These plans for tax hikes are just hot air

By CHARLES M. ARLINGHAUS

With a budget crisis of extraordinary proportions, there's a strong whiff of taxes in the air. If we're not careful, we'll find ourselves downwind of the latest taxing rage: flatulence. For some reason, the ill wind of gaseous emissions is very popular among tax-hungry lawmakers and a good symbol of all that's wrong with tax policy.

It's the kind of story you expect to see on April 1: "Farmers protest tax on bovine emissions." The government of New Zealand, caught in a frenzy of something or the other, proposed a tax on the gas emitted by grazing livestock. The government found that livestock were the source of 90 percent of the country's methane emissions. Methane is considered to have 23 times the atmospheric warming potential of carbon dioxide, which New Hampshire has begun regulating. New Zealand's methane solution was the flatulence tax.

In New Zealand, the tax proposal created a huge stink and then died. Estonia, home of the flat tax, added a flatulence tax earlier this year. It, too, was quickly repealed. Then earlier this month, the Environmental Protection Agency turned out to be exploring the tax as one important way to reduce cow flatulence. I swear I'm not making this up.

This is all very silly, but there is a serious point to be made about the abuse of tax policy. Apparently there are some clean air concerns about methane. According to the Department of Energy, livestock accounts for about 30 percent of the 690 million tons of methane emissions, largely through flatulence.

There is a great deal of research into improving cow digestion. Argentine researchers have cows wandering around wearing giant balloons the size of their body to capture gas. They have their hopes pinned on alfalfa to quell the bovine intestine. Welsh researchers are equally optimistic about garlic. Not that the tax would have been any lower for cows with good digestion.

Increasingly, advocates with unmet policy goals look to achieve those goals through tax policy. The more sophisticated have come up with fancy names to support their cause. What you and I might call "nanny-state taxation," they call Pigouvian after an economist who believed taxes could be used to recover the social costs of whatever the observer determines is bad.

Pigouvian is the currently popular term for those economists who see all sorts of virtue in raising the gas taxes I have to pay. But it's just the latest term for the long-standing trend toward a tax nanny.

New York's newly proposed soft drink tax is called an obesity tax to make it seem more health conscious. They don't really tax people on the basis of their body-mass index, but this way it doesn't just seem like they're going after money to fix their deficit. Voters in Maine wanted to enjoy their root beer so they repealed their soft drink tax last year by a 2-1 margin.

Politicians out West want to encourage us not to use bags at the grocery store, so they have a grocery bag fee. It doesn't apply to the same bag if you use it at the hardware store, though. New Hampshire proposed a disposable diaper tax 20 years ago, a candy bar tax two years back, and who can forget the dreaded balloon tax?

Politicians wish more people chose to use recycled shopping bags or cloth diapers, stop eating junk food or stop letting go of their balloons. They finally figured out that taxation is a way to allow them to control your behavior and raise money at the same time.

The other problem with nanny taxation is that it's regressive. The rich shopper can afford dozens of grocery bags, lots of diapers, another few dollars when he fills up at the tank and high-priced root beer. The people struggling in the current economy (or any economy) aren't cutting coupons so they can send the savings on to the government.

In New Hampshire, we raised cigarette taxes three times in the last four years. Everyone claims to feel bad that it hurts poor people a lot worse than rich people, but we "need" the money. And after all, they shouldn't smoke anyway.

In the current economic recession, we can all agree that raising taxes on struggling businesses will hurt. Raising any tax on consumers trying to scrape by is equally bad. Let's not make it worse by pretending we're doing it to help them or it's for a noble cause. Instead, let them keep their own money and behave as they wish.

As for the struggling farmer and his poor cow, don't tax his livelihood and don't make poor Bessie wear a giant collection balloon. Please. Just buy him some alfalfa.

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

UL Blasts Rail Project

The Union Leader editorializes against using the latest federal stimulus package as a way for rail enthusiasts to pay for their pet project:

It is typical of the most passionate rail enthusiasts to be blind to the arguments against massive taxpayer support for their pet project. Here are a few excellent reasons why dumping that kind of money into commuter rail isn't a great idea.

One, the project's estimated cost is $300 million. That means it will almost certainly cost $450 million or more and take years to complete. How will a project of that size and scope get done in time to "stimulate" the economy?

Two, it won't stimulate New Hampshire's economy nearly as much as a wider Interstate 93 will. Wider, safer, speedier highways bring more tourists. Who is going to ride the train from Boston to Nashua, then rent a car to go the rest of the way to the lakes or to ski slopes?

Three, who is going to pay to operate the thing, and how? Even if Obama the Benevolent handed us half a billion for the infrastructure, trains don't run themselves for free, and ticket prices cannot go high enough to cover the cost. We'll have a pretty new train sitting in the station unless we raise taxes to pay for it to choo-choo along the track.

