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

Buoyed by a more optimistic outlook for revenue collections over the next two years, the version of the FY 2016-2017 budget approved by the Senate Finance Committee on May 28 would mitigate some of the spending reductions adopted by the House of Representatives in April and would reverse others completely, including cuts in tourism promotion and services for the elderly. Nevertheless, the Committee’s version of the budget lacks permanent changes in policy necessary to address the failure of the state’s revenue system to recover from the national recession. Consequently, the Committee’s budget proposal falls short of the plan offered by Governor Hassan in February, both in terms of investments critical to New Hampshire’s economic future and the amount of resources allocated to services designed to protect the most vulnerable Granite Staters.

In fact, rather than strengthen New Hampshire’s revenue system, the budget recommended by the Senate Finance Committee would erode that system even further over the long run, as it includes a set of business tax cuts that would be implemented in stages over the next several years. By reducing available revenue, the Committee’s budget would greatly impair New Hampshire’s ability to finance the public services on which residents, visitors, and employers all rely.

The Senate Finance Committee’s version of the FY16-17 budget would prove harmful to New Hampshire’s future in other ways as well. For instance, even in the wake of last year’s legal settlement, it would reduce General Fund support for mental health services over the coming two years. Moreover, like the budget passed by the House, it would reject Governor Hassan’s call to make the New Hampshire Health Protection Program permanent and would allow the program to expire at the end of 2016. The failure to reauthorize the Health Protection Program would create great uncertainty not just for the more than 40,000 Granite Staters who depend on it for access to affordable health care, but also for the providers, insurers, and others who deliver such coverage.

 

Overview

As approved by the Senate Finance Committee, General and Education Fund expenditures for the FY 2016-2017 period would total $4.66 billion, after accounting for lapses and other adjustments to appropriations. That amount represents an increase of about $65.6 million – or 1.4 percent – over the comparable figure resulting from the version of the budget approved by the House of Representatives on April 1; still, it is $81.7 million – or approximately 1.7 percent — below the level recommended by Governor Hassan in February. Total fund appropriations for FY16-17 – which includes not only the General and Education Funds, but also the Highway and Turnpike Funds as well as federal aid and other sources – would reach $11.3 billion under the Committee’s version of the budget, about $167 million more than the House, but close to $162 million less than the Governor.

To achieve these expenditure levels, the Senate Finance Committee anticipates that baseline revenue collections during FY 2016-2017 – that is, the amount of tax and fee revenue New Hampshire will collect under current law – will be higher than either the Governor initially forecast in February or than the House predicted in formulating its budget. Indeed, the Finance Committee estimates that baseline General and Education Fund revenue will total $118.5 million more during FY16-17 than the House projected. However, like the House, the Senate Finance Committee also relies upon a significant infusion of temporary resources to bring its version of the budget into balance. While the Committee did reject the House’s plan to divert $52 million from the Renewable Energy Fund to the General Fund over the coming biennium, it does depend upon the carryforward of $34 million (out of a projected $45.4 million) in FY 2015 surplus to support expenditures in the FY16-17 biennium. If that surplus is not fully realized – or if certain assumptions, such as anticipated cost savings from office consolidation within the Department of Health and Human Services, prove untenable – then state agencies would be forced to compensate with spending reductions during the biennium.

The remainder of this Budget Brief examines the Senate’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 explores key differences between it and the budget proposals backed by Governor Hassan and the House of Representatives.

 

Proposed Appropriations

General Government

General Government - SFC - FY1617The expenditure category of general government comprises a wide range of entities – from the Governor’s own offices to the operations of the legislative branch to agencies such as the departments of Revenue Administration and Administrative Services. Under the version of the budget approved by the Senate Finance Committee, General Fund appropriations for these functions would total $542.7 million, roughly $4 million higher than the level included in the budget passed by the House of Representatives, but close to $12 million less than the figure found in Governor Hassan’s budget plan.

