The State Budget
NH Children’s Summit
December 8, 2008
Steve Norton
Director, NHCPPS
“…to raise new ideas and improve policy debates through quality
information and analysis on issues shaping New Hampshire’s future.”
1
Board of Directors
Donna Sytek, Chair
John B. Andrews
John D. Crosier
William H. Dunlap
Shelia T. Francoeur
Chuck Morse
Todd Selig
Stuart Smith
New Hampshire Center
for Public Policy Studies
All of our reports
are available on the web:
James Tibbetts
Brian Walsh
Kimon S. Zachos
www.nhpolicy.org
Martin Gross
Staff
“…to raise new ideas and improve policy debates through quality
information and analysis on issues shaping New Hampshire’s future.”
Steve Norton
Dennis Delay
Ryan Tappin
2
The Good News?
3
What is the State Budget?
4
NH’s Budget
• Biennial Budget – 24 Months
• 2 fiscal years per budget
• Fiscal year runs from July 1 – June 30th
5
The 2008-2009 Biennium
You are here
July 1st 2007
July 1st 2008
June 30th, 2009
January
With an unresolved deficit
Of $150 Million
6
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%
7
NHCPPS Model Showing a
$300m+ Revenue Shortfall
Projection of 2009 Combined General Fund
& Education Trust Fund Revenues
(in millions of $)
$100
$0
-$100
Will the state have to revise
revenue estimates down?
-$200
-$300
Month of Fiscal Year Completed
June
May
Apr
Mar
Feb
Jan
Dec
Nov
Oct
Sept
Aug
-$400
July
Above (Below) Budget
$200
8
What’s Next for 2009?
• Budget has been squeezed with relatively
‘limited’ impact to program areas.
• Next round of budget cuts will depend on
year end revenues and federal
government decisions r.e. ‘bailing out’
states.
• Next round of budget changes unlikely to
avoid significant program impact.
9
The State Budget Context
for 2010-2011
• Economic Dislocation
• Long Term Strategic Questions – Income and
Education are the best indicators of a child’s
future well being.
– Economic Change Agriculture-> Manufacturing-> ?
– The World is Flat - Information, Communication,
Transportation
– Environmental Change - Climate, Water, Conservation
– Aging
10
Age Distribution: 1970
Distribution of NH Population by Age in 1970
(60,000)
(40,000)
(20,000)
-
20,000
40,000
60,000
85+
80-84
75-79
Males
Females
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
(60,000)
(40,000)
(20,000)
-
20,000
40,000
60,000
Persons
11
Age Distribution: 1995
Distribution of NH Population by Age in 1995
(60,000)
(40,000)
(20,000)
-
20,000
40,000
60,000
85+
80-84
75-79
Males
Females
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
(60,000)
(40,000)
(20,000)
-
20,000
40,000
60,000
Persons
12
Age Distribution: 2020?
Distribution of NH Population by Age in 2020
(60,000)
(40,000)
(20,000)
-
20,000
40,000
60,000
85+
Males
Females
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
(60,000)
(40,000)
(20,000)
-
20,000
40,000
60,000
Persons
13
When Will it End?
(Economy.com)
14
The 2010-2011 Budget
Process
• November – Agency Budget Hearings scheduled for
November 20, 21 and 24
• December – Senate & House organized on December
3rd; legislative leadership makes committee
assignments; Governor begins to craft budget
• Late January – Governor’s budget is being finalized
• February – Governor presents budget to the Legislature
on February 15th; later in the month, House Finance
Committee begins deliberating
• March – House Finance Committee takes action
• Negotiations generally occur at 11:00pm on June 30th ….
15
The 2010-2011 Biennium
You are here
2010-2011 Biennium
Dec 2008
July 1st 2009
June 30th, 2011
June 30th, 2010
Decisions for 2010 and 2011 will be made in the next 6 months
16
Agency Maintenance
Requests (Have Come In)
• Maintenance Requests ask: “What do you
have to spend to maintain existing
services?”
Agencies Answered: 12.5% increase from
2009 to 2010.
17
Change in Per Capita,
Inflation Adjusted Expenditures by Major Budget Line Items
1999-2009
$70
$60
Medicaid Provider
Payments
$50
$40
$30
Retirement System
Retirement Health
Corrections
$20
HHS: Developmental
Catastrophic Aid
$10
School Building Aid
$0
-$10
-$20
Municipal Revenue Sharing
HHS State Hosp
Debt Service
18
What about 2010-2011?