Spending the Obama Money

Transportation Commissioner George Campbell didn't get everything he wanted for Christmas, but he making a list for someone with deeper pockets than Santa; the Federal Government:

"It's certainly the best opportunity that's come around in decades, and frankly, it's the best opportunity for infrastructure funding that's come around since the 1950s," said Commissioner George Campbell, who has been compiling a list of projects that could benefit from federal funding as part of Obama's stimulus package. The biggest item by far is more than $300 million to upgrade and double-track rail lines linking Manchester to Lowell, Mass.

Campbell is looking to spend hundreds of millions of dollars that may be coming in a new stimulus package being put together by the incoming Obama Administration. Trains have long been the pet project of "infrastructure" advocates, since most rail lines need far higher per-passenger subsidies than either roads or air travel. Campbell is also looking at ways to pour the anticipated stimulus money into New Hampshire roads:

Campbell's list also includes more than $220 million in "shovel-ready" highway projects that could be set to go within six months, which may be the standard for the stimulus package. On that list, the top priorities are $30 million for the Interstate 93 widening project south of Manchester, $4.5 million to replace a bridge on Route 4 in Lebanon and $12.5 million for the Manchester Boston Regional Airport access road.

The Union Leader article includes nearly $700 million in "Wish Lists" at a time when the state is running historic deficits in its General Fund, Education Fund, Highway Fund, and Pension Plan. Nor does anyone in the article explain how they would like this massive stimulus to be paid for. Presumably, it would just get tacked onto the national debt.

It seems that our state government, facing tight budgets after years of free spending, are having a hard time breaking its big-spending habit. Now, it's looking to Washington for its latest fix.

NH needs to set budget priorities

By CHARLES M. ARLINGHAUS

Traditional approaches to solving the state budget deficit won't work. The governor and Legislature should adopt a priority-based governing approach that will create a path to fiscal balance based on a strategic set of priorities.

The traditional approach to a state budget is codified in our state law, but it makes budgeting in lean times much harder. Our law doesn't require state department heads to prepare the budget the governor asks them to. On the contrary, they start the process just before an election when, theoretically, we aren't sure who might win and therefore which set of priorities should guide them.

The department heads are required by law to prepare what's called a maintenance budget, which is essentially what we did last year and what it would cost if we didn't do anything differently. These first budgets are usually called the agency requests or "agency wish lists" because they often include things deleted from previous budgets and are always pared down by governors as a public sign of their frugality.

So by this traditional process we merely start with the status quo and adjust. Any program funded one time starts with the default presumption of future funding. Any new initiative must find some specific older function to displace.

But that isn't how anyone functions outside of government. Most people, businesses and organizations decide what to do according to a priority list. Mortgage, utilities, groceries are of the highest priority and are funded first. We fund projects in a priority order. If we have to pare back, we fund the lowest priority items last.

In the last recession, Gary Locke, the Democratic governor of Washington state, faced a budget shortfall in the billions of dollars. Rather than nibble and tweak at the existing budget, he established a priorities-based budgeting model to find a better way to balance the budget.

The priorities model doesn't presume an ideology. It was established by a liberal governor and has been championed by a free-market think tank, the Evergreen Freedom Foundation.

Essentially what Gov. Locke did (and what Gov. Lynch could do) was to establish a set of core priorities for government action. Funding those core priorities becomes the first claim on available tax revenue. Programs of a lesser priority are cut first or receive funding last. The highest priorities receive funding first.

On some level, we all do this in our heads. Obviously aid to people with developmental disabilities is a substantially higher priority than running a ski area. It would be foolish to balance the budget by cutting each of those programs 10 percent as if they were of equal weight.

Priority-based budgeting formalizes that internal process. If we have the money, we fund the first eight items on our list. If the economy picks up and revenues come in, we fund nine and 10. An increased slowdown and we drop item eight.

Setting priorities won't eliminate the power of the Legislature and governor to make decisions. Different people will set different priorities, rank some things much higher than others might.

A priority model can also solve Walter Peterson's problem. In an interview in March, former Gov. Peterson said that some department heads made helpful suggestions when he asked them for areas to cut. But others would simply ax the most popular programs in their departments, confident the Legislature would immediately restore such high-priority programs.

New Hampshire's system of semi-independent department heads makes it possible to play that kind of game with the nominal head of government. Requiring each department to develop a list of priorities among all of its programs gives the governor an added management tool.

A priorities of government model is a more transparent outgrowth of the zero-based budgeting Gov. Lynch talks about. The governor wants all department heads to build their budget from zero. If they really do start at zero, they are naturally making assumptions about which programs are more and less important as they build their budget.

