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The House Finance Committee’s Proposed FY 2016-2017 Budget

Constrained by state revenues that have failed to rebound since the national recession and a refusal to consider options to bolster them in a meaningful and sustainable fashion, the version of the fiscal year 2016-2017 budget approved by the House Finance Committee would provide significantly fewer resources for an array of public services than the budget recommended by Governor Hassan in February. Compared to the Governor’s plan, the budget the full House of Representatives will consider this week would reduce investments in physical infrastructure, higher education, and other areas critical to New Hampshire’s economic future and would imperil services designed to protect the most vulnerable residents of the Granite State – the sick, the elderly, and the homeless. Moreover, the House’s proposed budget, if enacted into law, would forego more than a quarter of a billion dollars in federal funds, including the loss of over $200 million in FY 2017 due to its failure to extend the New Hampshire Health Protection Program. Finally, the House’s version of the FY 2016-2017 budget keeps New Hampshire on shaky fiscal ground over both the short- and the long-run; should assumptions about declines in Medicaid caseloads fail to hold or if other savings are not realized, budget deficits could emerge prior to the close of the biennium, while the use of $50 million in one-time funds leaves a hole that future budget writers will have to fill.

 

Overview

The House’s budget would spend $4.58 billion in General and Education Funds over the FY 2016-2017 biennium, a sum that is $166 million (or 3.5 percent) less than that recommended by Governor Hassan for the same period. While General Fund appropriations in the House’s budget plan (prior to adjusting for anticipated lapses or so-called “back of the budget” reductions) are roughly $109 million more than expected General Fund outlays for FY 2014-2015, they are $70 million less than what was initially appropriated at the start of the current biennium. From a broader perspective, total fund appropriations (which include federal funds as well as highway and other dedicated state funds) would amount to $11.16 billion for FY16-17 under the House’s proposal, $328 million below the Governor’s recommended level.

The differences between the House’s and Governor’s versions of the FY16-17 budget can be traced largely to disparate assumptions about the amount of General and Education Fund revenue New Hampshire’s existing tax and fee structure will produce over the next two years as well as to the House’s nearly wholesale rejection of the Governor’s proposals to shore that structure up. The Governor’s budget proposal projected that General and Education Fund revenue will grow by 2.7 percent between FY 2015 and FY 2016 and then by 1.9 percent between FY 2016 and FY 2017, yielding $4.6 billion over the biennium. In contrast, the House’s budget assumes that those sources of revenue will rise by just 1.3 and 0.95 percent respectively over the next two years, producing $4.5 billion or $103 million below the Governor’s estimate. Moreover, the Governor’s budget counted on changes in law, including an increase in the tobacco tax and restrictions on the ability of large multinational corporations to shelter profits in tax havens overseas, to generate an additional $127 million in General and Education Fund revenue. The House’s budget would generate nearly $67 million over the biennium from policy changes, almost all of which, such as the one-time transfer of $50 million in funds from the Renewable Energy Trust Fund, are temporary in nature.

The remainder of this Budget Brief examines the House’s proposed FY16-17 budget across six major categories – General Government, Administration of Justice and Public Protection, Resource Protection and Development, Transportation, Health and Social Services, and Education – and explains key differences between it and the plan put forward by Governor Hassan.

 

Proposed Appropriations

General Government

Under the version of the budget approved by the House Finance Committee, General Fund appropriations for General Government purposes would amount to $538.6 million for FY 2016-2017, roughly 3 percent or $16.6 million more than what was initially appropriated for such purposes in FY 2014-2015, but $16.0 million less than the level recommended by the Governor. Appropriations within this category provide funding for the Governor’s own office, the Legislature, the Department of Revenue Administration, the Department of Administrative Services, and the State Treasury.

General Government - HFC - FY1617The chief difference between the two versions of the budget lie in their approach to the distribution of meals and rooms tax revenue to cities and towns. While Governor Hassan’s budget proposal would have suspended, for FY 2016 only, the formula under which such distributions are meant to grow in line with any increase in meals and rooms tax collections from one year to the next, it nevertheless would have appropriated $65.4 million for such distributions in FY 2016 and $73.7 million in FY 2017. In contrast, the House’s budget plan freezes such distributions at their FY 2015 level of $63.8 million in both years, meaning that it provides $11.5 million less to municipalities over the biennium. Neither budget would restore the $25 million in annual general revenue sharing with cities and towns that has been suspended since 2009.

