundred because of 18 months of a flexible hiring freeze. In the first 16 months of that "freeze," about 250 positions paid from the general fund were filled by waiving the freeze, but that's a few hundred less than might normally have been filled. Because the budget anticipated spending money on those positions and at least some of the other vacant slots, not filling them saves money.
In its report to the legislative fiscal committee, the administration has said that $13.34 million was saved in the general fund in a little more than one year (about 80 percent from hiring, 20 percent from other reductions). And that's despite making exceptions to the freeze that cost more than $10 million in annualized expense.
Can the state save $12.5 million each year to reach its goal by keeping vacant positions open longer as the union suggests instead of through layoffs? We can certainly get part of the way there. The savings will be less than the $13 million from last year, but a more aggressive freeze that doesn't make hundreds of exceptions can also help close the gap.
Some additional vacancies are found outside the general fund, the focus of the $25 million cut. Those savings should not be ignored. When some of the dedicated funds, such as the liquor fund, save money, general fund spending may not decline, but the savings return to the regular state budget as revenue. Part of balancing the budget in 2009 included millions from so-called other funds. In your own home, $10 you save on snowplowing is 10 additional dollars you can spend on groceries.
The budget is still a precarious house of cards. No one thing will fix it. Any idea for making reductions is important. The union's suggestion to more aggressively manage vacancies and new hiring is a good one.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.
Wednesday, September 30, 2009
Charles M. Arlinghaus: State employees are not shortchanged
By CHARLES M. ARLINGHAUS
The biggest issue in state government right now is the struggle between state employees and the governor. The details about state employee compensation and its impact on the state budget are not often discussed, and this leads people to make assumptions that may or may not be accurate.
We must do something about the cost of state employees because they are the lion's share of the cost of having state government, we're told. The exact cost is hard to track down, but in 2008 the state employed about 12,000 people who make an average of $42,000, for about $504 million in salary cost. Add to that some additional people not included in the list of 12,000, a raise in 2009, increased pay step levels, and salaries still total less than $600 million.
The largest other employee cost is medical insurance. In New Hampshire, medical insurance had been growing rapidly. From 1999 to 2004, premiums paid for state employee medical benefits increased by about 20 percent a year -- from $49 million to $117 million. During the Benson administration, the state switched to self-insurance to try to better control costs, as many large companies do. As a result, premium growth slowed dramatically to about 7 percent each year. Medical coverage cost $156 million in 2008. At the old rate of growth, it would have been $80 million higher.
If we add together salary costs, health insurance and a few other items such as retirement contributions and retiree health costs, the total is around $800 million in an annual budget of around $5.7 billion -- about 14 percent of the total. Mind you, it may be a smaller percentage than people often think, but $800 million is nothing to sneeze at.
While its growth is not nearly as fast as state government itself, the state employee work force is still growing. Between 1998 and 2008, the number of filled permanent positions increased by 16.7 percent -- about 1,600 additional employees. The state budget in the same time period increased by 85 percent -- about $2.3 billion.
It is true that at one time the average state employee made less than the average citizen. That's no longer the case. From 2003 to 2008, state employee average pay increased from $33,600 to $42,500 -- about 4.8 percent per year. The Bureau of Labor Statistics reports that average pay in 2008 in all occupations in the state was $42,600. In 2009, a pay raise sent state employee pay past the state average.
So salaries are almost exactly average, but benefits are much higher. Private sector insurance is much less generous and involves higher co-pays than the typical state government plan. Even among state government plans, New Hampshire's is among the most generous. According the National Conference of State Legislatures' annual survey, only one state has a higher total cost, and it has significantly higher cost-sharing.
Family coverage costs about $20,800 for a state employee here compared to the national average of $12,700. The NCSL also estimates that average cost-sharing is 18 percent of that total, but only 2 percent in New Hampshire. So it costs taxpayers about $10,000 more per state employee than average.
In New Hampshire, this is a conscious decision. State employees have chosen to forgo higher pay in exchange for a more generous health insurance policy. Even so, an employee with family coverage has salary and medical benefits that are a good 20 percent higher than the average worker in the state.
There is much consternation over the possible layoff of 750 state workers. Yet history suggests that most of those workers could be rehired relatively quickly. Despite attractive pay and benefits, state government is not an unchanging monolith. Each year an average of 1,100 employees leave state service. Combined with the regular growth in the total number of employees and the creation of temporary positions, it means about 210 new employees are hired each month.
The state has been in the middle of a nominal hiring freeze for more than a year, but that doesn't stop positions from being filled. The freeze only applies to general funds, which cover fewer than half the employees. Even then, exceptions are granted. For example, during the four months of 2008 covered by the freeze, 71 exceptions were granted. In addition, another 100 or so other positions were filled. Combined with temporary and seasonal positions, about 1,000 people were hired in those four months.
Government has to be mindful of state employees both to ensure it attracts a dedicated work force and to make sure it isn't overcharging taxpayers. A look under the hood of state government suggests that we certainly aren't shortchanging the workers. But it also shows that 86 percent of the cost of government lies elsewhere and needs the same tough scrutiny that contracts are undergoing.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.
