Gene Martin: [00:00:00] Welcome to New Hampshire Uncharted where we go beyond the charts and graphs to bring you the policy conversations that matter, backed by the data you trust. I’m, your host, Gene Martin, and each month we’ll tackle a big policy question facing the Granite State, breaking it all down with experts and the latest research.

New Hampshire Uncharted is a podcast from the New Hampshire Fiscal Policy Institute, produced in partnership with the Marlin Fitzwater Center for Communication at Franklin Pierce University and the Granite State News Collaborative. Let’s dive in.

Welcome to the first episode of New Hampshire Uncharted, where we break down the numbers, policies, and decision shaping our state. I’m Gene Martin, Executive Director of NHFPI, and today we’re diving into a topic that affects every Granite Stater, whether they realize it or not: the state budget.

The New Hampshire State budget isn’t just a set of numbers on a spreadsheet. It determines funding for our schools, healthcare, roads, public safety, and more. It reflects our values, our priorities, and ultimately the kind of state that we want to live in. But crafting a [00:01:00] balanced state budget, especially in times of economic uncertainty, come with big challenges. Sliding revenues, growing demands for services, and questions about federal funding all play a role in shaping New Hampshire’s fiscal future.

To help us untangle the complexities of the budget, I’m joined by two experts who know this process inside and out. First we have Charlie Arlinghaus, Commissioner of the New Hampshire Department of Administrative Services and the person responsible for overseeing the state’s budget implementation. He’s a former budget director for former Governor Sununu and someone who’s followed the state budget for years working outside of state government. The commissioner brings unique insights into how decisions are made at the State House and how they affect programs and services across the Granite State.

We’re also joined by Phil Sletten, NHFPI’s Research Director. Phil spent years analyzing New Hampshire’s state budget and tax policies, and he’s here to help us break down what’s happening in this budget cycle.

Gentlemen, welcome to the podcast.

Charlie Arlinghaus: Thank you.

Phil Sletten: Thank you for having us.

Gene Martin: Commissioner. As we were thinking about guests for our inaugural podcast, Phil and I, sort of the policy nerds [00:02:00] that we are, we’re thinking who’s the first person to kick us off? And we were pretty unanimous.

So I don’t want to put you in the policy budget nerd category like Phil and I, unless you would like to be there.

Charlie Arlinghaus: That’s okay. I think that’s a compliment.

Gene Martin: Absolutely. So we’re looking forward to the conversation and so let’s jump right in. What is the state budget? What’s in it, what’s not, and what does it mean for our state?

Charlie Arlinghaus: Well, the, the big thing is everything state government does with a few nebulous exceptions is in the state budget. I like to say that if you want the government to do it, it has to be in the budget. And if it isn’t in the budget, you can’t. You have to wait a couple years or hope for some sort of odd federal grant.

But it’s basically all the departments of state government, all the taxes and fees that make up the amount of money that we can spend, and unlike say federal spending, those numbers have to match each other. We have to figure out how much we have, and we can’t spend more than that.

And it imposes a kind of a discipline, but [00:03:00] a framework that helps people figure out what they can and can’t do, and broad parameters that they have to operate within.

Gene Martin: Thanks Commissioner. And so when we think about the state budget, what actually is it?

You know, I think folks hear the words trailer bill and they all always ask us, and Phil knows we get the questions often, but what is House Bill One? What is House Bill Two? And what’s the Capital Budget that sometimes is left out of the budget conversation, but is very much a budget plan?

Charlie Arlinghaus: So if you want to think of the budget as three separate documents, the one is a giant spreadsheet where all the spending of state government is reduced to something like 13,000 line items across state government. You know, this much money is for current expense. This much money is for equipment. This much money is for salaries, benefits, et cetera, and divided across accounting units which sort of match programmatic spending. And it is a giant spreadsheet that’s called House Bill One is typically how it’s numbered.

[00:04:00] That is thought of as the budget. Occasionally House Bill Two, the trailer bill or the words is thought of in different ways. But when you do a giant spreadsheet, there are words necessary to make that work if you raise or lower tax rates, if you change some programs where you have to change statute in it.