One other notable difference between the budget plans put forward by Governor Hassan and the House Finance Committee is that the latter provides an additional $904,000 to the Department of Revenue Administration over the course of the biennium. Such funds will permit the Department to hire two more multi-state auditors and to participate in the Multistate Tax Commission’s joint audit program; the House’s version of the budget, in turn, projects that the allocation of such resources will yield an additional $4 million in tax collections during FY16-17.

Administration of Justice and Public Protection

General Fund Appropriations for the Administration of Justice and Public Protection – a category of the budget that includes the Departments of Agriculture, Justice, Safety, Labor, and Corrections, as well as the state’s court system – would total $480.0 million for FY 2016-2017 if the House’s version of the budget were to become law. This proposed level of General Fund spending is $6.4 million (or 1.3 percent) above that envisioned by the Governor and $35.7 million above appropriations for FY 2014-2015.

Admin of Justice - HFC - FY1617However, the entirety of the House’s apparent General Fund increase for this expenditure category is attributable to changes in the manner in which the Department of Safety is funded. Under the Governor’s plan, the Department of Safety would receive $354.3 million in total funds over the FY16-17 biennium, just $5.4 million of which would flow from the General Fund and $111.8 million of which would derive from the Highway Fund. The House’s version of the budget would allocate a slightly smaller amount of total funds to the Department – $349.3 million – but $71 million would derive from the General Fund and only $44.4 million would come from the Highway Fund. In other words, the budget recommended by the House Finance Committee seeks to shift funding for the Department of Safety away from the Highway Fund and into the General Fund.

Beyond this sizable shift, the principal difference between the Governor and the House with regard to spending for the Administration of Justice and Public Protection can be found in the Department of Corrections. The Governor recommended $227.9 million in General Fund appropriations for the Department over the course of FY 2016-2017; the House Finance Committee has proposed $216.5 million – a decrease of $11.4 million. Most of that decrease – roughly $8 million – is attributable to savings that the Committee anticipates will result from the delay in the opening of the new women’s prison in Concord until September 2017.

Resource Protection and Development

Resource Protection - HFC - FY1617General Fund appropriations for Resource Protection and Development would equal $59.2 million in FY 2016-2017 if the House Finance Committee’s recommendations became law, with General Fund support for the Department of Resources and Economic Development (DRED) and the Department of Environmental Services (DES), the two entities that comprise the bulk of this category, totaling $22.9 million and $35.9 million respectively. In comparison, Governor Hassan’s budget plan would have directed $68.8 million in General Funds – or $9.6 million more – to this category, with DRED receiving $30.7 million and DES $37.7 million.

During its consideration of the budget, the House Finance Committee elected to remove roughly $3.7 million in General Funds from DRED in each year of the biennium, monies that were slated to be used for tourism promotion.

Transportation

From the perspective of the General Fund, the versions of the FY 2016-2017 budget backed by the Governor and the House are identical. Each would allocate $1.98 million in General Funds over the course of the biennium to transportation purposes, specifically for a portion of the operating costs for the Division of Aeronautics, Rail and Transit, which, among other functions, contributes to public safety through inspections of public use airports as well as of railroad tracks throughout the state.

Nevertheless, the two budgets differ noticeably from a broader, total fund perspective. Where Governor Hassan’s budget would have allocated $1.21 billion in total funds for transportation purposes, the House Finance Committee’s plan would spend $1.17 billion. In particular, over the course of the biennium, the House Finance Committee’s budget would reduce Highway Fund spending, relative to the levels proposed by Governor Hassan, as follows:

  • $4.8 million for winter maintenance;
  • $12.5 million for the Department’s Mechanical Services Bureau, including $8.4 million less for the purchase of new or replacement equipment;
  • $8 million less in block grants to municipalities with certain classes of roadways, and;
  • $3.4 million less to cities and towns to assist in the construction or repair of state highways.