The biggest issue in state government right now is the struggle between state employees and the governor. The details about state employee compensation and its impact on the state budget are not often discussed, and this leads people to make assumptions that may or may not be accurate.
We must do something about the cost of state employees because they are the lion's share of the cost of having state government, we're told. The exact cost is hard to track down, but in 2008 the state employed about 12,000 people who make an average of $42,000, for about $504 million in salary cost. Add to that some additional people not included in the list of 12,000, a raise in 2009, increased pay step levels, and salaries still total less than $600 million.
The largest other employee cost is medical insurance. In New Hampshire, medical insurance had been growing rapidly. From 1999 to 2004, premiums paid for state employee medical benefits increased by about 20 percent a year -- from $49 million to $117 million. During the Benson administration, the state switched to self-insurance to try to better control costs, as many large companies do. As a result, premium growth slowed dramatically to about 7 percent each year. Medical coverage cost $156 million in 2008. At the old rate of growth, it would have been $80 million higher.
If we add together salary costs, health insurance and a few other items such as retirement contributions and retiree health costs, the total is around $800 million in an annual budget of around $5.7 billion -- about 14 percent of the total. Mind you, it may be a smaller percentage than people often think, but $800 million is nothing to sneeze at.
While its growth is not nearly as fast as state government itself, the state employee work force is still growing. Between 1998 and 2008, the number of filled permanent positions increased by 16.7 percent -- about 1,600 additional employees. The state budget in the same time period increased by 85 percent -- about $2.3 billion.
It is true that at one time the average state employee made less than the average citizen. That's no longer the case. From 2003 to 2008, state employee average pay increased from $33,600 to $42,500 -- about 4.8 percent per year. The Bureau of Labor Statistics reports that average pay in 2008 in all occupations in the state was $42,600. In 2009, a pay raise sent state employee pay past the state average.
So salaries are almost exactly average, but benefits are much higher. Private sector insurance is much less generous and involves higher co-pays than the typical state government plan. Even among state government plans, New Hampshire's is among the most generous. According the National Conference of State Legislatures' annual survey, only one state has a higher total cost, and it has significantly higher cost-sharing.
Family coverage costs about $20,800 for a state employee here compared to the national average of $12,700. The NCSL also estimates that average cost-sharing is 18 percent of that total, but only 2 percent in New Hampshire. So it costs taxpayers about $10,000 more per state employee than average.
In New Hampshire, this is a conscious decision. State employees have chosen to forgo higher pay in exchange for a more generous health insurance policy. Even so, an employee with family coverage has salary and medical benefits that are a good 20 percent higher than the average worker in the state.
There is much consternation over the possible layoff of 750 state workers. Yet history suggests that most of those workers could be rehired relatively quickly. Despite attractive pay and benefits, state government is not an unchanging monolith. Each year an average of 1,100 employees leave state service. Combined with the regular growth in the total number of employees and the creation of temporary positions, it means about 210 new employees are hired each month.
The state has been in the middle of a nominal hiring freeze for more than a year, but that doesn't stop positions from being filled. The freeze only applies to general funds, which cover fewer than half the employees. Even then, exceptions are granted. For example, during the four months of 2008 covered by the freeze, 71 exceptions were granted. In addition, another 100 or so other positions were filled. Combined with temporary and seasonal positions, about 1,000 people were hired in those four months.
Government has to be mindful of state employees both to ensure it attracts a dedicated work force and to make sure it isn't overcharging taxpayers. A look under the hood of state government suggests that we certainly aren't shortchanging the workers. But it also shows that 86 percent of the cost of government lies elsewhere and needs the same tough scrutiny that contracts are undergoing.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.
Sunday, September 27, 2009
This week in punditry
Charlie Arlinghaus takes over as the go-tp pundit from the Josiah Bartlett Center this week. Charlie is a guest on the Granite State Patriots show on WQSO this morning from 11am to noon.
New Hampshire Public Television is also air this week's "NH Outlook" featuring Charlie this morning at 9:30. It should be available online shortly.
New Hampshire Public Television is also air this week's "NH Outlook" featuring Charlie this morning at 9:30. It should be available online shortly.
Friday, September 25, 2009
Non Profit vs. Profit in Healthcare
New Hampshire Public Television looks at health care in New Hampshire. Josiah Bartlett Center President Charlie Arlinghaus is on the panel.
More than 40 years ago, a young New Hampshire physician looked at the state of medicine, and said we can do better, and established NH's first HMO. We speak with Dr. James Squires about the Matthew Thornton Health Care Plan he began. Our Outlook panel will discuss the lessons it holds for the current health care debate.NH Outlook airs tonight at 6, Sunday morning at 9:30, and several times next week.
Our guests are: Tom Bunnell, Director of the Institute for Health, Law & Ethics at Franklin Pierce Law Center; Steve Norton, Executive Director of the NH Center for Public Policy Studies; and Charlie Arlinghaus, President of the Josiah Bartlett Center for Public Policy.
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