And so that’s all done in a companion document – a companion bill or a trailer bill called House Bill Two. Together, those two things make up the operating budget of the state, the regular ins and outs, annual expenditures of the state. There’s a second set of spending, which is borrowed spending – the capital budget or capital expenditures.

Think about fixing the roof at your house or the mortgage on your house. This is money, typically about 120,000 in general funds and some other self-supporting debt where we borrow the money – typically over 20 years and pay it back over 20 years. So it tends to be big projects, construction, [00:05:00] major IT projects, a couple of federal match programs, for example.

And that’s a separate document often called House Bill 25. Those numbers are not defined by law, but they’re traditional.

Gene Martin: Thanks, commissioner. Phil, I’m wondering if you could join us. At NHFPI we often talk about the state budget and we often add in off-budget items. I’m wondering if you could share a little bit about some of the items that are off budget.

Phil Sletten: Sure. Many bills, especially bills that are passed in non-budget years, so in even numbered calendar years. If the legislature wants to spend money in those years and feels that it has money to spend, you know, identifies the revenues are sufficient, then those bills are passed separately independently of the budget process, and they can appropriate money. They can set up programs.

So those funds sometimes are completely outside of the state budget. A key example is the State’s Granite Advantage program, the Medicaid expansion program that was first authorized in 2014, an even numbered year [00:06:00] and was reauthorized then again in 2016 and 2018, and in 2023, and has stayed outside the state budget the entire time.

Now the spending has been logged elsewhere, tracked elsewhere, cataloged elsewhere. Although it’s a, you know, $500 to $600 million a year program now that’s entirely outside the state budget. The legislature can also authorize spending outside the state budget without its direct oversight or vote.

But within the oversight of other bodies, usually smaller bodies, smaller numbers of people, the Joint Legislative Fiscal Committee is the prime example of this.

Gene Martin: Thanks so much, Phil. Commissioner, Phil talked about the Fiscal Committee, and he didn’t talk about the other sort of very unique thing about state government here, the Governor’s Council. And I’m just wondering if you could share a little bit about, when we think about state spending, oftentimes things still have to go to the Executive Council. I’m wondering if you could share a little bit with our listeners about the Executive Council, what their role in sort of contracts and state spending is.

Charlie Arlinghaus: It’s a very unique [00:07:00] organization. So there are five elected members. This doesn’t exist anywhere else. The budget authorizes an agency, gives them the budget authority to spend the money. Then to spend it, often the spending occurs in things like contracts and contracts over $10,000, which is a relatively small number if you think of contracts today, must then be presented to and approved by the Executive Council. And they’re not approving the budget authority, but they’re approving how you’re exercising that budget authority, and so it’s a secondary check on spending. Technically, constitutionally, the Council has to approve all spending of any kind. We may not spend money without the council’s approval.

Gene Martin: Let’s move on to how the state budget is built and who builds it. Philip, I wonder if you could sort of outline the five phases. Then I’m hoping to turn to the commissioner to ask him some thoughts about my [00:08:00] personal favorite phase of the budget, the agency phase.

Phil Sletten: Yeah, so I’m happy to just go through those five phases really quickly.

As the Commissioner identified, there’s a roughly year long process of creating our two year state budget. So there’s only a pretty small window in relative terms, that is a time when someone is not working on the next state budget. So there’s the state agency phase that’s comes first, and that starts the summer before the legislatures work.

So here we are in March of 2025. The state agency phase began back in June of 2024. Many state agencies were at that point working on their state budget proposals, and I know some of them started working on it earlier. And by August, the state agencies receive expenditure targets from the governor that will define the maximum amount their efficiency budget requests can be.