NH Total Revenues, incl Medicaid Enhancement Rev
Revenues from the General Fund and Education Trust Fund
$3,000
$2,500
$500 Million Biennium Shortfall
$1,500
$1,000
$500
Actual &Est Update
Repeat of 2001-03
11
20
10
20
09
20
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
$0
19
Millions $
$2,000
Recovery and Trend
Repeat of Early 1990'S
19
Undesignated Fund Balance in 2011 Under Alternative Assumptions About State
$0
Existing Agency
Maintenance Requests
Deficits
Level Fund 2010, 3%
Growth in 2011
($200,000,000)
97% of '09, 3% Growth in
2011 and No Increase in Ed
funding
($231,440,280)
($400,000,000)
($403,069,534)
($600,000,000)
($800,000,000)
($1,000,000,000)
($1,109,737,038)
($1,200,000,000)
20
Spending
21
State Appropriated $5.2
Billion in 2007 (all funds)
Distribution of 2007 General Fund Appropriations
by Major Components of the Government
Education,
$217,555,760 ,
16%
General
Government,
$292,825,224 ,
21%
Admin of Justice
and Public Prtn,
$217,790,891 ,
16%
Health and
Human Services,
$626,817,876 ,
44%
4
Resource
Protection and
Development,
$43,904,834 , 3%
Transportation,
$2,958,949 , 0%
22
Distribution of Appropriations (Total Funds) by Type of Expenditure (2009)
Admin Expenses
5%
Other
0%
Debt Service
4%
Consultants
0%
Total Personnel
14%
Benefits
4%
Program Expense
73%
23
Levels of budget
compulsion and discretion
Most
•
•
•
•
•
•
•
•
•
•
Least
Federal constitution
– (e.g., elections for federal offices)
State constitution
– (e.g., indigent defense, Secretary of State, adequate education)
Federal law or regulation – mandate on all
– (e.g., special education)
Federal law or regulation - quid pro quo
– (e.g., Medicaid, child care, vocational rehabilitation)
Court order against the State
– (e.g., state prison system, community developmental services, juvenile services)
State law mandating the activity
– (e.g., vital records, parole board hearings, dam inspections)
Revenue-producing and deficit-neutral activities
– (e.g., DRA auditors, child support enforcement, liquor stores)
State or federal law authorizing activity
– (e.g., school building aid, hunter education program)
Agency regulation authorizing activity
– (e.g., complaint investigations at the Veteran’s Home)
Historic practice without specific authority in law or regulation
– (e.g., National Governor’s Association & NCSL dues and meetings)
24
Changing Spending:
Process (e.g. Methods)
• Many different methods for changing spending
– Shift Financial Burden to property tax by eliminating
programs supporting local government finances;
– Reduce administrative costs;
– Eliminate Government Activities no longer
reasonable in this climate;
• State Library
• Nursery
– Last In, First Out;
– 10% Across the Board Reduction;
– Eliminate whole programs that could be later
reinstated;
– Large scale reform of programs (longer-term)
25
To control spending: have
to focus on ….
•
Primary drivers
– Medicaid
– Corrections
– Local Revenue ‘Sharing’ including Catastrophic Aid,
Building Aid and Meals and Rooms sharing
• Education Finance
– Adequacy defined, but will cost an additional $100 million in
spending under current law.
• Employees as major driver of corrections, state
hospital (and salaries and benefits?)
• Public system transformational changes may take
too much time to impact 2010-2011.
26
Estimating the GF Savings Associated with a 10% Reduction for Selected Line Items
2009 GF
Appropriation
$713,040,337
$223,117,006
$96,836,583
$50,399,450
$48,021,974
$12,770,514
$7,384,489
Estimate of a 10%
Reduction in
Appropriations
$35,652,017