Transportation - HFC - FY1617Finally, to supplement baseline Highway Fund revenue (which consists chiefly of the gas tax and motor vehicle registration fees) and to meet an anticipated shortfall in the Fund, Governor Hassan had proposed a variety of fee increases. With the exception of a $3 increase in the charge for vanity license plates, the House Finance Committee appears to have rejected those changes and has instead suggested redirecting a portion of last year’s gas tax increase in order to support daily operations at the Department. As enacted last spring, SB 367 increased New Hampshire’s gas tax by 4.2 cents per gallon and dedicated the roughly $32 million per year it was anticipated to yield to several distinct purposes, including grants to cities and towns, debt service on bonds issued for improvements to I-93, and bridge rehabilitation programs. The budget plan adopted by the House Finance Committee would allocate roughly $10 million arising from the gas tax increase in FY16 and $14 million in FY17 directly to the Department of Transportation.

Health and Social Services

The House’s version of the budget would appropriate $1.23 billion in General Funds for health and social services purposes during the FY 2016-2017 biennium, an amount that is approximately $119 million less than the level of support recommended in the Governor’s version of the budget. The full amount of the difference falls on the Department of Health and Human Services (DHHS), as the Governor and the House appear to be in agreement in terms of General Fund support for the New Hampshire Veterans’ Home and the Office of Veterans’ Services. While the House’s proposed FY 2016-2017 appropriation is approximately $42 million more than anticipated General Fund expenditures in this area in FY 2014-2015, it is close to $108 million less than what was originally appropriated for the current biennium back in the spring of 2013.

HHS - HFC - FY1617Among some of the more notable General Fund changes to the Governor’s budget approved by the House Finance Committee within this category are:

  • A $30.4 million reduction for the Bureau of Developmental Services – This reduction would affect home- and community-based services for more than 5,000 Granite Staters, including adults and children with developmental disabilities as well as adults with acquired brain disorders.
  • A $10.5 million reduction in social services for the elderly – These services are currently provided through the Bureau of Elderly and Adult Services (BEAS) and include home-delivered meals, transportation, and caregiver supports. This cut amounts to a 50 percent reduction relative to the amount included in Governor Hassan’s proposed budget.
  • The elimination of ServiceLink – To realize General Fund savings of $2.6 million over the biennium, the House Finance Committee elected to eliminate ServiceLink, which provides assistance with long-term care services for the elderly and people with disabilities.
  • The removal of $2 million in state support for Community Health Centers – According to DHHS, in 2013, Community Health Centers (CHCs) and related agencies served more than 118,000 individuals across the state, providing not only primary care but also maternal and child health services; the Department has also observed that in some parts of the state, such as Coos County, CHCs may be the only health care provider available.
  • A $4 million reduction in support for emergency homeless shelters – Based on DHHS data, such funding helped to support 42 shelter programs in FY 2014, serving 4,760 people. Governor Hassan’s proposed FY 2016-2017 budget recommended General Fund expenditure of $8 million, so the Committee’s decision amounts to halving the amount of funds available for these purposes.
  • The failure to reauthorize the New Hampshire Health Protection Program – Under current law, the Health Protection Program, which presently serves approximately 37,000 low-income adults is scheduled to sunset on December 31, 2016. Governor Hassan’s budget includes provisions to make the program permanent, while leaving in place protections against the potential loss of federal funds; it also devotes $12 million in General Funds to meet New Hampshire’s obligation to match those federal funds received for the program in the latter half of FY 2017, should it be extended. The House Finance Committee deleted those provisions and the related appropriation, meaning that, in less than two years’ time, tens of thousands of Granite Staters will be denied access to affordable health care and that the state will forego more than $200 million in federal funds in FY 2017 alone. The Committee’s version of the budget would also terminate one element of the Health Protection Program, known as the Health Insurance Premium Program (HIPP). The HIPP covers out of pocket costs for adults who have employer-sponsored health care and who would otherwise be eligible for Medicaid coverage; the House Finance Committee estimates that its elimination will lower General Fund outlays by $4 million over the biennium.

Finally, several provisions of the House’s version of the budget related to health and human service could heighten the possibility that New Hampshire encounters a budget deficit before the close of FY 2017. For example, the House’s version of the budget mandates that DHHS consolidate its district offices in order to realize savings of $2 million over the biennium. Similarly, the House’s version of the budget assumes that Medicaid caseloads will decline by 2.5 percent over the course of the biennium, rather than the 1.4 percent drop on which Governor Hassan’s budget is predicated, and that, in turn, New Hampshire will expend $7.1 million less in General Funds. If such administrative savings are not achieved or if such caseload projections do not come to pass, the relatively small surplus the House’s plan would generate – $182,000 at the end of FY 2017 – likely would not be sufficient to compensate.

