On Thursday, March 24, the House Finance Committee completed its deliberations on the state’s biennial budget bills – HB1 and HB2, the so-called “trailer” bill – and forwarded its recommended changes to those bills to the full House of Representatives for its consideration.
Under the Committee’s recommendations, the state would spend approximately $4.4 billion from its General and Education Funds over the course of the FY 2012-2013 biennium, close to $300 million below Governor Lynch’s proposed budget for the same period and approximately 10 percent less than the $4.9 billion the state expects to spend from those funds and in federal stimulus monies by the close of the current FY 2010-2011 biennium. Accordingly, the Committee’s recommendations, if enacted, would entail either the outright elimination of, or exceptionally sharp reductions to, a wide range of vital public services and programs. In particular, the House Finance Committee would reduce General Fund support for New Hampshire’s university and community college systems by $135 million in the aggregate, an amount equal to 49 percent of what they now receive. It would also dramatically curtail the payments the state makes to local hospitals for the care they provide to uninsured patients and Medicaid recipients, as well as funding for mental health services for adults and children, shrinking the former by some $115 million in General Funds alone and dropping the latter by $25 million.
Given a projected deficit of roughly half a billion dollars for the FY12-13 biennium, some degree of spending reductions were certain to emerge from the Finance Committee’s deliberations, just as Governor Lynch counted upon $175 million in expenditure changes to help balance his proposed budget. Still, the cuts to public safety, health and social services, and education that were put forward by the House Finance Committee are particularly steep, for at least two reasons.
First, the leadership of the House of Representatives has repeatedly expressed a desire to avoid “downshifting” costs to local government. The changes recommended by the House Finance Committee succeed in reversing some of the major reductions in aid to cities, towns, and school districts contained in the budget proposed by the Governor, but, in achieving that outcome, the version of the budget crafted by the House Finance Committee will impose other costs, directly and indirectly, now and in the future, on New Hampshire residents and the communities in which they live. To take just one example, declining state support for services for the mentally ill will likely lead to escalating police and fire costs, as first-responders will be compelled to assist those who may pose a threat to themselves or others because they are no longer receiving the treatments they need.
Second, the revenue projections on which the House Finance Committee’s version of the FY12-13 budget is based are significantly more conservative than those employed by the Governor. As noted in earlier NHFPI publications, HR 11, approved by the House of Representatives in February and re-affirmed in the Finance Committee’s amendments to HB 2, estimates that General and Education Fund revenue will grow by just 1.0 percent in FY 2012 and by 1.5 percent in FY 2013, thus remaining below its FY 2010 level throughout the biennium. Consequently, the House predicts that the state will collect some $290 million less in General and Education Fund revenue than the Lynch Administration anticipates, leading to far steeper spending reductions than those found in the Governor’s budget.
Importantly, in the event that the state collects more revenue in the coming months than the House now anticipates, the Finance Committee has made quite clear that it will not use those funds to mitigate cuts to institutions of higher learning or to critical services for the mentally ill and at-risk children. Rather, the House Finance Committee included an amendment among its recommendations to express the intent of the House of Representatives to provide “tax and fee relief” via four specific measures — HB 37, HB 154, HB 166, and HB 213 – should “state revenues exceed … adopted revenue estimates.” In other words, the Finance Committee’s top priority for any additional revenue that the state may collect is to cover simply the initial costs of permanent changes in tax policy, changes that would reduce state revenue by tens of millions of dollars each year and that would direct substantial benefits to visitors to the state or to large and profitable corporations operating not solely in New Hampshire, but around the globe.
The remainder of this Budget Brief examines the House Finance Committee’s spending and revenue recommendations in greater detail.
Major Expenditure Proposals
General Fund appropriations for general government, which includes funding for the legislative branch, the state treasury, the Governor’s office, and other executive branch agencies, would amount to $520 million in FY12-13 if the Finance Committee’s recommendations were enacted into law. [i] This level of funding represents a drop of approximately $98 million – or 16 percent – from anticipated FY10-11 levels and is only slightly below the level proposed by the Governor. The bulk of this reduction is due to the Committee’s decision largely to follow the Governor’s lead and eliminate all but $7 million of the state’s contribution on behalf of local governments to the New Hampshire Retirement System; that contribution will total $97.5 million in the FY10-11 biennium and was slated to rise to at least $125 million for FY12-13. At the same time though, the Committee’s version of the budget includes provisions that would, among other changes to the state’s public employee pension system, raise the retirement age for certain employees and significantly increase employee contribution rates, changes that appear designed to reduce the system costs borne by public employers – and by extension, the state budget – and to shift them onto public employees. In fact, the Finance Committee anticipates that such changes will result in annual savings of roughly $43 million for local governments, costs that would instead fall onto workers themselves.[ii]
In addition, the Committee’s recommendations would hold the distribution of meals and rooms tax revenue to municipalities to its FY11 level in both years of the coming biennium, whereas the Governor had suggested a $5 million increase in the distribution in FY13.
