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Senate MET Proposal Jeopardizes Budget Progress—and People

tree with coinsCritical decisions about New Hampshire’s next state budget are being made now – some nine months ahead of schedule.  In fact, a proposal currently pending before the Legislature would reduce the amount of revenue available to support higher education, public and mental health services, aid to cities and towns, and many other priorities by roughly $112 million over the course of the next budget cycle. New Hampshire’s families and businesses – who look to the state each day to provide these services – would be better served if these decisions were made as part of the normal budget process, when the tradeoffs they would entail would be apparent.

At issue is the manner in which state policymakers may respond to two recent court cases regarding a key source of state revenue, the Medicaid Enhancement Tax (MET).  In the current budget, the MET is expected to generate approximately $375 million or close to 8 percent of General and Education Fund appropriations.  Still, judges in Hillsborough and Rockingham Counties have ruled that the MET, in its present form, violates the state’s constitution.  The New Hampshire Supreme Court, which gets the final say on such matters, will hear the state’s appeal of these decisions later this year.

The problem before state officials is, first and foremost, a tax problem.  Thus, any response they devise should focus as far as feasible on constructing a constitutionally permissible version of the MET.  Such a task is possible.  Forty-eight other states levy health care related taxes, akin to New Hampshire’s MET, that are within the bounds of their own constitutions.  Such a task is also paramount.  All of these states, including New Hampshire, use their health care related taxes to leverage millions of dollars in federal funds that are then used to make payments to local hospitals and other health care providers under their Medicaid programs.

To date, the House of Representatives has proceeded in this fashion.  Legislation it approved last week would clarify the intent, the application, and the use of the existing MET and, if necessary, would make broader reforms designed to preserve the stream of revenue the MET now produces.

The Senate, to some degree, has also sought to keep the MET in place.  While a bill it has passed would narrow the base of the tax and begin to reduce the current 5.5 percent rate, the upper chamber’s position does not seem to be that the MET is wholly impermissible, but rather, potentially unreliable.

However, that same Senate bill would effectively short-circuit the regular budget process and dictate how the funds generated by the MET are allocated without regard to the impact on other services the state provides.  More specifically, documents circulated at a recent Senate Ways and Means Committee hearing show that the Senate’s proposal would reduce MET collections by nearly $69 million over the FY 2016-2017 biennium and would reduce the direct transfer of MET revenue to the General Fund by more than $111 million relative to the amounts included in the FY 2014-2015 budget.

Starting the FY 2016-2017 budget process while standing in a $100 million plus hole would almost certainly jeopardize the progress that the FY 2014-2015 budget makes in restoring funding for vital public services.  Governor Hassan and the leadership of both chambers touted the current budget’s success in providing funds for higher education, mental health services, and the Land and Community Heritage Program (LCHIP).  Yet, even the increase in General Fund appropriations for higher education – a total of approximately $97 million combined for the University and the Community College Systems of New Hampshire – is exceeded by the loss in General Fund support the Senate proposal would entail.  What’s more, despite this recent progress, damaging spending cuts remain in place throughout the budget.  Indeed, even support for higher education is still down 37 percent, on an inflation-adjusted, per pupil basis since FY 2008.

In the end, budgeting is about tradeoffs, about balancing needs and resources, capacities and aspirations. As policymakers begin the final stage of deliberations over the MET for this legislative session, they should strive to ensure that decisions concerning the FY 2016-2017 budget are reached through the process that is designed to foster them, a process that exists to put in full view all of state’s priorities and obligations, as well as the options for meeting them.

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State’s Diverse Tax Base Stabilizes Revenue, But Business Tax Changes May Increase Volatility

29 Jun 2017

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New Hampshire’s state tax revenue is relatively stable, but the State’s largest tax may be among the most volatile types of common taxes, a new analysis from The Pew Charitable Trusts suggests. Between 1997 and 2016, New Hampshire’s tax volatility, as measured through percentage changes from the prior fiscal year, was only higher than five other states, suggesting New Hampshire’s tax revenues do not typically deviate dramatically from year to year relative to other states. However, digging into the diverse revenue streams and drawing on the experiences from other states shows some risk for New Hampshire.