Education

The FY 2016-2017 budget proposal put forward by the House Finance Committee would set appropriations for education, supported by both the General and Education Funds, at $2.32 billion, a figure that is $51 million below the level recommended by Governor Hassan and $26 million less than what was initially appropriated for these purposes in FY 2014-2015.

Within higher education, the House Finance Committee would allocate $153 million in General Funds over the biennium to the University System of New Hampshire (USNH), which includes not only the University of New Hampshire but also Plymouth State University, Keene State College, and Granite State College.  That amount is $28 million less than the one backed by the Governor and is exactly equal to what was originally appropriated for FY 2014-2015; it remains some $44 million – or 22 percent – less than the $197 million General Fund appropriation USNH received in FY 2010-2011.  The Community College System of New Hampshire, which consists of the state’s seven community colleges and their associated local academic centers, would receive $86.3 million in General Funds in FY 2016-2017 if the House’s version of the budget became law.  That level of support is roughly $3.8 million higher than what it will receive from the General Fund in the current biennium, but $5.2 million less than what it would have garnered under the Governor’s budget plan.

Education Funds disseminated to local school districts for grades K-12 would total $1.89 billion under the House’s version of the budget; thus, the House would allocate $24.2 million less than the total suggested by Governor Hassan in her budget and about $17 million less than districts are anticipated to receive in the current biennium.

Education - HFC - FY1617Though the House Finance Committee recommends increasing support for charter schools – devoting approximately $3.1 million more in Education Funds over the biennium toward such schools than the Governor’s suggested amount – it would reduce basic education adequacy aid.  More specifically, while the House’s proposal would, in FY 2017, fully fund catastrophic education aid – monies intended to help cover the cost of children with greater needs – by appropriating an extra $7.5 million compared to the Governor’s suggested amount, it would, also in FY17, lower the amount of funds available for so-called stabilization grants by about $32 million relative to current law.  (At present, districts receive additional funds, known as stabilization grants, to help mitigate any declines in basic adequacy aid arising from drops in enrollment or other factors.)  The House’s proposed budget would limit the loss of stabilization funds a district could experience to $750,000. Like the Governor’s recommended budget, it would also increase the statutory cap on the increase any one district can receive in adequacy aid from one year to the next, from 108 percent of the prior year’s amount to 115 percent.

A preliminary analysis of the impact of the House’s proposed education funding changes would have on individual communities, conducted by the Office of the Legislative Budget Analyst, suggests that 170 communities (or about 70 percent of the 245 examined) would experience a reduction in education aid in FY 2017 due to such changes; 45 (or approximately 18 percent) would witness no change relative to current law, and; 30 (or just about 12 percent) would see a jump in the amount of aid received.  Under the House’s plan, ten communities – including Grantham, Windham, Bedford, Kensington, and Dover – would see education aid rise by 10 percent or more in FY 2017, relative to current law, while 74 cities and towns would see it drop by that magnitude.  Twenty-three districts would incur the maximum reduction of $750,000.

 

Revenue

All told, the version of the FY 16-17 budget approved by the House Finance Committee expects General and Education Fund revenue to be $4.57 billion over the course of the biennium, a figure that is $160 million less than the total on which Governor Hassan’s budget plan was predicated. As the table below outlines, this difference arises from three sources: baseline revenue estimates, permanent policy changes, and the use of one-time or temporary sources of revenue.

GF-EF Revenue Comparison - Gov v HFC

Baseline revenue estimates

As noted earlier, the Governor’s budget proposal projected that General and Education Fund revenue will grow by 2.7 percent between FY 2015 and FY 2016 and then by 1.9 percent between FY 2016 and FY 2017, yielding $4.6 billion over the biennium. In contrast, the House’s budget assumes that those sources of revenue will rise by just 1.3 and 0.95 percent respectively over the next two years, producing $4.5 billion or $103 million below the Governor’s estimate.