Under the Finance Committee’s proposed budget, General Fund expenditures for the administration of justice and public protection would appear to grow, in the aggregate, from $435 million in the current biennium to $467 million for FY12-13, a difference of just over 7 percent. However, a sizable portion of this difference arises from the Committee’s proposed diversion of plea by mail revenue, a move that would boost the General Fund by more than $15 million according to the Legislative Budget Assistant. What’s more, while initial appropriations would seem to rise substantially, the Committee’s proposed budget contains several so-called “back of the budget” changes, including a $21 million reduction in judicial branch funding and a $5 million cut in support for the Department of Corrections. Indeed, this latter provision has prompted the Commissioner of the Department of Corrections, William Wrenn, to inform the Committee, via letter, that the “Department cannot continue to operate in a safe, effective, and efficient manner if the proposed cuts take effect” and could achieve such cuts only through the closure of the Northern New Hampshire Correctional Facility in Berlin, an institution that currently houses 618 inmates and employs 185 workers.[iii]
Resource Protection & Development
The recommendations put forward by the House Finance Committee would shrink General Fund appropriations for resource protection and development from $69 million in anticipated spending for the FY10-11 biennium to $56 million for FY12-13, a drop of 19 percent. Of the two departments that comprise much of this expenditure category, the Department of Resources and Economic Development would experience a reduction of just over $1 million in General Funds relative to FY10-11, while the Department of Environmental Services would be slated for a cut of $11.8 million in the coming biennium.
General Fund appropriations for transportation under the Finance Committee’s budget plan would be identical to those in the version of the budget put forward by the Governor: approximately $1.9 billion for the coming biennium or about half a million less than what the state will likely spend in the current two-year budget cycle.
Still, much of the state’s spending on transportation needs are attributable to the Highway Fund – and that is where the key differences between the Governor and the House Finance Committee lie with regard to this expenditure category. In particular, unlike the Governor, the House Finance Committee recommends allowing a temporary surcharge on motor vehicle registration fees, which had been in place through the FY10-11 biennium, to expire. When combined with other changes proposed by the Governor, this means Highway Fund expenditures would be some $85 million lower under the House Finance Committee’s recommendations over the course of the biennium.
The House Finance Committee has proposed General Fund appropriations for health and social services in the FY12-13 budget totaling $1.308 billion, representing a drop of $204 million – or a 14 percent difference – from the Governor’s FY12-13 budget recommendation and a drop of $22 million from actual and authorized General Fund expenditures for this category in FY10-11. Of note, the House Finance General Fund appropriation for the Department of Health and Human Services (DHHS) in the coming biennium is not only lower than FY 10-11 actual and authorized expenditures, but also brings DHHS appropriation levels to a four year low, representing funding levels below FY 2008-2009 General Fund net appropriations. These proposals may help to close the state’s immediate budget gap but will have costly outcomes across the state: additional health care cost hikes, employment barriers for working families, and greater burdens on already strained community services such as police and fire departments and schools. Below are just some of the reductions to health and human services spending proposed by the House Finance Committee.