This kind of change doesn't require a constitutional amendment. It doesn't even require a law change. It just requires the governor to tell the commissioners and then to share the information with the Legislature and the rest of us.

The traditional approach to nibbling and tweaking whatever we happened to do in the previous budget may be enshrined in law, but it is archaic. Governing is about setting priorities. The people we elect establish the current set of priorities and then fund programs according to those priorities. A priority-based budget model will make the debate more constructive and the budget decisions more transparent.

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

Congressional Vets Group Wastes Taxpayer Money

The Washington Post reports on a recent Senate investigation showing that a group created by Congress to help veterans start small businesses has wasted 91% of its money on unreleated expenses:

A nonprofit veterans group has "squandered" hundreds of thousands of dollars of the $17 million in federal funds it has received since 2001 and essentially abandoned its mission of helping veterans start small businesses, according to the results of a Senate investigation to be released today.

The National Veterans Business Development Corp., also known as the Veterans Corp. (TVC), grossly mismanaged taxpayer dollars -- including lavish spending on costly dinners and luxury hotels, first-class travel, and compensation for its top two executives that amounted to nearly a quarter of the charity's federal funds, according to a report obtained by The Washington Post.

The reports says that Veterans Corp has spent just 9% of its funding on the small business centers that it was founded to create. Veterans Corps is a not a grassroots veterans organization, but a Congressionally-created non-profit group. The VFW has called for cutting all federal funding for Veterans Corp, and redirecting that money directly to the Small Business Administration's veterans programs.

New Hampshire Courts in the L.A. Times

Bob Drogin of the Los Angeles Times leads off his report on courts across the country facing tight budgets with a look at New Hampshire's decision to suspend jury trials in Feburary:

Financially strapped New Hampshire has become a poster child for the problem. Among other cost-cutting measures, state courts will halt for a month all civil and criminal jury trials early next year to save $73,000 in jurors' per diems. Officials warn they may add another four-week suspension.

"It brings our system almost to a screeching halt," said county prosecutor James M. Reams. His aides are scrambling to reschedule 77 criminal trials that were on the February docket.

"All the effort to subpoena witnesses and prepare for those trials is right out the window," Reams said, frustration in his voice. "Internally, it's a monumental waste of time. We'll have to redo everything."

Drogan also quotes Chief Justice John Broderick, repeating his concerns about the judicial system:

John T. Broderick, chief justice of the state Supreme Court, has carved $2.7 million from the judicial budget. In addition to the one-month halt in jury trials and trimming back courtroom security, seven of the state's 59 judgeships will be left vacant through June, when the fiscal year ends. Three of the empty slots are in trial courts.

Worse, Broderick said, he may need to suspend jury trials for another month, and leave open a Supreme Court slot after one of the five justices retires in February. It is the state's only appellate court.

"In my 36 years here as a lawyer and judge, I've never felt as insecure about the state courts in terms of operations and resources as I do now," Broderick said.

Heeere's Reggie!

New Hampshire Enters the Carbon Cap and Trade Era
By Grant Bosse

An online auction has netted New Hampshire more than $4 million. On Wednesday, New Hampshire participated in its first ever auction of carbon dioxide allowances, which sold for $3.38 each, according to RGGI, Inc. Granite State regulators put 1.2 million allowances up for bid in an auction featuring 31.5 million allowances from ten states. 69 potential buyers placed their bids through a website administered by World Energy, a private company contracted by the ten-state Regional Greenhouse Gas Initiative (RGGI) to auction off the right to emit carbon dioxide.

The $4 million will be deposited in the Regional Greenhouse Gas Reduction Fund, which must go towards energy efficiency and conservation programs. The Legislature has already dedicated $1.2 million from the Fund towards the state's weatherization program. The Public Utilities Commission is responsible for distributing auction revenues.

Beginning on January 1, 2009, any fossil-fueled power plant producing over 25 megawatts of power must obtain allowances for every ton of carbon dioxide (CO2) it produces. In New Hampshire, five power plants are so regulated, accounting for an average of 8.62 million tons of CO2 per year. This is the second precompliance auction under RGGI, but the first in which New Hampshire has put its allowances on the auction block.

Potomac Economics, an independent private firm hired to monitor the quarterly carbon auctions, released its preliminary report on Wednesday’s auction today. Potomac will release a more detailed report next month. States will confirm and transfer allowances by January 5, 2009, which can then be bought and sold on the secondary market.

On September 25, 2008, six states offered a total of 12.5 million allowances, which sold at a clearing price of $3.07. RGGI allowances closed Thursday at $3.27 on the Chicago Climate Futures Exchange (CCFE) and $3.30 on the New York Mercantile Exchange (NYMEX).

