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Governor Lynch’s FY 2012-2013 Budget Proposal

March 1, 2011 State Budget

On February 15, Governor John Lynch presented his proposed budget for the fiscal year 2012-2013 biennium to the Legislature. Overall, he recommends that the state spend a total of $4.7 billion from General and Education Funds over the next two years, a decline of more than 3 percent relative to anticipated expenditures from these funds, and from federal fiscal relief monies, during the current FY 2010-2011 biennium.

Consequently, while the Governor has called for an increase in General Fund support for some parts of state government, such as the Department of Corrections, he would also make significant reductions in a number of areas. For example, his budget would cut General Fund expenditures for New Hampshire’s university and community college systems by more than $50 million or 18 percent from expected FY10-11 levels; in addition, the Governor would eliminate entirely the state’s contribution, on behalf of local governments, to the New Hampshire Retirement System, a contribution that amounted to nearly $100 million in the current biennium.

The Governor’s proposed General and Education Fund expenditure levels are matched by his Administration’s projection that those two funds will collect just over $4.7 billion in taxes, fees, and other sources of revenue over the next two years. In particular, the Lynch Administration expects that adjusted General and Education Fund revenue will grow by approximately 3.9 percent in FY 2012 and then by 3.8 percent in FY 2013. As these rates of growth would produce approximately $290 million more in General and Education Fund revenue for FY12-13 than those approved by the House of Representatives in February, some have accused the Governor of “overinflating” his estimates, yet tax collection data from the past decade suggest that the Governor’s anticipated growth rate between FY 2010 and FY 2013 is in line with prior experience. Still, even if the Governor’s revenue projections are realized, total General and Education Fund revenue, after accounting for inflation, will be roughly $120 million less in FY 2013 than it was in FY 2008, when the recession began.

Indeed, as much as the Governor’s proposed budget reflects his efforts to invest in public safety and to protect vital public services for thousands of vulnerable New Hampshire residents, it is equally notable for its failure to acknowledge the role that declining revenues have played in creating the fiscal challenges New Hampshire must now confront. Despite a steep drop in various sources of tax revenue over the past several years, the Governor has emphasized that his budget achieves balance without relying upon any new taxes or any increases in existing ones. In fact, the Governor has expressed his support for two tax cuts: the repeal of the gambling winnings tax the state instituted in 2009 and the expansion of its existing research and development tax credit. In short, had the Governor employed a balanced approach to addressing the state’s budget shortfall and put forward proposals to generate additional revenue, many of the cuts contained in his budget could have been reduced or avoided altogether.

The remainder of this Budget Brief examines the Governor’s proposed expenditures in each of six categories within the budget: General Government; Administration of Justice and Public Protection; Resource Protection and Development; Transportation; Health and Social Services; and Education. It then discusses the revenue projections on which the Governor’s plan is based.

Major Expenditure Proposals

General Government

Under the Governor’s proposed budget, General Fund expenditures for general government – a category that includes funding for the Governor’s own office, the Legislature, the Department of Revenue Administration, and the State Treasury – would amount to $521 million for FY12-13, a drop of 16 percent from anticipated spending levels for FY10-11 and a decline of 20 percent from initial appropriations for this biennium.

The single largest change within this category in the Governor’s budget plan is the elimination of the state’s contribution, on behalf of local governments, to the New Hampshire Retirement System (NHRS). At present, benefits paid to retired public employees through the NHRS are financed from three sources: contributions by public employees, contributions by public employers (including municipal governments and local school districts), and investment earnings. Prior to FY 2009, state appropriations covered 35 percent of local public employers’ annual contribution costs; that percentage was temporarily lowered to 30 percent in FY 2010 and 25 percent in FY 2011, resulting in total state contributions of roughly $97 million for the current biennium. According to information from the NHRS, if the state’s share were restored to 35 percent as scheduled under current law, the General Fund cost would amount to $174 million for FY12-13; if the state share were held at 25 percent, the General Fund cost would likely be closer to $125 million.

Administration of Justice and Public Protection

General Fund expenditures for the administration of justice and public protection would rise, in the aggregate, under the Governor’s proposed budget, climbing from their anticipated FY10-11 level of $440 million to $467 million for FY12-13. In particular, the Governor recommends increasing General Fund support for the Department of Corrections by approximately $17 million in the upcoming biennium (relative to actual and adjusted authorized spending for FY10-11). Still, other departments within this category would experience significant reductions in General Fund support; for instance, the Department of Labor, where General Fund expenditures are projected to amount to $2.2 million in FY10-11, would no longer draw upon the General Fund for support, instead relying solely upon other sources of funds.

Resource Protection & Development

While much of the support for resource protection and development expenditures typically derives from sources other than the General Fund, the Governor’s proposed budget would nevertheless reduce General Fund spending in this category by $6.7 million – or 10 percent – relative to anticipated levels for the current FY10-11 biennium. General Fund expenditures for the Department of Resources and Economic Development would climb from $27.2 million in the current biennium to $29.0 million under the Governor’s plan, but General Fund expenditures for the Department of Environmental Services would fall roughly 20 percent, from $41.6 million to $33.2 million.