Much of that difference, in turn, is attributable to disparate outlooks regarding the future performance of New Hampshire’s twin business taxes – the business profits tax (BPT) and the business enterprise tax (BET) – as well as its real estate transfer tax (RETT). More specifically, the Governor’s Consensus Revenue Estimating Panel anticipates that, taken together, the BPT and the BET will rise by 2.75 percent in FY 2016 and 2.25 percent in FY 2017. In contrast, the House foresees an aggregate business tax growth rate of 2.0 percent in FY2016 and 1.9 percent in FY2017. Regarding the RETT, a $29 million gap between the two estimates essentially boils down to their differing views on FY 2016 collections. The Governor expects that RETT collections will increase by almost 8 percent over FY 2015, while the House anticipates a 1.3 percent decline. The House’s predicted retreat assumes that FY 2015 revenue is artificially inflated by a single, large, one-time real estate transaction. Accordingly, the Committee removed the value of that transaction (estimated to be around $7 million) from its FY 2015 estimate of $114.9 million and increased that adjusted base by 5 percent, its expectation for RETT growth in FY2016.

Permanent policy changes

Governor Hassan’s budget proposal recommended several changes in law to respond to the chief source of the New Hampshire’s fiscal challenges – the failure of its revenue system to rebound fully from the last recession – and to generate additional resources to support essential public services. As the table above notes, the Governor’s budget plan would have limited the ability of large and profitable corporations to use international tax havens to shift profits overseas and to reduce the amount of BPT they owe in New Hampshire. In addition, the Governor’s version of the budget would largely undo changes, enacted in 2011, relating to the reasonable compensation deduction under the BPT; such changes appear to have led to a roughly 18 percent increase in the size of that deduction between tax years 2010 and 2011 and a significant loss of revenue for the state. Further, the Governor recommended raising the cigarette tax from its current rate of $1.78 per pack to $1.99 and extending that tax to cover e-cigarettes and other similar products. The Governor counted on these proposals, when taken together, to yield an additional $125 million in General and Education Fund revenue over the course of FY 2016-2017.

The House Finance Committee rejected all of the Governor’s proposals with one exception. Both budgets anticipate that providing the Department of Revenue Administration (DRA) with the resources necessary to hire additional auditors will, in turn, yield additional tax revenue; the Governor expects that her level of funding for DRA would produce another $4 million in audit revenue in FY 2016-2017, while the House predicts its support for DRA would generate $8.1 million.

One-time sources of revenue

Both the Governor and the House have proposed creating a one-time tax amnesty program that would permit individuals and businesses with outstanding tax bills to pay them off with limited penalties or interest. While the impact of the Governor’s proposal would be felt in FY 2015, the House’s would affect FY 2016.

In addition, the budget approved by the House Finance Committee would transfer

$5 million from the Renewable Energy Fund to the General Fund at the end of FY15, $20.6 million in FY16, and $25.2 million in FY17. Revenues accrue in the Renewable Energy Fund based on assessments on electricity suppliers and are intended to support residential and commercial investments in thermal and electrical renewable technologies, such as solar panels or wood pellet furnaces.

 

Conclusion

As they have in each of the past several budget cycles, policymakers face a number of fiscal challenges as they endeavor to craft the state’s spending plan for the FY 2016-2017 biennium. Chief among such challenges are the loss of a key General Fund subsidy from the Medicaid Enhancement Tax and the more general failure of revenues to rebound fully in the wake of the national recession and a spate of recent business tax cuts.

The version of the budget put forward by Governor Hassan in February attempted to meet these challenges, in part, with permanent changes to New Hampshire’s revenue system, including increases in various motor vehicle fees intended to bolster the state’s Highway Fund and reforms to the business profits tax designed to promote its long-term sustainability.

In contrast, the FY 2016-2017 budget approved by the House Finance Committee last week and to be taken up by the full House of Representatives later this one would respond by holding appropriations roughly $166 million below the levels suggested by the Governor, particularly in areas such as higher education, local aid, and services for persons with developmental disabilities. Moreover, the House’s version of the budget would divert significant streams of revenue away from purposes to which they had been previously committed, such as a portion of last year’s 4.2 cent gas tax increase and the proceeds of the Renewable Energy Fund. Accordingly, the House’s budget, if it became law, would not only jeopardize services for some of New Hampshire’s most vulnerable citizens and imperil investments critical to its economic future, but would also leave the Granite State on the same shaky fiscal ground on which it finds itself today.

 

HFC-FY1017-GF Appropriations

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