I. Changes to Services that Help to Manage Health Care Costs
A. Limiting Uncompensated Care Funds to Critical Access Hospitals
The House Finance Committee has proposed reducing the Governor’s FY12-13 General Fund budget recommendation of $166 million for uncompensated care by $115 million, effectively reducing total funds allocated for this purpose by $231 million. Typically, to provide hospitals with some financial relief for uncompensated care – losses related to care for the uninsured and for Medicaid members – New Hampshire participates in a federal matching program called the Disproportionate Share Hospital program (DSH). Through DSH, a state receives one dollar in federal funds for every non-federal dollar contributed toward hospitals’ uncompensated care costs. Over the last 10 years, the New Hampshire budget has provided approximately $150 to $250 million non-federal dollars for uncompensated care every biennium and has successfully drawn down an additional $150 to $250 million in federal aid that, together, are paid to the state’s hospitals.[iv] While DSH enabled New Hampshire to reimburse every hospital for some portion of its uncompensated costs in FY 11, the state was not able, even with federal matching funds, to fully compensate all New Hampshire hospitals, in the aggregate, for their total uncompensated care losses.[v]
In making this cut, the version of the budget put forward by House Finance would limit uncompensated care funding distributions to just 13 of the state’s 28 hospitals, known as critical access hospitals (CAH). Critical access hospitals are rural, acute care hospitals with 25 or fewer beds and are frequently not only the sole source of health care in some regions of the state, but also a major regional employer. The House Finance Committee has limited uncompensated care funding to these hospitals to avoid closures of hospitals in rural areas of the state, as well as to avoid significant employment losses in those regions.
The remaining fifteen institutions will not receive any reimbursement for their uncompensated care losses. Uncompensated care may represent as much as 2.5 percent to 14.9 percent of the general revenue a hospital expects to collect – from patients and other payers – for services provided.[vi] Without uncompensated care funding, hospitals will cover these deficits by charging other patient populations – mostly the privately insured – more than the actual cost of their care. In 2009, a year in which all New Hampshire hospitals received some uncompensated care reimbursement, private insurance payments were $800 million above expenses.[vii] In other words, cost-shifting occurs even when some reimbursement for uncompensated care is provided. The complete absence of uncompensated care funding for most of the hospitals in the state will likely push health insurance premiums even higher.
B. Reduction of Mental Health Services for Children and Adults
The House Finance plan reduces the Governor’s FY12-13 General Fund budget recommendation of $106 million for mental health services by $25.1 million. This funding reduction will force 3,500 adults with severe mental disabilities and 3,400 children with serious emotional disturbances either to forgo necessary treatment or be placed on a waitlist to receive it. In the absence of these services, many of these patients will likely have increased contact with law enforcement and hospital emergency departments, thus shifting the cost of aiding these individuals from the state budget to local governments and organizations.
C. Reduction of Family Support Services
The recommendations put forward by House Finance reduce the Governor’s FY12-13 General Fund budget recommendation for Family Support Services by an additional $7.8 million. These services enable 3,000 families to be the primary caregiver for family members with developmental disabilities, including assistance with home modifications and respite care. Without these supports for families, there will likely be an increase in demand for other developmental services provided by the state. There may also be an increase in more expensive, institutional, long-term care for which the state may be responsible, if families find themselves unable to remain the primary caregiver for their disabled family members.
D. Reduction in Public Health Funding
General Fund appropriations for public health programs would be $3.5 million lower in FY12-13 under the House Finance Committee’s budget than under the Governor’s. General Fund budget reductions or eliminations will be made to all of the following public health programs if the House Finance proposal is enacted: emergency preparedness programs to respond to biological, chemical or other health threats; surveillance and epidemiology labs that track infectious diseases and food safety events; family planning and community health center programs that provide preventive health care services and medical treatment, which in turn, divert people from expensive hospital emergency department visits; tobacco cessation programs; and nutrition support for low-income women and children. These cost-effective programs reach tens of thousands of residents and help to reduce acute and avoidable health care emergencies and conditions that can be drivers of high health care costs.
II. Changes to Services That Help Manage Employment Barriers
A. Reduction of Support for Childcare Services
The House Finance proposal reduces the Governor’s FY12-13 budget recommendation for childcare services by an additional $10.2 million. This reduction will create the need for a waitlist for childcare services in FY 12 for up to 4,000 children, erecting a significant obstacle to remaining employed for families who are working and are on the path to becoming self-sufficient. In the absence of affordable childcare, some families may experience a loss of employment and, in turn, would be forced to seek financial assistance from the state or local cities or towns.
B. Reduction in Waiver Day Services
The House Finance proposal reduces the Governor’s FY12-13 General Fund budget recommendation for Waiver Day Services by an additional $5.7 million. Day Services enable nearly 400 adults with developmental disabilities to remain at home with their families and allow those family members to maintain their employment. Day Services provide assistance with basic living skills and safety skills at home and in the community, as well as vocational and volunteering opportunities for developmentally disabled people. Elimination of day services may result in families being forced to leave the workforce in order to care for their adult child at home or to make the difficult choice to seek more expensive options such as costly out-of-home placements or twenty-four hour/residential support. These reductions create real barriers to employment for disabled adults and their family members and may increase demands for more expensive, institutional care for which the state would be responsible.