General Fund expenditures for transportation – which comprise not only a very small share of General Fund expenditures overall but also just a fraction of total transportation expenditures – would fall from their currently anticipated FY10-11 level of $2.4 million to a FY12-13 level of $1.9 million if the Governor’s budget recommendations were put into law.

Health and Social Services

The Governor has proposed significant changes in funding within the Department of Health and Human Services in his FY12-13 budget, several of which are highlighted below. Due to the deep recession and slow recovery, the Department of Health and Human Services experienced a nearly 20 percent increase in its caseloads between November 2008 and November 2010. While the rate of growth in these caseloads is slowing, it remains positive, adding to the number of people for whom the Department provides services. Due in part to this trend, the Governor’s recommended level of FY12-13 General Fund expenditures for health and social services is higher than FY10-11 actual and authorized expenditures, yet remains below the sums initially appropriated for these purposes in the current biennium.

Medicaid Managed Care

The Governor’s budget includes a proposal to introduce managed care into the Medicaid program by the end of FY12, at an anticipated cost savings of $16 million in General Funds and $32 million in Total Funds over the biennium. Managed care is an umbrella term that can describe a variety of arrangements intended to improve health outcomes and to reduce costs or slow their growth. One of the most common managed care arrangements is known as a capitated risk payment plan, in which a managed care organization (MCO) is paid a fixed monthly fee per enrollee and assumes financial risk for delivering an agreed upon set of services. The more comprehensive the services contracted for, the higher the risk the MCO bears. Historically, capitated risk payment plans have faced difficulties in rural regions due to the inadequacy of provider networks in those areas.

New Hampshire’s geography and other factors make it unlikely, therefore, that it would be able to rely exclusively on a capitated risk payment system. Accordingly, the Governor’s proposal combines several different approaches, pairing traditional managed care reimbursement systems, like capitated risk, along with strategies that focus on care coordination primarily through the health home model of care. These models will theoretically drive reimbursement that becomes based on improving health outcomes and efficiencies, rather than the number of units of service provided.

The proposed schedule for implementing a system of managed care is relatively abbreviated, as it would require the state to solicit MCO’s and to negotiate a contract in a little more than a year’s time. As a result, it may not be possible to realize the savings anticipated in the Governor’s budget — savings that amount to approximately 2.5 percent of overall Medicaid expenditures – over the course of the biennium. What’s more, Medicaid managed care tends to yield near-term savings largely in states that have done little to use the tools available under managed care previously. Yet, New Hampshire already employs several of these tools, such as limiting, reviewing, or requiring prior authorization for the utilization of certain services.

Still, New Hampshire has not previously required managed care enrollment for all Medicaid recipients. The Governor’s proposal would do so, including mandating managed care both for those recipients receiving home and community based care and those dually eligible for Medicaid and Medicare. As these groups have complex care needs that not only would benefit from care coordination, but also account for a significant portion of New Hampshire’s Medicaid costs, the Governor’s proposal could yield some savings.

Closing New Hampshire Healthy Kids

The Governor has proposed ending the state’s association with New Hampshire Healthy Kids Corporation and bringing its operations inside the state Medicaid program in order to save a projected $6.6 million over the FY12-13 biennium. New Hampshire Healthy Kids administers the state’s Children’s Health Insurance Program, also known as Healthy Kids Silver. It provides subsidized health insurance to approximately 8,600 children with family incomes between 185 and 300 percent of the federal poverty level (FPL). Families pay a small, monthly premium per child depending on their incomes. Enrollees are provided care by Harvard Pilgrim Health Care, which helps to coordinate care (and thereby manage costs) for its enrollees through primary care providers. New Hampshire Healthy Kids also administers a health insurance buy-in program for approximately 875 children with family incomes between 300 and 400 percent of FPL by providing them with non-subsidized, lower-priced insurance premiums. Buy-in program enrollees have the same network and benefits as the Healthy Kids Silver enrollees.

The Governor has characterized this change as primarily reducing administrative costs. Yet, at present, the administrative costs incurred by New Hampshire Healthy Kids appear to be only approximately $900,000 per fiscal year. Based on public testimony by officials from the Department of Health and Human Services, the Governor’s budget assumes that Healthy Kids Silver enrollees will be converted into Medicaid enrollees and the buy-in program will be discontinued. Children with incomes between 185 and 300 percent of FPL would continue to receive health insurance coverage and continue paying the same monthly premiums, but the state would pay for such coverage on a fee-for-service basis. While the Medicaid fee-for-service reimbursement rate is expected to be lower than the New Hampshire Healthy Kids per member per month fee – and this difference will yield most of the $6.6 million projected savings – shifting enrollees to a fee-for-service arrangement without the cost controls of a managed care system may produce unanticipated changes in the average per member per month cost. DHHS officials have also noted that the buy-in program will be discontinued because it will not be feasible to convert buy-in enrollees into Medicaid enrollees or to continue to provide the current benefit and premium schedule to fewer than 900 children.