Under the Regional Greenhouse Gas Initiative, New Hampshire and nine other northeastern states have capped the amount of carbon dioxide that local power plants can release into the environment, and required them to bid for the right to do so. Joe Fontaine, Emissions Reductions Trading Program Manager with the New Hampshire Department of Environmental Services, says that between the ten states, CO2 production will be capped at 188 million tons per year for the next three years, and gradually reduced by a total of 10%. Each state will receive a predetermined slice of revenues produced from those auctions based on its historic carbon emissions prior to the agreement. This ratio will not change, regardless of any change in carbon output from each state throughout the life of RGGI.

Getting to know Reggie

Frequently Asked Questions about New Hampshire's New Carbon Cap:

What’s RGGI?
The Regional Greenhouse Gas Initiative is an agreement among ten Northeastern and Mid-Atlantic states to limit carbon dioxide emissions through a mandatory cap-and-trade scheme applying to fossil-fueled power plants. It is administered through a non-profit corporation, RGGI Inc., which contracts with private companies to administer and monitor quarterly auctions.

Which states are participating?
Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont.


Who is covered in New Hampshire?
RGGI applies to electric power plants generating more than 25 megawatts that are fueled by coal, oil, or natural gas. In New Hampshire, five power plants meet these requirements:

PSNH Plants
Newington Station in Newington, Oil
Merrimack Station in Bow,Coal
Schiller Station in Portsmouth, Coal*
*One of the three units at Schiller Station has been converted to run on biomass, and is not regulated under RGGI.

AES Plants
Granite Ridge in Londonderry, Natural Gas
Newington Energy in Newington, Natural Gas

How does cap-and-trade work?
For the next three years, RGGI will cap total CO2 from covered sources at 188 million tons per year. That total will drop by 2.5% in each proceeding three-year period until it is 10% lower than current levels. In March 2012, each of the five power producers in New Hampshire will have to produce carbon allowances for every ton of CO2 they’ve released from 2009 to 2011. These allowances may be purchased at quarterly auctions, or on the secondary market. Each allowance permits a ton of CO2 in any of the ten states, and at any time during the three-year compliance period. Power producers will be covered under RGGI beginning January 1, 2009, but will not have to show compliance with the restrictions until March 2012.

Why only coal, oil, and natural gas?
RGGI is designed to reduce carbon dioxide emissions. Nuclear power does not produce CO2. Biofuels such as wood do produce CO2 but as considered carbon-neutral under the law, since trees being grown the replace the biomass fuel theoretically absorb as much CO2 as the burning fuel produces.

What about other greenhouse gasses?
No other greenhouse gasses are covered under RGGI.

How would a federal cap-and-trade law affect RGGI?
Congress has considered several alternative cap-and-trade proposals for years. Most include provisions for state and regional greenhouse gas regulations. Any federal law would likely protect RGGI and other regional agreements from federal pre-emption, and count the established baseline of carbon emissions as the relevant federal baseline, rather than asking states to cut emissions from an already reduced baseline.

How do we know how much CO2 each plant produces?
Each of these power plants is already regulated under the federal acid rain program, which requires constant measurements of smokestack emissions. Since CO2 output is already being measured, electric power generation is considered the low-hanging fruit for CO2 reduction. Other sources such as transportation and agriculture would require extensive measuring and monitoring systems to be developed before a cap-and-trade program could be implemented.

What percentage of New Hampshire emissions come from these power plants?
It’s difficult to determine, since other CO2 sources such as cars, livestock, and even people are much more difficult to measure. Policy-makers estimate that electric power generation accounts for one-third of CO2 emissions nationally.

How are New Hampshire’s annual CO2 emissions calculated?
For most states, RGGI calculates the three-year average emissions from 2000 to 2002. Since two natural gas power plants went on line in New Hampshire in 2002, this figure would be artificially low. New Hampshire uses the two-year average of 2003 to 2004, which comes out to 8.62 million tons of CO2 annually. New Hampshire has 8.62 million carbon allowances to distribute, of which 5.95 million will be auctioned off each year.

Why isn’t New Hampshire selling off all of its CO2 allowances?
PSNH is New Hampshire’s largest electricity provider, and its largest CO2 source under RGGI. Prior to RGGI, PSNH was subject to regulation under the state Clean Power Act. As part of the transition from the Clean Power Act to RGGI, PSNH will be allocated 2.5 million allowances each year at no cost for three years, and 1.5 million allowances annually for the following three years.

New Hampshire lawmakers set aside two percent of the state’s allowances for other purposes. One percent has been reserved for residential homeowners who install renewable electricity to request state allowances to be retired. If unclaimed, these allowances will be added back to a future auction.