Among the principal differences within this expenditure category among the Governor’s, House’s, and Senate’s versions of the budget are the distribution of local aid accomplished through the State Treasurer’s office and appropriations for the Department of Revenue Administration. With regards to local aid, both Governor Hassan and the Senate Finance Committee would, in FY 2017, follow the formula now in law that attempts to ensure that the portion of meals and rooms tax revenue that is distributed to cities and towns grows along with any increase in the amount of tax collected. The House, however, would leave such distributions frozen at their FY 2015 levels in both years of the biennium. Consequently, appropriations for the State Treasurer’s office, which parcels out such aid, are $5 million higher in FY 2017 under the Governor’s and Senate’s budgets than the House’s. Still, none of the three budgets restore the $25 million in annual general revenue sharing with cities and towns that has been suspended since 2009.

Under Governor Hassan’s original budget proposal, General Fund appropriations for the Department of Revenue Administration equaled $34.5 million for FY16-17. In passing its version of the budget, the House raised this amount to $35.3 million in order to allow the Department to fund three auditor positions, to hire two additional multi-state auditors, and to participate in the Multistate Tax Commission’s joint audit program. The Senate Finance Committee has recommended an appropriation of just under $35 million, thus reducing, from the House’s budget, the quantity of resources available to employ needed auditors. As noted below, such variation in funding is expected to affect the amount of General and Education Fund revenue the state collects over the next two years.

Administration of Justice and Public Protection

If the Senate Finance Committee’s version of the budget were enacted into law, New Hampshire would spend $508.3 million in General Funds for the administration of justice and public protection over the course of FY 2016-2017; expenditures in this category encompass the departments of Agriculture, Justice, Safety, and Corrections, as well as the New Hampshire court system.

Admin of Justice - SFC - FY1617Much as the House of Representatives did in crafting its version of the budget, the Senate Finance Committee would provide considerably higher levels of General Fund support for the Department of Safety over the coming biennium than those proposed by Governor Hassan, but would do so only to drain away support from other sources, such as the Highway Fund. More specifically, General Fund appropriations for the Department of Safety would equal $53.5 million under the Senate Finance Committee’s version of the budget. However, the Finance Committee would reduce Highway Fund support for the Department by $51.4 million, relative to Governor Hassan’s plan. These and other changes combine to produce a level of total fund support of $351.7 million under the Finance Committee budget, an amount that is $2.5 million less than the comparable amount found in the Governor’s proposal. Conversely, the Finance Committee would allocate fewer General Fund dollars to the Department than the House of Representatives (after accounting for so-called “back of the budget” changes in that chamber’s budget), but would more than compensate for that loss with relative increases from the Highway Fund and other sources. As a result, total fund appropriations for the Department of Safety in the Finance Committee’s version of the FY 2016-2017 budget are $2.4 million above the House’s.

Also of note, the Senate Finance Committee elected to remove from the House’s version of HB 2 (the so-called “trailer bill” that accompanies the larger budget) a reduction in funding for overtime costs at the Department of Corrections of $2 million per year, but otherwise maintained the House’s recommended level of General Fund appropriations for that agency at $216.5 million, a drop of $11.4 million from the level backed by Governor Hassan.

Resource Protection and Development

Resource Protection - SFC - FY1617General Fund appropriations for resource protection and development would amount to $67.1 million in FY16-17 under the Senate Finance Committee’s budget, an increase of close to $8 million or 13.5 percent above the amount approved by the House, but still about $1.7 million less than the figure included in Governor Hassan’s budget plan. More specifically, the Department of Resources and Economic Development would receive $30.4 million in General Funds in the upcoming biennium under the Committee’s version of the budget. That figure is $7.5 million higher than the House’s level of support for the Department, due to the restoration of approximately $3.7 million in tourism promotion monies in each of the biennium. In addition, the Department of Environmental Services would garner $36.3 million in General Funds if the Committee’s budget became law. That amount is about $450,000 more than what the House would have provided, chiefly because the Committee allocated funds for several positions within the Department’s Waste Management Division.

Transportation

As is the case with past budgets, General Fund appropriations within the Senate Finance Committee’s version of the FY 2016-2017 budget are a relatively minor piece of the overall transportation funding puzzle. Like both the Governor and the House, the Senate Finance Committee would devote $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.