And that’s the line between their efficiency budget and their additional prioritized needs. Those are the two parts of the [00:09:00] agency budget requests. By October, those agency budget requests need to have been submitted to the Department of Administrative Services where Commissioner Arlinghaus works day in and day out. And that department then packages them together and publishes them. So we see as members of the public, those state agency budget requests at some point in October. And that starts the governor’s phase, and that’s when the governor puts together, in this case, her budget – a proposal that’s compiled based on what she sees in the state agency requests, modifications that she wants to make, new initiatives and changes, and updated data from the state agencies themselves.

There is a time delay here between that early October and when the Governor’s budget is due, which is February 15th by statute. Then we get to the House phase. The House takes up the Governor’s budget proposal and makes the modifications that it wants to see. The House Finance Committee is usually broken up into three divisions that tackle different parts of the state budget.

The House Ways and Means Committee will produce revenue estimates that the Finance Committee [00:10:00] uses. And then the House Finance Committee will put together its amendments, and send them to the full House, which will then vote on the state budget. After the House has done its work, it moves to the Senate.

The Senate Finance Committee works on the budget. The Senate Ways and Means Committee will produce another set of revenue estimates. The full Senate will then consider the Senate Finance Committee’s work, and if the Senate passes a budget that the House disagrees with, then we get to the final phase, which is the Committee of Conference.

The Committee of Conference doesn’t have to happen. It didn’t happen in 2023, but it happens most budget cycles, and that’s when the House and Senate or negotiators for the House and Senate will meet and decide on a final version of the state budget that goes to both chambers for an up or down vote.

If both vote for it, then it goes back to the Governor for approval or rejection. So those are the five phases of the state budget.

Gene Martin: Thanks for that explanation, Phil. Commissioner, you know, as I joked, my favorite phase of the budget is really the agency [00:11:00] phase, because – I don’t know how many people actually go to your website and look at those documents – I think 30% of the web traffic might be our office.

Charlie Arlinghaus: Thank you.

Gene Martin: Of course, there’s a lot of work that goes into it and really thinking about the programmatic features, and again, it’s a great website to visit. And so I’m wondering if you could share how this past process was unique, because we had a transition of governor.

So then Governor Sununu issued his directive. And then you had Governor Ayotte come in and be able to continue that or change it. And I’m wondering if you could talk about the agency phase, because I think there’s some confusion with prioritized need is that the agencies are restricted to some level of what they can share.

Am I correct with what they could do? So for example, if X agency really wanted to do these key projects, they’re limited by what the Governor could say or do, or could agencies submit whatever they want in their budget request?

Charlie Arlinghaus: Well, a little bit of both. Up until about 10 years ago, the agencies would [00:12:00] submit whatever they wanted, and the agency phase was sort of a free for all.

And if the Governor wanted you to do something else, it would be a separate document. But the various commissioners were basically empowered and told to submit everything. And it created a weird process where the Governor was like, yeah, you’re wasting your time because we’re not doing that.

So about 10 years ago, the law was changed and I remember Representative Cebrowski from Bedford was sort of instrumental in this and additional details were added to the agency phase and the direction from the Governor was added where the Governor will tell you what to put in. And what they said is, so the Governor’s direction is quote, unquote efficiency.

It is the base budget, anything you want beyond that, anything you think you need beyond that, we put in a separate column called additional prioritized needs. Legally, you can put [00:13:00] anything you want in that column. Anything you think is necessary, anything you think would help, is a need of your agency, et cetera.

But the Governor is targeting you, and efficiency in theory is targeted based on their very preliminary guess on revenues. And I think it’s important, this is going to sound very elementary, but a budget is based on how much you have. And the first step of the process is not what you want to do. The first step of the process is how much money do we have? How much money do we think the taxes that we have today are going to raise? You might then say I’m going to propose a new revenue source. The current Governor’s proposed video slots or video lottery terminals, I think they’re called.

Sometimes people propose tax cuts. And the Governor, when considering that, basically does a preliminary estimate of how much he or she thinks is going to be available. [00:14:00] And then says, all right, in total I’m going to tell this agency and this agency how much they can spend. And so, I’ll say, alright Gene. Your budget should be $2.8 million. Phil, your budget should be $4.6 million based on your numbers. Show me what that looks like.

