NH State Revenue Options and
Consequences
NH Children’s Summit
December 8, 2008
Dennis Delay
Deputy Director, NHCPPS
“…to raise new ideas and improve policy debates through quality
information and analysis on issues shaping New Hampshire’s future.”
Board of Directors
Donna Sytek, Chair
John B. Andrews
John D. Crosier
William H. Dunlap
New Hampshire Center
for Public Policy Studies
Shelia T. Francoeur
Chuck Morse
Todd Selig
Stuart Smith
James Tibbetts
Brian Walsh
Kimon S. Zachos
All of our reports
are available on the web:
www.nhpolicy.org
Martin Gross
Staff
Steve Norton
Dennis Delay
Ryan Tappin
“…to raise new ideas and improve policy debates through quality
information and analysis on issues shaping New Hampshire’s future.”
State Revenue Options
Revenue Sources Then and Now
How have they changed over time?
How did the State respond to the
last two recessions?
What are the revenue options now?
First, some history:
Balancing the NH General Fund, 1979-2007
$1,600
Non-tax Revenue:
Medicaid Enhancement
Tobacco Settlement (2002 & 03)
Flexible Federal Grant (2003)
$1,400
$1,000
General Fund
Expenditures
Lynch
$800
Benson
$600
Shaheen
Merrill
$400
Gregg
Sununu
$200
Regular General Fund Taxes
and Revenues
Gallen
State Fiscal Year
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
$0
1979
Millions of Dollars
$1,200
First, some history:
Balancing the NH General Fund & Education Trust Fund, 1979-2007
Other ETF Taxes
$2,250
$2,000
Statewide
Property Tax
GF + ETF
Expenditures
$1,500
$1,250
Non-tax GF Revenue:
Medicaid Enhancement
Tobacco Settlement (2002 & 03)
Flexible Federal Grant (2003)
$1,000
Lynch
Benson
$750
Shaheen
Merrill
$500
Gregg
$250
Regular General Fund Taxes
and Revenues
Sununu
Gallen
State Fiscal Year
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
$0
1979
Millions of Dollars
$1,750
General Fund over 18 Years
Revenue Source
Beer Tax
Board and Care Fees
Business Profits Tax
Business Enterprise Tax
Estate & Legacy Tax
Insurance Tax
Securities Revenue
Interest & Dividends Tax
Liquor Sales
Meals & Rooms Tax
Park Revenue
Dog & Horse Racing
Real Estate Transfer Tax
Communications Tax
Tobacco Tax
Utility Tax
Court Fines & Fees
Savings Bank Tax
Other
"Medicaid Enhancement"
Total
1990
$12.2
$14.5
$111.0
$0.0
$24.3
$43.1
$0.0
$40.7
$55.1
$83.8
$7.3
$10.5
$32.3
$12.8
$38.2
$8.2
$22.6
$12.6
$33.1
$0.0
$562.2
2007
$12.7
$18.4
$287.4
$79.3
$0.6
$97.9
$33.0
$108.1
$124.7
$202.6
$0.0
$3.1
$91.7
$73.0
$65.3
$5.8
$30.5
$0.0
$104.3
$83.3
$1,421.6
Compound annual
Rate of increase
5.6%
General Fund over 18 Years
2007
Revenue Source
Beer Tax
Board and Care Fees
Business Profits Tax
Business Enterprise Tax
Estate & Legacy Tax
Insurance Tax
Securities Revenue
Interest & Dividends Tax
Liquor Sales
Meals & Rooms Tax
Park Revenue
Dog & Horse Racing
Real Estate Transfer Tax
Communications Tax
Tobacco Tax
Utility Tax
Court Fines & Fees
Savings Bank Tax
Other
"Medicaid Enhancement"
Total
1990
$12.2
$14.5
$111.0
$0.0
$24.3
$43.1
$0.0
$40.7
$55.1
$83.8
$7.3
$10.5
$32.3
$12.8
$38.2
$8.2
$22.6
$12.6
$33.1
$0.0
$562.2
2007
$12.7
$18.4
$287.4
$79.3
$0.6
$97.9
$33.0
$108.1
$124.7
$202.6
$0.0
$3.1
$91.7
$73.0
$65.3
$5.8
$30.5
$0.0
$104.3
$83.3
$1,421.6
Old Source
New
Old Rate Sources
$12.7
$18.4
$287.4
$79.3
$0.6
$97.9
$33.0
$108.1
$124.7
$177.3
$3.1
$64.2
$9.5
$30.0
$5.8
$30.5
$88.5
$1,058.6
Compound annual rate of increase
Increased
Rates
$25.3
$27.5
$63.5
$35.3
$15.9
$83.3
$274.9
3.8%
$88.1
The State relied on new sources
and increases………
NH General Fund Revenues
(Current $)
$1,600
$1,422
$1,400
$1,000
Medicaid Enhancement
New taxes
Increased rates
$800
$600
$543
$400
Taxes and rates
in place in 1988
$200
$0
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Millions of Dollars
$1,200
State Fiscal Year
$1,058
…to keep pace with overall
economic growth.