Transportation - SFC - FY1617Thus, the differences among the various versions of the FY16-17 transportation budget are visible only from a total fund perspective. Viewed from that vantage point, the plan put forward by the Senate Finance Committee would allocate $1.17 billion in total funds to transportation. That sum is roughly $5.3 million above that found in the budget passed by the House of Representatives. In arriving at that sum, Senate budget writers elected to restore $8 million in block grants to municipalities with certain classes of roadways and $3.4 million to assist cities and towns with the construction or repair of state highways. However, they choose to follow the House’s lead and preserve a $4.8 million reduction, relative to Governor Hassan’s budget recommendations, for winter maintenance.

The budget approved by the Senate Finance Committee would achieve an increase in transportation funding over the House’s version of the budget, not by instituting any of the registration or other fee increases proposed by Governor Hassan, but by relying upon anticipated debt service savings that may arise from the federal Transportation Infrastructure Finance and Innovation Act (TIFIA). That is, should New Hampshire be permitted to take advantage of preferential borrowing rates through the TIFIA, the state would incur substantially lower debt service costs for the completion of work on I-93. That, in turn, would free up as much as $8.3 million in each year of the coming biennium for appropriation to the Department of Transportation’s Bureau of Highway Maintenance.

Health and Social Services

HHS - SFC - FY1617Under the Senate Finance Committee’s version of the budget, General Fund appropriations for health and social services would be $1.28 billion for FY 2016-2017, about $56 million or 4.5 percent over the House’s approved appropriations, but $63 million or 4.7 percent below the level recommended by Governor Hassan. Those differences occur solely within the Department of Health and Human Services (DHHS), since all three versions of the budget allocate the same quantity of General Funds to the New Hampshire Veterans’ Home and the Office of Veterans’ Services, the other two entities that help comprise this expenditure category.

In providing DHHS with a General Fund appropriation of $1.25 billion, Senate budget writers were able to remove or to ease several proposed reductions contained in the House’s version of the budget. In particular, the Finance Committee elected to restore $2.7 million in General Funds for ServiceLink, which provides assistance with long-term care services for the elderly and people with disabilities, as well as $10.6 million for other social services for the elderly, such as home-delivered meals and transportation services. In addition, the House had proposed cutting $4 million out of the $8 million Governor Hassan had recommended for emergency homeless shelters; the version of the budget adopted by the Senate Finance Committee includes the full $8 million sought by the Governor. Finally, where the budget that passed the House would have lowered General Fund support for the Bureau of Developmental Services by $30.4 million, relative to the Governor’s budget plan, the budget backed by the Finance Committee limits that reduction to $7.4 million.

The Finance Committee’s budget plan also includes a number of changes related to substance use disorders. For instance, unlike their counterparts in the House, Senate budget writers agreed with Governor Hassan’s recommendation to include treatment for such disorders in New Hampshire’s current Medicaid program and roughly  $3 million in General Funds needed to pay for that benefit beginning in FY 2017. In addition, while the House had rejected a $6 million General Fund increase in support for the Governors’ Commission on Alcohol and Drug Abuse Prevention, Treatment, and Recovery sought by Governor Hassan over the biennium, the Senate added back nearly $3.3 million for this purpose, drawing not on the General Fund to do so, but the state’s Alcohol Fund.

While the Senate Finance Committee thus made some progress in restoring support for the public services intended to protect and to assist the most vulnerable residents of the Granite State, it did add at least one additional spending reduction within DHHS to the House’s budget. More specifically, the Finance Committee’s version of the budget would reduce the General Fund appropriation for the Division of Behavioral Health to $40.7 million over the biennium, thus reducing the amount of resources available for community mental health services by another $3.4 million below the level approved by the House and by a total of $6.4 million below that recommended by the Governor.

Perhaps most importantly, though, the version of the budget recommended by the Senate Finance Committee, like that approved by the House of Representatives, fails to reauthorize the New Hampshire Health Protection Program. Under current law, the Health Protection Program, which presently serves more than 40,000 low-income adults, is scheduled to sunset on December 31, 2016. Governor Hassan’s budget proposal included provisions to make the program permanent, while leaving in place protections against the potential loss of federal funds; it also devoted $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. Neither the House’s version of the budget, nor the Senate Finance Committee’s, includes 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.