So the agency phase is the sum of that. There’s a lot of work that goes into it. And it is like, like any complicated document, it is that first draft, that is the basic construction. I think it’s a great phase to have as your favorite because it is the preliminary construction and every other phase is based on it going a little up and down from those numbers.

Now, when we have a transition in governor, it’s awkward. And I happened to be the transition budget director for Governor Sununu when he was elected, and we had documents that had been prepared [00:15:00] at the request of outgoing Governor, Maggie Hassan. And we had a different set of priorities, or he had a different set of things he wanted to do, and some things changed on numbers. So it was my very difficult task to go to agencies and say, hi. Um, sorry, I know you did a whole bunch of work and, we’re not going to use two-thirds of it, and I need you to do something different and, and let’s go from there.

And, it’s a delicate process because these are people you have to work with and, and you, you want to try not to be a jerk about it. But you’re doing numbers that are at the behest of a new political leadership as opposed to, an outgoing one. In the current phase, in an odd twist of faith, the outgoing governor’s budget director was selected as the incoming governor’s budget director, which I think is the first time that’s ever happened.

And in [00:16:00] addition to that, the two governors happened to be at the same party and have moderately similar outlooks. And so if you look at what happened in the Governor’s phase, it’s really not very different. From what the agency phase was, there are some tweaks up and down. There were some additional custom to HHS.

But in terms of big, broad brush strokes, it’s not a wholesale revision – it’s moderately. For a whole lot of agencies, their budget looks remarkably like what they submitted for the agency phase.

Gene Martin: Exactly. And you mentioned earlier in the podcast how lean our state government is, and so I think that’s sort of an important point.

It’s a lot of work that goes into that. I know talking to folks in state government, they were working on their budgets earlier in January of that year before they submitted them. So this is a sort of an iterative process that’s always going.

I’m wondering what surprised you most about the budget process? You were sort of on the outside looking [00:17:00] in and then coming in as the budget transition person, serving as the budget director. Now as the Commissioner, what would you say most surprised you about the process sitting where you sit now?

Charlie Arlinghaus: One of the great things about the state of New Hampshire is that if you are an interested observer on the outside and I sort of think of Phil in this category, you know an awful lot and there aren’t really a lot of secrets.

Everything is very accessible and, and readily available to you. There may be nooks and crannies of state government that you didn’t look into before and that you might find out about, but the way the process works, you can really understand.

If you’re a nerd like we are, I think one of the things the average person would be most impressed by is the level of detailed knowledge that a lot of people, a lot of the financial staff of the agencies have. [00:18:00] In part because our government is so lean, we have a lot of people who do a lot of work and it’s remarkable the amount they’re able to get done within the amount of time that they have and, and the level of detail that they have to know. And so there are an awful lot of people in an agency whose knowledge base is much broader than you would suspect. And it’s a necessity in our government. And I think that’s the thing that surprises people coming in from the outside the most is, is the number of things you might know details about.

Gene Martin: Thanks so much for that. And I think Phil and I can attest that the state employees that we have working in state government are truly incredible and we appreciate their responsiveness and really helping us when we’re trying to [00:19:00] write about issues.

And if there’s data that’s publicly available, they’re willing to share and answer questions just to make sure that we’re sort of writing about something in the correct way. I’m hoping we could pivot to the Governor’s budget proposal.

You’re moving into state government in 2017. This is the first budget cycle that we’ve entered that different kind of mindset. We have falling revenues. We’ve eliminated a major revenue source in the Interest and Dividends Tax. And so what’s happening as we go through the processes. As you mentioned, if you have revenues, you have to match those expenses to the revenues. And so I’m wondering if you could talk about a little bit about what’s changed from this budget cycle from the ones we’ve had in the past?