NH General Fund Revenues as % of Gross State Product
3.5%
3.0%
Medicaid Enhancement
2.0%
Increased rates
New taxes
1.5%
1.0%
Taxes and rates
in place in 1988
0.5%
0.0%
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Percent
2.5%
State Fiscal Year
The General Fund in 2008 (est):
Court Fines & Fees
2%
Board and Care
Fees
1%
Securities Revenue
2%
Total:
$1,464.1
million
Tobacco Settlement
Beer Tax
1%
1%
Utility Tax
0%
Dog & Horse Racing
0%
Tobacco Tax
4%
Business Profits Tax
21%
Real Estate Transfer
Tax
5%
Other
5%
Communications
Tax
5%
Business Enterprise
Tax
5%
Meals & Rooms Tax
14%
Insurance Tax
7%
"Medicaid
Enhancement"
8%
Interest & Dividends
Tax
8%
Liquor Sales
9%
NH Volume (per unit) taxes don’t
keep pace with economy.
Growth in Comparison to the GSP, 1988-2007
Real Expenditures 1988=1.00
Board and Care Fees
Court Fines & Fees
Beer Tax
Dog & Horse Racing
120%
100%
80%
60%
40%
20%
State Fiscal Year
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
19
88
0%
19
Relative to Gross State Product
140%
A NH per unit tax with rate
changes.
Tobacco Tax Growth in Comparison to the GSP, 1988-2008
Real Expenditures 1988=1.00
At Actual Rate
At 1988 Tax Rate
190%
1990:
increased to
21¢/pack
1991:
increased to
25¢/pack
1998:
increased to
37¢/pack
2000:
increased to
52¢/pack
2006:
increased to
80¢/pack
2008:
increased to
108¢/pack
140%
90%
40%
1988-89:
17¢/pack
Note: Includes Amount Going to Education Trust Fund
-10%
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
Relative to Gross State Product
240%
State Fiscal Year
Does the rate effect the volume?
Estimated Packs of Cigarettes Sold in New Hampshire (millions)
250
1998:
increased to
37¢/pack
2000:
increased to
52¢/pack
2006:
increased to
80¢/pack
1991:
increased to
25¢/pack
200
150
2008 based on $165m
revenue and $1.08 tax
rate
100
50
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
19
19
88
0
NH Ad Valorem (value based)
taxes move with the economy.
Growth in Comparison to the GSP, 1988-2008
Real Expenditures 1988=1.00
Interest & Dividends Tax
Combined Business Taxes
140%
120%
100%
80%
60%
40%
20%
0%
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
Relative to Gross State Product
160%
State Fiscal Year
How do the business taxes
perform over business cycles?
General Fund Revenue from BPT & BET
(In Millions)
$450
$400
$391
Business Enterprise
Tax
$300
$250
$200
$143.3
$150
Business Profits Tax
$100
$91.6
$50
State Fiscal Year
08
07
20
06
20
05
20
04
20
03
20
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
94
19
93
19
92
19
91
19
90
19
89
19
19
88
$0
19
Tax Revenue ($ million)
$350
How are the business taxes
performing now?
NH Business Taxes
$140.0
Note the steep decline in peak months
$120.0
$100.0
$80.0
$60.0
$40.0
$20.0
$0.0
Ju
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n9
Ju 9
lJ a 99
n0
Ju 0
lJ a 00
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Ju 1
lJ a 01
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Ju 2
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Ju 3
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Ju 4
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Ju 5
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Ju 6
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8
-$20.0
NH Business Taxes
Moving Average
NH Ad Valorem (value based)
taxes move with the economy.