Additionally, if power companies are forced to exceed the allowances they’ve purchased in order to meet peak demand during a power emergency, they may receive additional allowances at no cost. One percent of the state’s total has been reserved for this purpose, and would go back into a future auction if not needed.

How much revenue will New Hampshire receive, and where does it go?
Based on current market prices, New Hampshire would receive approximately $18 million each year, those this could vary widely. All auction proceeds will be deposited into the state’s Greenhouse Gas Emissions Reduction Fund, which is administered by the Public Utilities Commission. State law requires that the fund support energy efficiency, conservation, and demand response programs, and that at least 10 percent be used to assist low income residential customers to reduce total energy use. The Legislature has already set aside $1.2 million in anticipated auction revenues towards the state’s weatherization program. The PUC has sole authority to determine how the rest of the Fund will be spent, barring further Legislative directives.

Can auction revenues be used to balance the state budget or for other spending priorities?
Under current law, the Greenhouse Gas Emissions Reduction Fund can not be used for other programs, or to balance the General Fund. However, like all dedicated revenue streams in New Hampshire, these revenues may be redirected at any time through legislation.

What is carbon capture and sequestration?
Rather than emitting CO2 through their smokestacks, power plants could capture the escaping gas, preventing it from increasing atmospheric CO2 levels. While technically possible, this technology is not yet commercially viable, and long-term storage of tons of lighter than air gas is challenging. One possibility is to use the underground space in depleted oil and natural gas deposits to sequester CO2 permanently. Carbon capture and sequestration would be allowed under RGGI, since the cap-and-trade regulations would not apply to CO2 that is never released into the atmosphere. Such an approach is unlikely to take off until the cost of capturing and storing a ton of CO2 is less than the cost of a carbon allowance.

What are carbon offsets?
Carbon offsets are an alternative way to comply with carbon caps. Rather than reduce their own carbon emissions, the source may choose to support programs that offset them. The most common is afforestation, planting trees that absorb CO2 as they grow. Under RGGI, power producers may offsets for up to 3.3% of their CO2 emissions. There are currently five project categories approved for offsets: Landfill methane capture and destructionReduction in emissions of sulfur hexafluoride (SF6) in the electric power sectorSequestration of carbon due to afforestation;Reduction or avoidance of CO2 emissions from natural gas, oil, or propane end-use combustion due to end-use energy efficiency in the building sectorAvoided methane emissions from agricultural manure management operations

How will this affect electric rates?
The cost of carbon allowances will become part of the cost of producing electricity in the Northeast, and will ultimately be borne by ratepayers. How much is will cost depends not only on the price that producers pay for these allowances, but also on the fuels used. Coal is the most carbon-intensive fuel source, producing 2,000 pounds of CO2 per megawatt of power. Natural gas produces 800 pounds of CO2 per megawatt, and oil is somewhere in between depending on the type of oil used. At $3.00 per allowance, this would add $3.00 per megawatt of electricity made by burning coal, and about $1.20 per megawatt from natural gas, or $.003 per kilowatt hour for coal and $.0012 per kilowatt hour for natural gas.

Power producers may avoid the cost of carbon allowances by reducing their carbon emissions, either through upgrading their fossil-fuel facilities, switching to more expensive but carbon-neutral fuel sources, or purchasing offsets as a means of alternative compliance. These costs would also be passed on to ratepayers, but would not produce revenue for the ten RGGI states.

What happens if a power plant exceeds its carbon allowances? Power producers who do not provide sufficient allowances to meet their emissions would face a three to one deduction penalty at the beginning of the next compliance period. For instance, if PSNH released 1,000 tons more CO2 than it purchased for 2009-2011, it would be forced to purchase 3,000 additional credits for 2012-2014. Since this would be an expensive penalty, New Hampshire Emissions Reductions Trading Program Manager Joe Fontaine expects nearly 100% compliance. It will almost certainly be cheaper for utilities to purchase additional allowances on the open market than to pay the penalties.

Who is buying carbon allowances?
The identities of auction winners are not being made public. RGGI has contracts with Potomac Economics to monitor its quarterly auctions. On October 16, 2008, Potomac issued its report on the September 28, 2008 auction, which included 59 entities submitting bids ranging from $1.86 to $12.00. 80% of the bidders were “compliance entities”, which are power producers covered under RGGI. 20% were “non-compliance entities” not covered under RGGI, but who may now sell their allowances in the secondary market.

Where are carbon allowances traded?
Once purchased through the quarterly auctions, RGGI allowances are traded on the Chicago Carbon Futures Exchange (CCFE), and futures contracts for RGGI allowances are available on the New York Mercantile Exchange (NYMEX). At the close of trading on December 18, 2008, RGGI was trading at $3.27 on the CCFE, and $3.30 on NYMEX.