Charlie Arlinghaus: I think it’s interesting. I’ve been saying for about a year or two to my staff and to other people who will listen, which is occasionally, a person or two. [00:20:00] We’ve gone through the 10 or 12 flushest years in the history of state government. I mean, the revenues started taking off in maybe 2016 and haven’t really looked back since. And I mean, we’ve had some ups and downs, but most budget cycles have been budgets of plenty and not budgets of scarcity.

And so I think a lot of muscle memory has been lost in, in some of the senior ranks and senior financial managers where they don’t necessarily remember. I mean, there are people who do remember when everything was always a cut and everything was always really hard. But we’ve gone through a couple of budget cycles where there were decisions about how to spend the money as opposed to how to cut programs, and I think this is different.

There are a couple things that are going on. Probably three big ones and a lot of little ones, but the three big ones are the Interest and Dividends Tax going away. It was something like $180 million [00:21:00] in 2024, and it goes to zero. We had remarkable interest dividend, which instead of being $3 million a year was 90, which is, which is gradually going away. Not quite as dramatically, but is going away because of the ARPA money that we’re spending down and not collecting interest on.

Phil Sletten: And to be clear, Charlie, when you say interest dividend, you’re saying interest on cash holdings that the state has, right?

Charlie Arlinghaus: Yes, very good. That’s a very important distinction. Thank you, Phil. That’s, that’s a good point. And then the third thing is there’s sort of reversion on business taxes.

We came out of COVID like a bat out of hell. And business taxes, they went nuts. And the last couple of years we’ve been, if you draw a graph of average annual growth, we’re reverting back to that growth trend. So it’s kind of a reversion to mean. So this year it’s a bit [00:22:00] of a hit on that, so that we will have a modest slow down in business taxes, and I think most people expect them to come back a bit, but because of that, there’s less money available.

So that is the old conundrum, right? How much money do I have? Well, I have less than I thought. And this is a year when that hasn’t happened. So I think what’s happening is a bunch of places where government grew pretty strong over the last 2, 4, 6 years are having to slow or contract a little bit, and it’s not something we’re used to.

Gene Martin: Exactly. And we’re so, you know, we think about business taxes for a state like New Hampshire looking at the Fiscal Year 2023 numbers, as you noted, business taxes were almost 40% of the state budget.

If you go back a decade before, we’re about 25%. So we’re becoming more reliant on that. And as you noted, business taxes are going down based on the [00:23:00] corporate profits and that’s where we think about the business profit tax, we’re really heavily reliant on that. For income, that has an effect on us.

Is there a concern that we have become so reliant on so few revenue sources? There’s only so much that the Liquor Commission could do, the Lottery Commission, we think about business tax revenues. Is there a concern in state government about going from in a decade, almost 25% of business taxes to going to almost 40% of the budget? And when the Interest and Dividends Tax is fully repealed, my guess is that business tax number increases in terms of percent of revenue.

Charlie Arlinghaus: I think there’s always a concern about that. About 20 years ago, the Federal Reserve Bank of Boston did a report on recessions where they described New Hampshire as being the envy of the region, for having a shallower recession and coming out faster. And they said it was because we [00:24:00] were on a broader basket of taxes than most states rather than one or two big ones. It’s always difficult when that happens.

And it can be bad for the political culture, but you know, in the fifties and sixties we had an enormous reliance on horse racing, for example. And I think, cigarettes, liquor and horse racing did an enormous portion of our budget, like 70 or 80% of our budget. Just, just crazy, and anytime that happens that is a net negative. What you would like is like investing – having a broad portfolio helps you survive some of the shocks of a market.

And that’s true of taxes as well. And I think any state that finds itself disproportionately reliant on one sector of the economy, or one revenue source, or one anything [00:25:00] is always nervous about it.

I mean, I grew up in the city of Detroit and it’s a one company town, except the company is the auto industry. And someone said, well, there’s a lot of other industry. And they said, yeah, but the banks support GM and everything is sort of based broadly on that. And when times were really rough for the auto industry, it was terrible and it limits your ability to survive. And it’s not really that different from when Berlin was a paper mill town.