C. Repeal of the Unemployed Parents Program
The House Finance proposal reduces the Governor’s FY 12-13 General Fund budget recommendations for services for unemployed parents by $4.5 million and repeals the statutory language authorizing the program as a whole. This is a program that provides employment training services and financial assistance to families in which one parent is unemployed or underemployed. These changes will affect approximately 250 families who are struggling to enter the workforce or to keep a job.
III. Changes to Existing Community Services and Infrastructure
A. Changes to Local Welfare
The House Finance Committee has proposed suspending, for the FY 12-13 biennium, the statute that requires cities and towns to provide local welfare assistance, but will also require municipalities to maintain their level of current spending. Through this measure, the House Finance Committee is attempting to ensure that cities and towns will not face additional costs as a result of the budget cuts that it is proposing, yet, the elimination of supports and financial assistance across numerous service sectors will drive increased demand for assistance from local governments. A maintenance of effort standard may preserve local welfare assistance for some people in need, but will not provide the additional resources needed to meet the increased demand likely to result from the proposed budget cuts.
B. Elimination of CHINS Program
The Committee’s proposal eliminates the Governor’s FY12-13 General Fund appropriation of $7.2 million for the child in need of services (CHINS) program and repeals the statute that created the program. CHINS provides a court ordered process through which youth can be ordered to receive – and are provided – treatment, care, guidance counseling and rehabilitation to help them overcome difficulties that if untreated, could lead to being charged with violations of the law as a minor. In fact, the Department of Juvenile Justice estimates that twenty percent of children who are currently successfully diverted away from delinquency adjudication by receiving CHINS services will become court involved in the absence of these services. The elimination of CHINS will put more pressure on families, local law enforcement, and schools to maintain a safe setting for all young people in the community.
Expenditures for education, from both the General Fund and the Education Fund would total $2.24 billion for FY12-13 under the House Finance Committee’s version of the budget. Of this sum, approximately $1.92 billion would flow from the Education Fund and $321 million would derive from the General Fund. Thus, the House Finance Committee would devote $42.3 million less in General Funds to education in the coming biennium than would the Governor and $79.1 million less from that source than the state is projected to spend over the course of the current FY10-11 biennium.
These declines occur principally because, while the Finance Committee would fully fund school building aid and make less steep reductions in catastrophic aid than would the Governor, it would also make exceptionally sharp cuts to New Hampshire’s university and community college systems. More specifically, the recommendations offered by the Finance Committee would slash General Fund appropriations for the University System of New Hampshire from an anticipated level of $197 million for FY10-11 to $83.3 million for FY 12-13, a drop of 58 percent and well beyond the already substantial reductions contained in the Governor’s budget plan.
Cuts of this magnitude would likely exacerbate recent trends in the affordability of a college education in New Hampshire. Data from the New Hampshire Postsecondary Education Commission indicate that, between FY 2002 and FY 2010, state appropriations for the university system have grown by just 0.1 percent per year in real terms. In fact, on both a per capita basis and relative to personal income, state appropriations for higher education in New Hampshire were the lowest in the nation in FY 2010.[viii] Over the same period, however, the average in-state tuition at a public four-year college or university in New Hampshire has climbed by 4.2 percent per year, after adjusting for inflation, from $6,837 in 2002 to $9,506 in 2010.