$11,155,850
$4,841,829
$2,519,973
$4,802,197
$1,277,051
$738,449
10 NH RETIREMENT SYSTEM
Health Subsidy
Retirement System
$103,940,607
$48,385,686
$55,554,921
$10,394,061
$4,838,569
$5,555,492
16 DEPARTMENT OF CORRECTIONS
$104,588,817
$10,458,882
03 DEPARTMENT OF EDUCATION
School Building Aid
Catastrophic Aid
Other
$106,185,085
$44,068,069
$34,287,167
$27,829,849
$10,618,509
$4,406,807
$3,428,717
$2,782,985
08 TREASURY DEPARTMENT
Debt Service
Revenue Sharing (Municipal)
$178,526,155
$91,338,688
$86,119,110
$17,852,616
$9,133,869
$8,611,911
06 UNIVERSITY SYSTEM
UNH Durham
Keene State
Plymouth State College
UNH Manchester
Other
$100,000,000
$53,576,000
$13,268,000
$13,268,000
$1,976,000
$17,912,000
$10,000,000
$5,357,600
$1,326,800
$1,326,800
$197,600
$1,791,200
01 JUDICIAL BRANCH
$66,699,989
$6,669,999
04 NH COMMUNITY TECH COLLEGE SYS
$34,625,817
$3,462,582
13 LIQUOR COMMISSION
$36,113,304
$3,611,330
18 JUDICIAL COUNCIL
Public Defender Program
Other
$24,834,811
$17,929,754
$6,905,057
$2,483,481
$1,792,975
$690,506
01 DEPT OF HEALTH AND HUMAN SVCS
Provider Payments
Developmental Services
Behavioral Health Services
State Hospital
Glencliff Home
Substance Abuse Services
A 10%
Reduction
Total
$111,203,475
27
Estimated Spending Reductions for General Funds
GF Reduction
10% Workforce Reductions
10% Reduction in Overtime/Holiday Pay
Examples:
Line Item
Reductions
17,435,052.73
2,212,848.60
10% Reduction in Consultants
2,182,188
10% Reduction in Admin Costs
Current Expenses
Indirect Costs
Audit Set Aside
Rents and Leases
Heat, Electricity and Water
Maintenance
Equipment (own, bonded, leased)
In-State Travel
Out-of-State Travel
3,570,418
511,414
76,863
1,439,671
1,801,258
926,055
2,294,235
622,889
1,337,645
3% Agency Management Reductions in Class 90 Program Expenditures
Specific Program Expenditure Reductions
Elimination of State Parks and Recreation
Elimination of Governor's Commission on Substance Abuse
Elimination of LCHIP
Reduce Contributions to Retiree's Health Insurance 10%
Reduce Contribution to Retirement 10%
Implement Good-Time Rules in Prison
10% Reduction in Medicaid Provider Payments (SFY 2008 Actuals)
10% Reduction in Medicaid Outpatient Hospital Payments
Elimination of Healthy Kids Silver Program
Eliminate Adult Medicaid Optional Sources
Elimination of Catastrophic Aid to Hospitals
10% Reduction in Medicaid Community Mental Health Centers
10% Reduction in Developmental Services Providers
Municipal Revenue Sharing (appropriation 2009)
UNH - Durham (2009 Appropriation)
UNH - Kenne (2009 Appropriation)
UNH - Plymouth (2009 Appropriation)
10% Reduction in Catestrophic Aid to Schools
Elimination of School Building Aid
Elimination of Additional Adequacy Expenditures
Long Term Transformational Changes
Implementation of Comprehensive Medicaid Managed Care
Scale Back Medicaid Eligibilty to 1990 levels
Sale of Pease
Privatization of Lottery
Privatization of Turnpikes
Community Based Re-Entry Programs for Corrections
Constitutional Amendment Regarding State's Role in Education Finance
Defined Benefit Package for Retirement System
Total Yearly General Fund Reductions
$37,239,354
$0
$5,600,000
$6,000,000
$4,662,410
$8,165,669
$20,000,000
$9,667,866
$3,933,905
$4,735,640
$272,000
$1,444,811
$4,264,580
$8,075,774
$8,611,911.0
$5,357,600.0
$1,326,800.0
$1,326,800.0
$3,428,716.70
$40,000,000
$50,000,000.0
Not Available
Not Available
Not Available
Not Available
Not Available
Not Available
Not Available
Not Available
258,524,372.90
28
Revenues
29
How did the State respond to the
1990 recession?