And so we, what we want to do is make sure that’s not the case in New Hampshire. And I think that’s something policy makers think about. But changes in revenue sources are always, I don’t want to say happenstance, but there’s an awful lot of circumstance that describes how changes happen.

Gene Martin: Thank you so much.

Phil, the research team here at NHFPI just recently released our detailed [00:26:00] report on the Governor’s budget. I’m wondering if you could quickly summarize what are the one or two key highlights from that proposal?

Phil Sletten: Yeah, and I appreciate Commissioner Arlinghaus identified that the Governor’s budget mirrored a lot of what we see in the agency requests, because it did appear to my eye that the Governor’s budget prioritized holding the line, if you will, on state agency spending in a lot of different places –providing the state agencies with the amounts of revenue that they identified as what they would need right to fund their ongoing operations. There were certainly some changes, right? We saw some increases in the New Hampshire retirement system, particularly around a Group Two retirement for a certain set of police and firefighter public employees who had their benefits changed in the 2011 to 2013 time period. That was an additional investment.

Additional investments in special education aid to school [00:27:00] districts, to meet really quickly rising special education costs at the local level and more costs that were eligible for reimbursement by the state that the state hadn’t budgeted enough money to meet those funding levels that were outlined in state statute, that the state should apply under the state’s law.

There was also an increase in Education Freedom Accounts for moving the cap on income for public school students who are switching to Education Freedom Accounts. That was an additional significant investment. And also in housing shelter services, funding for homeless shelters and particularly funding to support those who have substance use disorders or opioid abuse challenges

Those are some of the significant funding initiatives. Now because we’re in a much more revenue constrained environment, any one of those funding initiatives would’ve been one of a basket of initiatives over the last several budget cycles if we look at past gubernatorial [00:28:00] proposals.

But those were sort of the larger steps, on the order of $10 million to $40 million a piece in terms of new investments that the governor was able to make. Also, boosted funding for nursing facilities – we saw that as well.

There were some reductions and those reductions came in at least in budget numbers in a few key places, one being at the university system, as a reduced block grant to the university system. There was reduced funding relative to the budgeted amounts for the Choices for Independence Medicaid Waiver Program. These are home and community-based services for older adults and adults with physical disabilities.

We also saw reductions in what hospitals would receive in uncompensated care payments. This is the interaction between the Medicaid Enhancement Tax which was the tax charged on hospitals, Medicaid matching dollars, and then an increase in the amount that hospitals are paid for funding Medicaid patients and people who come to the hospitals and [00:29:00] need care who are uninsured. The state has a reimbursement process for that. And those would go down under the Governor’s proposal pending an agreement that’s yet to come between the hospitals and the state.

Gene Martin: And as this podcast is being recorded, the House process is underway, the Governor has given her budget address and shared the budget, and now it’s in the House phase and they’re working through it.

One of the parts about having multiple phases is everyone has a sort of different outlook on it. The House seems to have a different outlook on revenues, and so they’re making $300 to $400 million in reductions each year, presumably in general funds. Again, we’re seeing that process play out.

And we’ll learn more about that in the coming weeks. You know, Commissioner, earlier you said something that sort of stuck with me about losing the muscle memory of this sort of budget. And I think back to the 11 and 12 years when we had a [00:30:00] really challenging budget. I think there was something like $800 million to a billion dollars in reductions.

And those were changes. And at this time it doesn’t seem like there could be that level of magnitude. We’ll see what happens with March and April numbers, but the big uncertainty that I’m hearing around Concord is what’s happening with the federal government. What are folks thinking about in state government about all this uncertainty?

Charlie Arlinghaus: So federal funds and matching federal funds, et cetera, are a big part of the budget. And it’s remarkable the number of agencies it impacts –most of the large agencies to some extent have a program and some agencies that you wouldn’t expect.

So I’m a central service agency. We have almost no federal funds, but we run a surplus food program out of a warehouse on Storrs Street that we are tracking with the Department of Agriculture on a daily basis. I think where we are, anytime there’s a transition in leadership [00:31:00] and very much in Washington just like here, you keep an eye on where things are.

