Fiscal Accepts More Stimulus Cash

The Legislative Fiscal Committee this morning accepted another $20 million in federal funding through the American Recovery and Reinvestment Act, or ARRA. This funding comes on top of the $542 million New Hampshire had already received through the federal stimulus package approved by Congress earlier this year.

The $20 million will go towards ten projects spread over the state Departments of Labor, Environmental Services, Health and Human Services, and Resources and Economic Development. The ten-member Fiscal Committee, composed of both Representatives and Senators, accepted every item on today's agenda without debate, as well as four additional items that were taken up without prior public notice.

The only item to generate debate was a transfer of $8,435,000 within the Department of Environmental Services from a Clean Water Revolving Loan Fund to the Drinking Water Revolving Loan Fund. Responding to an inquiry from Rep. Neal Kurk (R-Weare), a DES official stated that the move was intended to help communities qualify for 50% loan forgiveness under ARRA, and that the Clean Water fund had a surplus balance not needed to support the program.

Committee members also questioned HHS Commissioner Nick Toumpas extensively about his response to rising caseloads not anticipated in the Department's two-year budget. Toumpas says that acceptance of federal funds under ARRA prevents the state from altering its eligibility requirements for overstretched programs for the next 15 months.

Following its business meeting, the Fiscal Committee reviewed an audit on the state Board of Pharmacy, which found that the six-member voluntary board lacked organizational structure, adequate financial controls, or a formal fraud preventing and detection program.

Fiscal Committee examines Lynch waivers

(CONCORD) The Legislative Fiscal Committee yesterday got its first look at the 352 waivers that Governor John Lynch made to his own Executive Orders instituting a hiring freeze, a ban on out of state travel, and limits of equipment purchases.

Administrative Services Commissioner Linda Hodgden answered the Committee's questions about the report, which shows 352 exceptions to the Governor's budget controls in Fiscal Year 2009, totaling $6.2 million in spending. Hodgden says her office estimates that Executive Order 2008-01 resulted in $13.3 million in savings since Lynch issued it in February 2008.

Under the Order, Lynch retained the power to waive any of the three spending restraints if Department heads requested an exception in writing. Hodgden says she's headed up a Waiver Committee at the Department of Administrative Services which carefully reviews each request before singing off. She credits her fellow Commissioners for limiting their waiver requests to only their most pressing needs, but says not all requests were granted.

The Josiah Bartlett Center has asked to see all department requests for budget waivers. At Hodgden's suggestion, we will submit a formal request under RSA 91-A, the New Hampshire Right to Know Law. Hodgden says that her committee has worked diligently to make sure only the most urgent staffing and equipment needs receive waivers, and that she tries to delay filling vacant positions as long as possible in order to maximize savings in the budget.

Committee Chair Marjorie Smith (D-Durham) took issue with several waivers granted for expensive equipment purchases, including 17 flashlights for the Department of Corrections costing $110 each, bullet-proof vests for the Liquor Commission, and five fax machines each costing $350. Representative Neal Kurk (R-Weare) thanked Hodgden for complying with the reporting requirements of the Order, but asked why it took nearly 18 months for Fiscal to receive its first Exceptions Report.

Hodgden responded that her office reported on exception granted in FY08 last year, and has submitted three separate updates on the impact of the Governor's Executive Orders since March.

Senate Minority Leader Peter Bragdon (R-Milford) asked about one trip that caught his eye, a one-day journey to San Juan, Puerto Rico. Hodgden explained that a state worker had been dispatched to retrieve a juvenile runaway, and not on a long Caribbean vacation.

The Committee also questioned a discrepancy between two DAS reports relating to the Executive Orders. The 60-day report, issued in July, stated that Administrative Services had processed $7.1 million in savings, and was on track for the original estimate of $8 million. But the waiver report, written two weeks ago, showed $13.3 million in savings.

Hodgden explained that the two estimates were generated by separate teams within her own office using different methods. She claimed the August report, with the higher savings figure, was more accurate as it was compiled using more recent and detailed data. The report itself did not describe how DAS arrived at its estimate. The Josiah Bartlett Center has asked for more information on the Department's methodology.

While the report includes $6.2 million in waivers granted by the Governor, Hodgden told the Committee that the full cost has not yet been felt. Several positions were filled by waivers late in the year, so no paychecks have yet been issued. Those costs will show up in FY10.

Earlier in the meeting, the Fiscal Committee officially accepted over $100 million in federal funds under the American Recovery and Reinvestment Act (ARRA). The bulk of the funding is directed at the Department of Health and Human Services. These funds were anticipated in the budget adopted by the Legislature in June.