Telegraph Backs Gas Tax Increase

The Nashua Telegraph this morning comes out in favor of raising New Hampshire's gas tax in order to boost revenues into the Highway Fund:

There's no single answer to the problem, which, if roads must be plowed and salted less often and maintenance delayed, threatens public safety.

But the seriousness of the shortfall means that for the first time since 1992, the governor and Legislature should increase the gas tax.

State HHS releases private data

UPDATE- The Union Leader has updated this morning's story by reporting that 9,300 Medicare Part D recipients have had their private information sent out:

The state Department of Health and Human Services mistakenly released personal information about 9,300 Medicare Part D recipients to its service providers two weeks ago and is now notifying those affected.

In letters to clients and providers obtained Wednesday by The Associated Press, the department said it is taking steps to make sure no information is used illegally. But it urged the people affected to initiate credit fraud alerts or freezes on their accounts.

The Union Leader is reporting that New Hampshire's Department of Health and Human Services has mistakenly released private data of Medicare recipients to private service providers:

New Hampshire's Department of Health and Human Services mistakenly released personal information about Medicare Part D recipients to its service providers two weeks ago and is now notifying those affected.

In letters to clients and providers obtained by The Associated Press, the department says it is taking steps to make sure no information was used illegally. But the department is urging clients to initiate credit fraud alerts or freezes on their accounts.

The information was mistakenly attached to an e-mail to providers on Dec. 1.

The state budget deficit is unlikely to be closed this year

By CHARLES M. ARLINGHAUS

With only six months left in the state's fiscal year, the current budget deficit is so large that it probably cannot be fixed. Instead, it will be rolled over until next year, making a difficult budget task even worse.

Even as all public eyes are focused on finishing out the current budget year with as small as a deficit as possible, both the governor and the Legislature are trying to figure out what to do about the budget nightmare approaching after the new year.

A brief status report is in order. New Hampshire is three-quarters of the way through its two-year budget. The first of the two years was bad, but not that bad. The state treasurer provides a concise summary for investors every time the state goes into the bond market to borrow money. According to that report, "The combined general and education fund activity for fiscal year 2008 resulted in an aggregate operating deficit of $37.7 million (including a $15.3 million deficit in the Education Trust Fund). After a $6.8 million budgeted transfer from the general fund to the highway fund, a $17.2 million surplus remained because of the $61.7 million surplus carry forward from fiscal year 2007."

So we spent about $40 million more than we raised in 2008, but we had a cushion built up because of $30 million of the old Craig Benson surplus we had kept out of the rainy day fund and another $30 million of surplus from the first Lynch budget. By law, that $60 million should have gone into the rainy day fund. But by suspending the law, legislators avoided its restrictions.

Whether that was good policy or not (and it wasn't), there won't be any left after this year.

Even after revenue changes the governor made, his administrative services commissioner projects a $250 million revenue shortfall for fiscal year 2009. To address that, the governor has already ordered $40.2 million of cuts and spending freezes. He also has $40 million in bonding authority (to pay for school construction aid). That left a $170 million shortfall.

Last month, the governor proposed another $56.6 million in cuts and an additional $20 million of one-time revenue the Legislature must approve when it reconvenes.

The additional $20 million includes transfers from the highway fund (repaying the end of 2008 transfer) and other surplus money to be transferred from dedicated accounts outside the state's operating account. The $20 million and the $56.6 million should reduce the deficit to about $93 million. If you add to that the $17 million carried forward from last year, the current shortfall is nominally about $75 million. Because some of the reductions will include money that would otherwise "lapse" in budget terms, the real shortfall is probably a little more than $80 million.

To end the year in balance, the governor needs to identify another $80 million in a budget that has only six months remaining. At this point, it seems likely that the governor will roll over the deficit into the next two-year budget when he presents his 2010-2011 budget in February. Without any additional cuts, next year's problem will be Herculean. Because budgets are about making choices about spending and revenue, the so-called starting deficit depends on your assumptions about those choices and how the economy will further affect revenues.

But to show how difficult things are likely to be, assume as a starting point a budget that increases spending by the 20-year average of 5 percent each year. If revenues don't decline any further and stabilize for two years, the gap between spending and available revenues would be almost $700 million over two years plus the $80 million deficit we carry forward.

If spending were held to a zero increase for two straight years, something accomplished only once since World War II, the gap would still be more than $400 million. Maybe the economy will recover a lot faster than anyone thinks. But we probably shouldn't make that assumption in the budget. Budget writers will need to identify hundreds of millions of dollars of spending cuts or increased revenue to close the gap.

Borrowed money will have to be repaid and replaced. One-time revenue sources, such as transfers from the Pease Development Authority or other funds, can't be used to support spending year after year. A federal bailout would only be a stopgap to manage a transition to a real balanced budget. Getting back to fiscal sanity will take time. But we can't keep running deficits.