Growth in Comparison to the GSP, 1988-2008
Real Expenditures 1988=1.00
Meals & Rooms Tax
Real Estate Transfer Tax
120%
100%
80%
60%
40%
"temporary"
surcharge
added in 1990
20%
0%
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
Relative to Gross State Product
140%
State Fiscal Year
Revenue Risks in an Economic
Downturn*
Business Profits Tax ($381m)
• Fell by 36% in 1990’s recession.
Business Enterprise Tax ($230m)
• More stable, larger base, but grows slowly.
Meals and Rooms ($214m)
• Stable, but also follows the economy.
Interest and Dividends($118)
• Was very strong, but faltering now!
Real Estate Transfer Tax ($116m)
• Was $160m at the peak in 2006, how much lower?
*(Estimates for 2008 include GF+ETF)
NHCPPS Model Showing a
$300m+ Revenue Shortfall
Projection of 2009 Combined General Fund
& Education Trust Fund Revenues
(in millions of $)
$100
$0
-$100
-$200
-$300
Month of Fiscal Year Completed
June
May
Apr
Mar
Feb
Jan
Dec
Nov
Oct
Sept
Aug
-$400
July
Above (Below) Budget
$200
How Did the State Respond in
the Last Two Recessions?
How did the State respond to the last
two recessions? (early 1990’s)
Early 1990’s recession was much worse in
New Hampshire than in the US.
Changes to state taxes were significant:
•
•
•
•
•
•
•
BET created in 1994
M&R increased from 7% to 8% in 1990
RETT 30% 'temporary surcharge' in 1990
Communications Tax revamped in 1991
Utility Tax Revamped in 1992
Tobacco Tax Increased in 1990 and again in 1991 (17
cents to 21 cents to 25 cents)
Medicaid Enhancement Revenue from $50m in 1991 to
$250m in 1994
A 1990-1991 style recession,
without tax changes, equals
no State Revenue growth for
five+ years
$700.000
$650.000
$600.000
$550.000
$500.000
$450.000
$400.000
1988
1989
1990
Total Real Taxes/Revenues
1991
1992
1993
1994
Total Revenue, w /o New , Changes
In 2001 to 2003, State Revenue
would have recovered the peak
in three years, without changes
to existing taxes or new taxes.
$1,800.0
$1,600.0
$1,400.0
$1,200.0
$1,000.0
$800.0
$600.0
2000
2001
2002
Subtotal
2003
2004
2005
Total Revenue, w/o New, Changes
2006
What are the Revenue Options
Now?
New Hampshire State Revenue
Options:
Increase Ad Valorem Tax Rates
Index per Unit Taxes to Inflation
Increase the Tobacco Tax
Federal ‘Bail-Out’ including Medicaid
Enhancement Revenue or FMAP increase
New State Revenue Sources
•
•
•
•
•
Estate & Legacy
Amusement Tax
Luxury Tax
Gambling
Capital Gains
5% Increase in Ad Valorem
Taxes (2008 Revenues)
All data in Millions of 2008 Dollars
Business Profits Tax
Business Enterprise Tax
$19.1
$11.5
Meals and Rooms Tax
$10.7
Interest and Dividends Tax
$6.7
Real Estate Transfer Tax
$5.8
Communication Service Tax
$4.0
Extra 2008 Revenue If Per Unit
Taxes Had Been Indexed to
Inflation for Five Years
All data in Millions of 2008 Dollars
Court Fines and Fees
$4.6
Board and Care
$3.0
Beer Tax
$1.9
Electric Consumption Tax
$1.0
Dog & Horse Racing
$0.5
Gas Road Toll Tax
$20.9
MV Registrations
$11.4
NH Cigarette Tax Increase of 25
cents.
Increase in the Tobacco Tax on
Cigarettes at Current Annual Sales
Cents per Pack Increase
$0.25 =$38m
New (and Renewed) Revenue
All data in Millions of 2008 Dollars
Estate & Legacy tax at 8%
$24.0
Amusement Tax at 5%
$32.0
Luxury Tax (Example 10% on Luxury Homes, $500K)
$60.0
Gambling (Video Slot Machines) in New Hampshire
Capital Gains Tax at 5%
$100-200
$181.7
New Revenue May Not Come in
as Expected
NH Capital Gains 1997-2006 (IRS SOI data)
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
New Hampshire’s Gaming
Geography
Questions?