I think what every agency would tell you, and, and this was direction from the Governor’s office is, stay close to your federal contacts. Because what’ll happen is you’ll have a federal contact. You’re not reading the newspaper to figure out what’s going on. You’re not calling your Senator or your Congressman. You have a contact at the Department of X that you’re talking to about what’s going on and what they’re hearing. Is this program likely to be one that’s affected? If not, are there parts of this program that are likely to be affected?

HHS is where a lot of things happen federally speaking because it’s something like 60% of our state’s spend anyway and it’s a lot of health care programs, and there’s a lot of federal funds that run through that. So they’re probably much more heavily, [00:32:00] Washington watching than all of us, but I think everybody is Washington watching at this point, and I suspect that we’ll be into June, July, et cetera before we have a decent idea of what’s happening on every front.

More information comes out all the time on various programs and what they’re doing. But, a lot of those programs are getting their commissioners, their directors, their sub-directors, their undersecretaries in place, and I think it takes a while for those changes to happen federally.

And so I would say right now everyone’s just watching and watching and wondering and trying to stay on top of it as best they can along with the federal shutdown discussions, which by the way seem to happen every six months to a year now. So I feel like maybe that’s not unusual, but we’re watching that as well.

Gene Martin: I’m wondering just process wise, you know, if these decisions are [00:33:00] made, you know, obviously with Medicaid expansion, there’s a trigger law so if the FMAP goes below a certain level, there’s a whole process there. But if there’s a federal program that’s funded in match funds, what’s the process for that?

Let’s say those dollars are zeroed out through legislation or other means or the program is canceled. Does that go to Fiscal? Does the agency just not spend the money? Do they shut it off? What’s the mechanism? Does your agency look at that? Who’s sort of monitoring all these different changes if a program goes away and it’s already been authorized by the state government and there’s a contract happening?

Charlie Arlinghaus: Well, it’s part of the budget process and actually it is a very complicated computer system that runs the budget and then also runs the finances. So some of the spending authorized outside the budget is loaded into the system. So it’s there.

The federal funds are loaded into the system and on the income side of a budget, you’re meant to [00:34:00] track any program you have, whether it’s federal income or some other kind of income. Whether it is income where you receive money from state agencies, you receive money from the public on fees, or whatever.

You can’t spend the money just because it was authorized in the budget. You have to collect it and you can’t spend what you didn’t collect. And so most financial staffs are monitoring that regularly, but at least on a monthly basis, and you kind of know how you’re doing. And it is not uncommon in government for a federal program, for example, to think it’s going to get $1.2 million and in actuality get $900,000 in, in which case they would reduce their spending by a similar amount.

And the programs are usually built to some extent with some of that flexibility built in. The sooner, you know, the easier it is to adjust, but you are not quote unquote allowed to go negative in [00:35:00] that respect. And so you’re meant to be watching constantly so that you don’t overspend.

The one weird trivia about New Hampshire state law is that a Commissioner of an agency is personally liable for overspending his or her budget. So technically, if somebody who works for me overspends a line item, I’ve got to take the money out of my bank account. Now, if you’ve seen my bank account, that’s sort of an empty threat, but my understanding is the law has almost never been implemented. And what would be likely to happen is you have to make it up in the second year. But that’s how seriously we take it as a state.

Gene Martin: Oh, that’s important insight. In the time that we have left, I’m wondering if we can sort of go around, sort of talk about the two or three biggest variables for the rest of the budget cycle.

Obviously there’s a long way to go until [00:36:00] June, so I’m just wondering what you two are thinking about through this process. Phil, we’ll start with you and then we’ll kick it over to the Commissioner and then we’ll wrap up.

Phil Sletten: Sure. And I do want to highlight the federal funding uncertainty. The timing of that is again, I think a key question.

As the Commissioner noted, we may not know very much until midsummer or late summer, but Medicaid funding – and this is health coverage for people who have low incomes or have certain disabilities. Think about older adults in nursing facilities. About half or nearly half of Medicaid enrollers in New Hampshire are children.