On several items, Kurk questions state officials on whether the federal money would expand benefits and services to individuals not currently receiving them. He worried that the "free" money would boost the state's budget baseline, and put "tremendous pressure on the Legislature" to replace the federal funds with state dollars once the ARRA funding expires in 2011.

House backs $200M in higher taxes

On the Union Leader's online page, Tom Fahey summarizes some of the new taxes approved by the New Hampshire House this afternoon:

The tax changes are expected to raise $202.5 million over the next two years to support government operations. The gas tax increase should bring in another $125 million, with $37 million of it headed to cities and towns for upkeep of local roads.

Rep. Marjorie Smith, D-Durham, chair of the House Finance committee, said the tax package does not include a broad-based tax, such as sales or income tax.

“It is the best mix we could come up with of revenues that will not bring harm to our economy or our neighbors,” Smith said.

Rep. Neal Kurk, R-Weare, criticized the tax plan and the budget. “We have adopted a budget that spends more than we can afford within our existing tax structure, and the response has been to raise taxes to pay for higher spending,” he said.

Democrats argued that in a deep recession in 1990, Republicans raised and created a series of taxes.

”What we have all day long … is ‘Do as I say, not as I did’,” majority floor leader Rep. Daniel Eaton, D-Stoddard, said, prompting a few boos.

Republicans tried to kill each of the tax measures, but were beaten back each time by the Democratic majority.

NH budget battle primed to begin

In the Nashua Telegraph, Kevin Landrigan sets the stage for this week's budget debate in the New Hampshire House:

House Finance Committee Chairwoman Marjorie Smith said everyone paying for, getting and delivering state services must sacrifice to help the state preserve essential services while facing the worst recession since the Great Depression.

"The committee made significant and painful cuts in the operating budgets of every agency," Smith wrote in her formal argument to the House.

House Republicans will offer 16 separate amendments to produce their alternative plan that would cut state spending by 2.6 percent and eliminate the need to raise existing taxes or create new ones.

This would be achieved primarily through across-the-board cuts nearly twice as big as the House has adopted in the past two decades.

"Taking millions of dollars out of the private sector inflicts further suffering on individuals who may have already lost their jobs, had their salaries and benefits reduced or face foreclosure from their homes," said state Rep. Neal Kurk, R-Weare.

"Individuals can't stimulate the economy with their spending because the state has more of their income, and they, in turn, have less to spend."

Budget Coverage

The State House press corps covers yesterday's dueling budget presentations.

In the Concord Monitor, Lauren Dorgan reports that the House Democratic budget has something for everyone...to hate:

Liberal critics said that budget writers cut too much from the needy and from state employees and should have turned to income taxes or taxes on the rich to fund state operations fairly. Conservatives contended that the taxes contained in the budget were excessive and that one of the taxes - a 5 percent levy on capital gains - is an income tax. Others balked at cuts to local aid, which they said would drive up property tax bills.

For their part, House Republicans unveiled a budget plan of their own that they heralded as "truly balanced," which they said would increase no taxes and maintain $123 million worth of aid to cities and towns not included in the Democratic budget, $83 million of which is school building aid. There was just one catch: Republicans called for more than $300 million worth of cuts to the budget without specifying what should go, instead calling on the leaders of most state agencies to figure out how to institute 13.5 percent across-the-board spending reductions.

In the Nashua Telegraph, Kevin Landrigan writes that the Finance Committee's plan was attacked from the right and the left:

"We are living in a recession, and in a time of recession, it is bad public policy to raise taxes," said Rep. Neal Kurk, R-Weare.

The House budget would impose a new 5 percent tax on capital gains of more than $5,000 a year, an 8 percent tax on estates worth more than $2 million and a 10 percent tax on gambling winnings greater than $600 at one time.

The House budget also would raise existing taxes on gasoline, cigarettes, hotel room rentals and restaurant meals and suspend for two years a planned cut in the insurance tax.

In state spending, the proposal of House budget writers would raise spending 3 percent over the next two years. The House GOP alternative would cut state spending 2 percent.

In the Union Leader, Tom Fahey says Democrats attempt to share the pain, while the GOP has picked a budget battle:

Democrats admit there's a lot to dislike in the $11.5 billion budget they want the House to pass this week, but they say it's better than the Republican alternative.

The GOP, however, says Democrats have balanced their two-year budget plan with a critical misstep of raising taxes during a recession, and by holding money back from communities.

The two sides exchanged criticisms yesterday, as Democrats outlined their version to more than 100 lawmakers at a budget information session. Republicans declined the chance to make their case at the session, and held a news conference afterward.

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

By Rep. Neal M. Kurk

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

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

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

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

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

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

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

The legislature has its work cut out for it.

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