Eliminating Funding for Developmentally Disabled and Acquired Brain Disorder Waitlist Services

Over the FY12-13 biennium, the Governor’s budget would eliminate approximately $17.3 million in General Funds intended to reduce the amount of time individuals must wait to receive services from the Bureau of Developmental Services. Waitlist funding over the last two biennia has reduced the number of days individuals must wait to receive services, including programs designed to allow their parents or family members to continue to work, from as many as 228 days to as few as 17; as of December 2010, the average time spent on the wait list was 32 days. Without full funding, the average amount of time on the waitlist will almost certainly increase for the 477 people that are expected to fall onto that list in FY12-13.

Restricting Eligibility for Cash Assistance Programs

The Governor’s proposal would eliminate approximately $10.8 million in General Funds from cash assistance programs such as Aid to the Permanently and Totally Disabled (APTD) and Aid to the Needy Blind (ANB) by tightening state eligibility guidelines. Specifically, under the Governor’s budget these programs would have to count additional sources of income in determining eligibility and would make state disability determinations consistent with Social Security Administration determinations. APTD served approximately 8,656 people in FY10 and ANB served 250 individuals, 40 percent of whom are children and all of whom must be blind to qualify. For both programs the maximum monthly grant a person can receive is $688. The proposed $10.8 million cut is a reduction of more than a quarter of anticipated expenditures from the current biennium.


Under the Governor’s proposed FY12-13 budget, General and Education Fund expenditures for education would total roughly $2.3 billion, with the vast majority of that spending — $1.9 billion – flowing from the latter source and the remainder — $363 million – attributable to the former. As a result, the Governor’s budget would effectively hold steady Education Fund expenditures at their current FY10-11 levels, but would shrink General Fund support for education, in the aggregate, by close to $37 million or 9 percent. The largest reductions come in the form of a $34 million (17 percent) cut to the state’s university system and an $18 million (22 percent) cut to its community college system.

Revenue Projections

The Lynch Administration projects that General and Education Fund revenue will total about $2.24 billion in the current fiscal year, FY 2011.[i] This total is almost identical to the amount specified by the state’s existing revenue plan and, as such, represents a slight drop – of approximately 0.6 percent – from actual FY 2010 collections of roughly $2.25 billion. Going forward, the Lynch Administration expects that, in the aggregate, General and Education Fund revenue will grow by 3.9 percent in FY 2012 and then by 3.8 percent in FY 2013, thus yielding collections in those funds of $2.33 billion in FY 2012 and $2.42 billion in FY 2013 – or about $4.74 billion for the biennium as a whole.

As a result, the amount of General and Education Fund revenue that the Governor expects to be available to finance public services over the next thirty-odd months is substantially different than the sum on which the House of Representatives will base its version of the budget. More specifically, on February 9, the House approved HR 11, which stipulates that General and Education Fund revenue for the FY12-13 biennium, prior to any planned changes in taxes or fees, will total $4.45 billion – or about $290 million less than the Lynch Administration’s estimates.

While some have accused the Lynch Administration of overstating its projections, it is worth examining how both the Governor’s and the House’s estimates compare to recent experience with tax collections. As the figure above suggests, total General and Education Fund revenue for the most recently completed fiscal year, FY 2010, was $2.25 billion. Under the House’s estimates, annual General and Education Fund revenue would remain below this level in FY 2011, FY 2012, and FY 2013; if the Governor’s estimates are realized, revenue would climb above this level by roughly $80 million in FY 2012 and by about $170 million in FY 2013.

Stated slightly differently, the House projects that General and Education Fund revenue will shrink by 0.1 percent per year on average between FY 2010 and FY 2013. The Governor estimates it will grow by 2.4 percent per year on average over that period, roughly the same rate at which such revenue grew on an annual basis between FY 2000 and FY 2010. To be sure, the comparison between projected and historic growth rates has its limitations. For instance, growth rates over the past decade do not strictly reflect the expansion in the state’s tax base; they are also a function of any changes in tax policy made during that time. Moreover, FY 2000 was near the peak of an economic cycle, while FY 2010 was much closer to an economic trough. Still, as many of the economists and other analysts that testified during the joint economic briefings held by the House and Senate Ways and Means and Finance Committees in January offered a relatively positive assessment of New Hampshire’s economic prospects, it seems more likely that state revenue will begin to experience a return to prior rates of growth than to continue to decline.

[i] In order to allow for comparisons over time, the General and Education Fund revenue collections cited throughout this Brief are presented on a gross basis and therefore do not include the effect of transfers that will be made from meals & rooms tax collections to finance school building debt service payments.

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