Similarly, the budget put forward by the House Finance Committee would reduce state support for New Hampshire’s community colleges by 36 percent relative to anticipated outlays for FY10-11, dropping spending in this area from $81.5 million to $52.5 million. The decision to add to the Governor’s proposed reductions to the community college system is particularly jarring when juxtaposed with the conclusions of a recent study from the New England Public Center at the Federal Reserve Bank of Boston. It finds that “the supply of skilled workers is not likely to keep pace with demand over the next two decades” and notes that “New England will likely face even greater challenges in maintaining an adequate supply of skilled workers compared with the nation – particularly those required to fill ‘middle-skill’ jobs that require some postsecondary education but less than a bachelor’s degree.” As a result, the study argues that “now is the time to make additional investments in human capital” and goes on to suggest that “strengthening community colleges can be a win-win-win for students, employers, and the region,” an outcome that seems unlikely to occur should the Finance Committee’s recommendations become law. [ix]
Revenue Projections and Proposed Tax and Fee Changes
As noted at the outset, the version of the budget recommended by the House Finance Committee relies on estimates for the amount of General and Education Fund revenue that the state will collect in the next two years that are far more conservative than those produced by the Lynch Administration. More specifically, the Committee anticipates that baseline General and Education Fund revenue will total $4.42 billion for the FY12-13 biennium, a figure that would represent a decline of more than 1 percent from the $4.48 billion the state is expected to collect in those two funds during the FY10-11 biennium. In contrast, the budget put forward by Governor Lynch assumes that these revenue sources would grow by about 5 percent, in the aggregate, to about $4.71 billion. This roughly $290 million difference between the two sets of revenue estimates is, again, one of the driving forces behind the magnitude of the spending cuts backed by the House Finance Committee.
Given the inherent uncertainty of projecting state tax and fee collections and the relatively slow pace of the nation’s economic recovery, one could argue that the House Finance Committee’s revenue estimates represent an abundance of caution. However, given the breadth and depth of the budgetary changes envisioned by the Committee, there should be little argument that, should actual revenue collections exceed the Committee’s expectations, any excess should be used to restore cuts to essential public services.
Yet, one provision of the Committee’s recommendations would do almost precisely the opposite. It expresses the intent of the House of Representatives to support four specific measures — HB 37, HB 154, HB 213, and HB 166 – to provide “tax and fee relief” should “state revenues exceed … adopted revenue estimates.” As the figure below details, these four measures, if enacted into law, would reduce revenue over the course of FY12-13 by $97 million, funds that could be otherwise used to undo extensive cuts to higher education or to health and social service programs.
Worse still, the four measures specified in the Committee’s amendment to HB 2 represent less than half of the total reduction in tax revenue approved by the House of Representatives to date. As the figure at right further indicates, the House as a whole has already voted in favor of legislation to reduce the cigarette tax rate by 10 cents per pack (HB 156); to expand the reasonable compensation deduction certain types of businesses are allowed to use in determining the business profits tax (BPT) they owe (HB 557); and to increase the number of years over which businesses can reduce the BPT they owe should they have particularly large liabilities under the business enterprise tax (HB 187). Based on the fiscal notes produced by the Department of Revenue Administration, the first two of these three bills could reduce tax revenue by as much as $129 million over the coming biennium; the Department is unable even to estimate how much revenue the enactment of HB 187 would drain away. In short, then, at a time that the House of Representatives is poised to consider a budget that would reduce spending by close to half a billion dollars, putting new and sizable strains on families and communities across the state, it has already expressed its desire to cut taxes by some $220 million.
[i]Unless otherwise noted, the appropriations figures discussed in this Budget Brief are exclusive of so-called “back of the budget” changes. For instance, the $520 million in General Funds the House Finance Committee would devote to general government for FY12-13 excludes the $5.2 million reduction in salaries and benefits at the Department of Revenue Administration that the Committee would achieve through legislative language at the “back of the budget.”
[ii] House Committee on Finance, Budget Briefing – House Bill 1 & 2, March 29, 2011, p. 12.
[iii] New Hampshire Department of Corrections, Office of the Commissioner, Letter to the Chair and Members of House Finance Committee Division I, March 17, 2011.
[iv] Based on Department of Administrative Services, New Hampshire Comprehensive Annual Financial Report for year ending June 30 2009, p. 111.
[v] Based on “DHHS Projections 12-13 012111.xls DHHS FAV ALT NO TRANS,” Uncompensated Care Funding History of 2011 presented to Division III of the House Finance Committee by the Department of Health and Human Services, March 10, 2011.
[vi] HB2, as amended by House Finance, appears to restrict the remaining $115 million General Fund dollars to Medicaid provider payments.
[vii] Norton, S., et al. “Health System Cost-Shifting in New Hampshire,” New Hampshire Center for Public Policy Studies, February 2010, p. 1.
[viii] New Hampshire Postsecondary Education Commission, The Status of Postsecondary Education in New Hampshire, February 2010, p. 17-19.
[ix] Modestino, Alicia Sasser, Mismatch in the Labor Market: Measuring the Supply of and Demand for Skilled Labor in New England, Federal Reserve Bank of Boston, November 2010, p. 40-47.