Nevertheless, the Senate Finance Committee would reverse the House’s decision to 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 budget backed by the Senate Finance Committee includes the General Funds needed to continue the HIPP during the coming biennium.

Education

If the version of the budget recommended by the Senate Finance Committee became law, appropriations for education, through both the General and Education Funds, would total $2.36 billion during FY 2016-2017. That figure is approximately $6.8 million higher than the one approved by the House of Education - SFC - FY1617Representatives (after accounting for changes in appropriations made by the lower chamber via HB 2), but $11.6 million lower than that backed by Governor Hassan.

General Fund support for the University System of New Hampshire would equal $164 million under the Senate Finance Committee’s budget, an increase of $11 million over the House but a decrease of $17 million – or more than 9 percent – from the Governor. Similarly, the amount of funding for the Community College System of New Hampshire (CCSNH) found in the Senate Finance Committee budget is slightly higher than the one contained in the House’s budget but, again, less than the level sought by the Governor. Where the Senate Finance Committee would provide $86.3 million in General Funds for CCSNH over the next two years, the House would allocate $83.8 million (after taking into account a $2.5 million reduction to CCSNH included in the House’s version of HB 2), while the Governor would have devoted $91.5 million.

map of US showing percent change in state higher education spending per studentA new national study released in May offers an important context in which to consider proposed levels of support for public higher education in New Hampshire. That study, published by the Washington, DC-based Center on Budget and Policy Priorities, demonstrates that, though New Hampshire may have made some progress in the last budget cycle in restoring support for public colleges and universities, it still has much farther to go in recovering ground lost since the recession.[i] In particular, it finds that state spending on public higher education in New Hampshire fell 27 percent between 2008 and 2015, on a per-student, inflation-adjusted basis. That drop is the largest of its kind in New England and the 12th steepest among the fifty states.

As recommended by the Senate Finance Committee, appropriations made through New Hampshire’s Education Fund – for aid to local school districts for primary and secondary education – would total $1.93 billion during the FY 2016-2017 period. Both the House and the Governor recommended lower levels of support, in the aggregate, for local education aid. The House approved Education Fund appropriations (after accounting for changes in appropriations it made via HB 2) that were $837,000 less than the Senate Finance Committee, while the Governor backed a sum that was roughly $11.4 million less.

While the overall level of education aid in the Senate Finance Committee’s and the House’s versions of the budget is relatively similar, the two differ in the manner in which they would distribute that aid, beginning in FY 2017. For that fiscal year, the Senate Finance Committee would reduce so-called stabilization grants by 4 percent, but would raise the statutory cap on the increase any one district can receive in adequacy aid from one year to the next to 140 percent of the prior year’s amount. (After FY 2017, it would continue reducing stabilization grants by 4 percent per year, but would do away with the annual cap altogether.) In contrast, as passed by the House of Representatives, HB 2 would reduce stabilization grants by 10 percent per year and would eliminate the cap entirely starting in FY 2017.

A preliminary analysis conducted by the Office of the Legislative Budget Assistant (LBA) indicates that, as a result of these differences, local school districts would receive roughly $4 million more under the Senate Finance Committee’s version of the budget than under the House’s (though nearly $700,000 less than under current law). The LBA’s analysis further indicates that, for FY 2017, 176 communities would fare better under the Senate’s approach than under the House’s, including, most notably, Derry, Rochester, and Manchester. Conversely, eight districts would be worse off under the Senate’s proposed changes than under the House’s, chief among which are Bedford and Windham. In turn, the Senate Finance Committee’s version of the budget would largely offset this $4 million relative increase with a reduction (compared to the House) in the amount of assistance provided to charter schools across the state.

 

Revenue

In crafting its version of the FY 2016-2017 budget, the Senate Finance Committee assumes that General and Education Fund revenue will total $4.66 billion over the biennium, a sum that reflects both the Committee’s forecast for revenues under current law and the various policy changes the Committee has included in the budget itself. As the table below illustrates, like the level of General and Education Fund expenditures, the Committee’s anticipated revenues fall nearly midway between those found in the Governor’s and House’s respective budget plans. Of course, as the table further demonstrates, how each version of the FY16-17 budget arrives at those revenue totals varies considerably.