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

Grok doesn't like the van

Our friends at Granite Grok make history today, by agreeing with the Concord Monitor editorial page:

Another case made for a more limited government - so, cops need satellite TV on a stake-out?

Over at NH Watchdog, our friend Grant Bosse alerts us that even as the NH State budget is in $250 million in the whole (our state budget is about $1 Billion / year so it is a hefty percentage - thanks Democrats for boosting spending 17% during the cycle!), the Liquor Commission decided to use $442,000 to buy a van! This as Gov. Do-nothin' is pressuring all departments to cut spending big time.

Guess Commissioner Mark Bodi "doesn't get it" - or worse, believes it doesn't apply to him. Now, this is not just ANY kind of van - it is SPECIAL!

Bodi defends DUI Van

Liquor Commissioner Mark Bodi writes in to the Concord Monitor this morning to defend his department's recent use of $422,000 in federal funds to buy a van, complete with satellite television:

The paper's comment that the command center television would "allow agents to watch the news while waiting to process drunken drivers," is inaccurate. The television screen and satellite capabilities will be used only in cases of actual emergencies when law enforcement personnel must be aware of rapidly changing events, such as severe weather or critical regional or national news. This same type of equipment (and satellite TV programming) is routinely used by other states and widely used within many federal agencies. New Hampshire's recent flood and tornado tragedies are good examples of how this vehicle could be thoughtfully and economically repurposed and deployed for emergency service needs.

Bodi goes on to detail how many people have died in drunk driving accidents, nationally and in New Hampshire. Whether a big screen TV and satellite programming is an efficient way to reduce those deaths is up to those who oversee the Liquor Commission's budget.

Air on the Auction Block

The New Hampshire Department of Environmental Services has announced its first carbon dioxide auction. Under the ten-state Regional Greenhouse Gas Initiative (RGGI), New Hampshire will cap the amount of CO2 that can be emitted from fossil-fuel burning power plants. These plants must bid for the right to emit CO2, which will be capped at current levels on New Year's Day:

On Wednesday, December 17, between 9:00 a.m. and noon, bidders will vie for more than 31.5 million CO2 emission allowances through an online electronic platform administered for RGGI by World Energy Solutions, Inc.

At the first RGGI auction in September, 12.5 million allowances sold at a price of $3.07. New Hampshire did not participate in that auction, but will be providing 1.2 million allowances out of the 31.5 million up for sale on Wednesday.

Each allowance represents a ton of CO2 that can be released into the atmosphere. Between now and 2012, every fossil-fuel burning power plant will have to buy enough allowances to cover its emissions.

Under the September price, New Hampshire would receive about $3.6 million, which will be deposited into a Greenhouse Gas Emissions Reduction Fund, administered by the Public Utilities Commission. The Fund must pay for energy efficiency and conservation programs, with at least ten percent going to low-income residential customers to reduce their total energy use. To that end, the Legislature has already directed $1.2 million from the Fund towards the state's weatherization program, once the Fund actually has any money in it.

Wednesday's price could be higher or lower than September's. With a large drop in global energy demand since September, the price may drop sharply, meaning less money going into that Fund. But the price will be decided by the online bidders later this week, based on their insight into the global and regional energy market in 2012.

Results from Wednesday's auction will be posted by Friday at the RGGI website.

Gambling-Business Coalition Forming

Tom Fahey reports in his weekly Under the State House Dome column that New Hampshire businesses are teaming up with the racetracks to push for expanded gambling in the state:

When Millennium Gaming and Rockingham Park unveiled their new "Fix It Now" coalition last week, they brought along a big group of labor and business owners.

The company continues to hold out the promise of $450 million in new construction at the park in exchange for a bill that in its words would allow "limited gaming." Leading the alliance is Chuck Rolecek, president and CEO of The Premier Companies. The company is the operator of C.R. Sparks Event Center and restaurant in Bedford and the upscale Chop House in Manchester.

He's teamed with about 20 others as well as owners of Millennium and Rockingham to push for a change in state gambling laws.

The group includes the Building and Construction Trades Council, with 7,000 workers in member organizations, trades like construction, electric, plumbing, plastering and sheet metal.

Also in the group are: engineering firms T.F. Moran and Inc. and Waterline Industries; executives of Kelly Construction Co. and Harvey Construction Corp.; food service providers Rolecek, Ron Doucet, owner of the Executive Court Inn and Banquet Center in Londonderry, and Hopi Stradling of the One Hundred Club in Portsmouth. There are also car dealers Paul Holloway of Dreher-Holloway in Exeter and Toyota of Portsmouth. Add to them former state Sen. Chuck Morse, the Tracey Edwards Company ad firm, and Centrix Bank.