That Medicaid federal funding – just the federal funding from Medicaid and this is outside of the 40% of revenues that you were identifying earlier with the business tax revenues – this is drawing a larger circle to include federal funds in the state budget. Federal funding for Medicaid was $1.4 billion last fiscal year, which is the single largest source of revenue the state collected – larger than the business profits tax, larger than gross liquor or lottery [00:37:00] revenues.

Medicaid was the single largest source. So I’m definitely going to be watching for that. And if something changes during the budget cycle, I consider that a key inflection point, but really sort of more traditionally, what are some of the key things that you look at that I’m definitely looking at this cycle.

What do state revenues look like after we have the April receipts, and how does that affect the Senate’s version of the state budget and the Senate’s decision making? And then there are state Supreme Court decisions related to education funding –there are two that are pending. Could one of them land during the legislature’s negotiations over the state budget? That could have an effect.

What do we know as well about Youth Development Center settlements, associated with horrible things that allegedly happened for decades related to the Youth Development Center and how the settlements change. Is there space in the budget to allocate more money for the settlements?

Are there court decisions that lead to expenditures in a more sort of immediate term, or at least the two year horizon? [00:38:00] Those are the, some of the things that I’m looking for.

Gene Martin: Thanks so much, Phil. Commissioner, what are you looking for in the next few months?

Charlie Arlinghaus: I think the biggest thing to watch is revenues.

And I think that when we talk about the budget, often it becomes shorthand for general funds – how we’re spending the tax revenues. If taxes are up, we go up, taxes are down, they go down. The House’s revenue estimates are something like $500 million lower over two years than the Governor’s and that defines and controls their actions because of that.

There is a legend in New Hampshire budgeting that the House typically cuts what the Governor does, and then the Senate adds money back. And I would say to you that’s true, except when it isn’t. But the House is almost certainly coming down a great deal from where the Governor is.

The question is, what is the Senate thinking? Are [00:39:00] they going to be in line with the House? Are the revenue estimates the same? Historically, the Senate has the benefit of better knowledge on the budget. If you’re basing your budget on five or six months of data and then projecting the two years that follow that, it’s not as good as if you have 8, 9, 10 months of data.

The April numbers are very, very telling, compared to some of the other numbers in the budget. February numbers, for example, just don’t matter much. So what’s the Senate going to do?

So I think the thing to watch if you are watching at home on your couch with a bag of potato chips, is what’s the House finally going to do on revenues? Where will they end up and what’s the attitude of the Senate, which we’ll know in the early hearings going in. Are they going to bump revenues up or are they going to basically stick to kind of where the House is? That’s what I want to watch.

Gene Martin: You know, I appreciate that anecdote of, you know, the Senate usually bumps it up until they don’t, and I’m wondering if this could be a [00:40:00] year where we see the Governor have the high watermark, we see the House sort of bring that number down.

And as you noted, smaller months, right? February doesn’t matter. But I think last time I checked we’re about 20% off plan there. And if that happens in April – or it’s 30% off – I would imagine the Senate might sort of stand at attention for that and say, okay, how we bring those numbers back? So we could be in a budget year where we see something that, you know, I’m thinking in my mind of the budgets I’ve watched. I’ve not seen the Governor be the high watermark, the House come down in the Senate, and be the one that actually brings it down even lower.

Thank you so much Commissioner and Phil for joining us for our inaugural podcast. I look forward to talking to you soon, and I hope you enjoyed the conversation.

That’s it for this episode of New Hampshire Uncharted. If you found today’s conversation [00:41:00] helpful, be sure to subscribe and join us again next time for another thoughtful policy conversation. This podcast is produced by the New Hampshire Fiscal Policy Institute in partnership with the Marlin Fitzwater Center for Communication at Franklin Pierce University and the Granite State News Collaborative. A big thank you to our partners, without whom this would not be possible. Thanks for listening, and we’ll see you next time on New Hampshire Uncharted.