GF-EF Revenue Comparison - Gov, HFC, SFCThe Senate Finance Committee projects that, over the next two years, General and Education Fund revenue will amount to $4.62 billion absent any changes in law. That amount is roughly $16 million above the level initially forecast by Governor Hassan’s Consensus Revenue Estimation Panel in February and some $118 million above the House of Representative’s estimates. Most notably, the Senate Finance Committee expects the meals and rooms tax, the tobacco tax, and the interest and dividends tax

to each yield more in FY 2016 and FY 2017 than either the Governor originally anticipated or the House predicted in adopting its budget on April 1. The Senate Finance Committee is less optimistic, though, about the future performance of the real estate transfer tax and of the business profits and business enterprise taxes than the Governor was in February.

To supplement baseline revenue collections and to bring the budget into balance, the Senate Finance Committee employs approximately $48 million worth of temporary revenue changes over the course of the next biennium. In particular, it would carry $34 million out of an anticipated $45.4 million surplus from FY 2015 forward into FY 2016-2017, though it is not yet clear whether that full $45.4 million surplus will materialize. The version of the budget approved by the Senate Finance Committee would not, in contrast to the House, rely upon transfers from the Renewable Energy Fund to ensure revenues are sufficient to support expenditures. Just as was the case with the current FY 2014-2015 budget, this reliance on temporary sources of revenue simply leaves a hole that future budget writers will have to fill.

Impact of Finance Committee Business Tax Cuts Balloons in Future YearsThat hole is only made deeper by the permanent changes in policy included in the Committee’s budget plan. More specifically, the version of the budget approved by the Finance Committee would reduce the rate of the business profits tax (BPT) to 8.3 percent and the rate of the business enterprise tax (BET) to 0.725 percent effective

December 31, 2016. Taken together, those two changes would reduce business tax revenue by approximately $14 million in FY 2017. Unfortunately, the Finance Committee did not stop there, as its budget recommendations would continue to reduce the rates of BPT and BET until they reached 7.9 percent and 0.675 percent, respectively, on December 31, 2019. The Committee has also proposed increasing the existing cap on the research and development tax credit from $2 million annually to $7 million, beginning on July 1, 2017. As a result, as the figure above makes clear, the ultimate loss in business tax revenue under the Finance Committee’s version of the budget would amount to roughly $93 million on a biennial basis.

 

Conclusion

In the short run, the version of the FY 2016-2017 budget approved by the Senate Finance Committee represents, in some ways, an improvement over the plan adopted by the House of Representatives in April, lessening a number of proposed spending reductions and foregoing others altogether. Over the longer run, though, the Senate Finance Committee’s budget would significantly undermine the state’s ability to provide the kinds of public services vital to New Hampshire’s high quality of life, for it includes a set of business tax cuts that would drain more than $90 million out of every future budget once fully implemented. Should the Senate as a whole enact the Finance Committee’s recommendations, it will be up to members of the conference committee to give greater priority to investments in higher education, local aid, health services, and other areas central to a vibrant economy than to tax reductions for large and profitable corporations.

 

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[i] Leachman, Michael, and Mitchell, Michael, Years of Cuts Threaten to Put College Out of Reach for More Students, Center on Budget and Policy Priorities, Washington, DC, May 13, 2015; available at http://www.cbpp.org/research/state-budget-and-tax/years-of-cuts-threaten-to-put-college-out-of-reach-for-more-students

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Senate Finance Committee Approves Amended Budget

26 May 2017

tree with coins

On May 24, the Senate Finance Committee approved a State Budget proposal that would appropriate $11.86 billion in state fiscal years 2018 and 2019. This proposal is $324.7 million less than the Governor’s proposed budget, which the Senate Finance Committee used as a baseline for its decisions, and $5.9 million higher than the House Finance Committee’s budget. It contains substantial differences from both versions, both in funding allocation and policy decisions.