Priorities at Parks and Recreation

Should New Hampshire upgrade the facilities at Hampton Beach next year, or spread the project over three years? The Union Leader weighs in this morning on its Editorial Page:

Local business owners want the state to do the entire $18 million project next year. The state Division of Parks and Recreation, which says the plan is its top capital project, wants to spread the costs and the project over three years.

Parks and Recreation cites the state budget as the reason to draw the project out. With an expected $250 million deficit this year and possibly twice that in the next budget, the state cannot justify an $18 million project right now, Parks and Recreation says.

That's the right thinking.

Mercury reductions drive up electric rates

As I, and 300,000 of my closest friends wait for PSNH to restore power following the ice storm , Tom Fahey reports in the Union Leader that a ratepayers' group is going back to court to get out from under recent environmental regulations that are driving rates higher than anticipated:

A group of commercial ratepayers filed a state Supreme Court appeal yesterday aimed at requiring the Public Utilities Commission to review the cost of mercury reduction equipment at the state's largest coal-fired power plant.

The work at Public Service of New Hampshire's plant in Bow was supposed to cost $250 million when a law mandating it passed in 2007. Since then the price has nearly doubled, to $457 million. When finished, the work will cut mercury emissions by 80 percent.

Is the Gas Tax Outdated?

Mark Sanborn is counselor at the U.S. Department of Transportation, and a New Hampshire native. He writes in this morning's Union Leader that the gas tax is no longer a viable way to pay for highways, and proposes a new approach:

There is another way. We must create a transportation network that applies the concepts of supply and demand, including the use of pricing or tolling. While tolling is not a new concept in the Granite State, pricing is. Dynamic pricing means charging a fee, based on demand, on high-use roads. "Double taxation" can be avoided by making it unnecessary to use gas taxes for maintenance of that road.

Public-private partnerships are another option being embraced by states facing funding shortfalls. This does not involve selling public assets, but rather leasing highways to private companies for a fee and allowing the companies to collect money from highway users. The company is able to operate the highway more efficiently, while the state can leverage the funds to pay for infrastructure improvements elsewhere.

Fosters supports Lynch Pay Raise Proposal

Fosters' Daily Democrat editorializes in favor of the Lynch Pay Raise Rollback, which will not get a hearing in the Legislature:

Gov. John Lynch has asked state employees to defer a 5.5 percent pay increase until July 1. He and the people of New Hampshire are waiting for an answer from unions that represent those employees.

"Our nation is facing an unprecedented economic downturn, with serious ramifications for our state budget," Lynch said in a press release Wednesday. "We have taken a number of steps, including millions in cuts to state programs and services to help balance our budget, and additional work is needed. Under the circumstances, I believe it is reasonable and responsible to defer the January 5.5 pay increase for state employees."

The governor's suggestion is, indeed, "reasonable and responsible."

Proposal to Roll Back Pay Raises Hits Brick Wall

Lauren Dorgan reports in the Concord Monitor that Governor John Lynch's proposal to roll back pay raises is hitting a brick wall, for union and nonunion state employees alike:

All state employees are set to receive a 5.5 percent pay raise Jan. 1. But with the state budget in crisis - 2009 revenue is now expected to fall $250 million behind original projections - Lynch has targeted pay raises as one way to save money.

"We have taken a number of steps, including millions in cuts to state programs and services to help balance our budget, and additional work is needed," Lynch said in a statement yesterday. "Under the circumstances, I believe it is reasonable and responsible to defer the January 5.5 percent pay increase for state employees."

Lynch, a Democrat, has pushed the Legislature to meet next week to defer pay increases for nonunion employees who work for the state, including lawyers, managers, and those who work for the judicial and legislative branches. Meanwhile, Lynch has been in talks with leaders of the State Employees Association, whose pay raises are guaranteed by contract. For union members to lose their raises, they would have to first vote to reopen contract talks and then vote to ratify a pay freeze.

So far, neither of the governor's efforts has proven fruitful.

Tom Fahey also reports in the Union Leader on the House and Senate leaders shooting down Lynch's suggestion:

Lawmakers have decided not to act on Gov. John Lynch's proposal to save up to $2 million by deferring pay raises for state workers not represented by unions.

To kill the raises, the Legislature has to act before the end of the year. Last week House and Senate leaders reserved next Wednesday as a day when legislators could return for the money-saving move.

But yesterday, Speaker of the House Terie Norelli and Senate President Sylvia Larsen said they will not call lawmakers to Concord next week to pass a bill rescinding the raise. Dec. 17 had been set as a potential date for action, but the two said the issue was not ready to bring before 424 lawmakers.