• 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
30
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
31
Existing Revenue and Spending Cuts
are Likely Not Enough
Spending and Revenue Changes (Existing Revenue Sources Only)
($209,338,141)
Total of Spending Reduction Options
Total of Revenue Options
$101,015,603
Eliminate Adult Medicaid Optional Sources
10% Reduction in UNH - Plymouth (2009 Appropriation)
10% Reduction in UNH - Kenne (2009 Appropriation)
Elimination of Catastrophic Aid to Hospitals
10% Reduction in Heating, Electricity
10% Reduction in State Travel
10% Reduction in Overtime
10% Reduction in Catastrophic Aid to Local Schools
10% Reduction in Medicaid Outpatient Hospital Payments
10% Reduction in Medicaid Community Mental Health Centers
Elimination of Healthy Kids Silver Program
Dog and Horse Racing Index
Electric Consumption Tax Indexed to Inflation
Beer Tax Indexed to Inflation
10% Reduction in state Contribution to Retiree Health
10% Reduction in UNH - Durham (2009 Appropriation)
10% Reduction in State Contribution to Retirees
Elimination of Governor's Commission on Substance Abuse
Board and Care Index to Inflation
5% Increase in Communication Service Tax
Court Fines and Fees Indexed to Inflation
5% Increase in Real Estate Transfer Tax
Elimination of LCHIP
10% Reduction in Developmental Services Providers
10% Reduction Municipal Revenue Sharing (appropriation 2009)
5% Increase in Interest and Dividends Tax
5% increase in Meals and Rooms Tax
10% Reduction in Medicaid Provider Payments
10% Workforce Reductions (1000 Layoffs)
Implement Good-Time Rules in Prison
MV Registrations
5% Increase in Business Enterprise Tax Increase
5% Increase in Business and Profits Tax Rate
Elimination (or Bonding) of School Building Aid
Elimination of Additional Adequacy Expenditures
($250,000,000) ($200,000,000) ($150,000,000) ($100,000,000)
($50,000,000)
Gas Road Toll tax Indexed
$0
$50,000,000
$100,000,000
$150,000,000
32
Existing Revenue, Spending Cuts, Federal
Bailout and New Revenues Likely Required
Annual Spending Reduction and Revenue Enhancement Options
Eliminate Adult Medicaid Optional Sources
10% Reduction in UNH - Plymouth (2009
Appropriation)
10% Reduction in UNH - Kenne (2009
Appropriation)
Elimination of Catastrophic Aid to Hospitals
10% Reduction in Heating, Electricity
10% Reduction in State Travel
10% Reduction in Overtime
Dog and Horse Racing Index
10% Reduction in Catastrophic Aid to Local
Schools
Electric Consumption Tax Indexed to Inflation
10% Reduction in Medicaid Outpatient Hospital
Payments
Beer Tax Indexed to Inflation
10% Reduction in Medicaid Community Mental
Health Centers
Board and Care Index to Inflation
Revenue increases are estimates based on historical trends and may
not reflect existing circumstances.
5% Increase in Communication Service Tax
Elimination of Healthy Kids Silver Program
10% Reduction in state Contribution to Retiree
Health
Court Fines and Fees Indexed to Inflation
10% Reduction in UNH - Durham (2009
Appropriation)
5% Increase in Real Estate Transfer Tax
5% Increase in Interest and Dividends Tax
10% Reduction in State Contribution to Retirees
Elimination of Governor's Commission on
Substance Abuse
5% increase in Meals and Rooms Tax
MV Registrations
Elimination of LCHIP
10% Reduction in Developmental Services
Providers
5% Increase in Business Enterprise Tax Increase
5% Increase in Business and Profits Tax Rate
10% Reduction Municipal Revenue Sharing
(appropriation 2009)
Increase in Gas Tax
10% Reduction in Medicaid Provider Payments
New Revenue streams are in bold
Implement an 8% Estate and Legacy Tax
10% Workforce Reductions (1000 Layoffs)
25 Cent Increase in Tobacco Tax
Implement Good-Time Rules in Prison
5 Percentage Point Increase in FMAP
Elimination (or Bonding) of School Building Aid
Implementation of Gambling
Elimination of Additional Adequacy Expenditures
($60,000,000)
($40,000,000)
($20,000,000)
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
33
Policy Opportunities
(Likely towards the end of 2011)
34
Out of the darkness …
• Federal Level
– Healthcare reform?
– Who’s preparing middle and low income families for the green revolution
and the Obama ‘Green Deal?’
• Fear of Change < Fear of Severe Budget Cuts
– What can Michelle Rhee and Education Reform in DC tell us about our
new accountability system for NH’s education finance conversation?
• Modernize State Government?
– Are there things that state government is doing that we can rethink?
• Aligning interests
– Workforce housing and NH Businesses?
– Educated workforce and NH Labor needs?
– Enhancing management of chronic care for Medicaid for low income
children (decreasing costs?)
– Financial planning for middle and low income families?
35
Putting It All Together
• 2010-2011 will be a difficult budget as estimated deficits
are large
• How to Weather the Storm? Big Decisions
– $100 Million in new money for education adequacy for
communities;
– Change in existing revenue streams;
– Development of new revenue streams (gambling, estate tax);
and
– Spending reductions.
• Spending will likely have to remain flat or very slight
increase over the next 3 years.
– Initial impact will be on non-profit community with mission to
serve families.
• History suggests crisis creates change …. opportunity
36
Board of Directors
Donna Sytek, Chair
John B. Andrews
John D. Crosier
New Hampshire Center
for Public Policy Studies
William H. Dunlap
Shelia T. Francoeur
Chuck Morse
Todd Selig
Stuart Smith
All of our reports
are available on the web:
James Tibbetts
Brian Walsh
Kimon S. Zachos
Martin Gross
Staff
www.nhpolicy.org
“…to raise new ideas and improve policy debates through quality
information and analysis on issues shaping New Hampshire’s future.”
Steve Norton
Dennis Delay
Ryan Tappin
37