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D.C. deficit-reduction efforts create uncertainty for N.H. budget-writers

New  senator Sam Cataldo shares a story with Senators Andy Sanborn (left) and Andrew Hosmer (right)  before the start of their first  session;  Wednesday, January 2, 2013. 
(ALEXANDER COHN / Monitor staff)

New senator Sam Cataldo shares a story with Senators Andy Sanborn (left) and Andrew Hosmer (right) before the start of their first session; Wednesday, January 2, 2013. (ALEXANDER COHN / Monitor staff) Purchase photo reprints at PhotoExtra »

It’s not at all clear how efforts to reduce the federal government’s budget deficit will affect local and state governments, though tens of millions of dollars in grants and direct aid to New Hampshire residents could be cut, an analyst from the National Conference of State Legislatures said yesterday.

That’s causing headaches for lawmakers as they begin to prepare the next state budget – as are pending changes in state tax laws and an estimate that the state is running a deficit of about $25 million for the current fiscal year, though officials caution that figure represents a snapshot in time and could change in the coming months.

“We’re not even in a zero-sum game. We’re in a negative game,” said Rep. Susan Almy, a Lebanon Democrat and chairwoman of the House Ways and Means Committee.

She added, “We’re going to do the best that we can to understand where the revenues are. It’s going to be a moving target in a lot of ways.”

Members of Almy’s committee, along with its Senate counterpart and the House and Senate Finance committees, met yesterday with analysts and economists to get an overview of the state’s fiscal situation, the local and regional economy, and the state of play in Washington, D.C., as officials there wrangle over ways to reduce the deficit.

Those four committees will craft the state budget and tax policy for the next biennium, fiscal years 2014 and 2015, which begins
July 1. Gov. Maggie Hassan, an Exeter Democrat, is set to deliver her proposed budget to the Legislature by Feb. 15. The Democratic-controlled House will then craft a budget and send it to the Republican-controlled Senate, with a compromise spending plan likely to come together by late June.

Jeff Hurley, a senior policy specialist at the National Conference of State Legislatures, spoke to the committee members yesterday about the so-called “fiscal cliff,” a combination of expiring tax cuts and automatic spending reductions that were set to go into effect at the end of 2012. A last-minute deal at Congress extended many tax cuts for individuals making less than $400,000 a year and delayed the automatic spending cuts until March 1 to give lawmakers more time to work out an alternative plan.

But if past proposals are any guide, Hurley said, federal officials won’t be giving much thought to how any plan would affect local and state governments.

“That mindset can be quite frightening,” he said.

Based on the automatic budget cuts as planned now, Hurley said, New Hampshire could see an estimated $32.5 million less in fiscal 2013 from the federal government, including cuts to programs that provide aid directly to residents as well as grants that go to the state or local governments.

Medicaid, Pell Grants, food stamps and most transportation funding are among the programs exempt from the system of automatic budget cuts, called a sequestration, enacted by Congress and President Obama in 2011. Education programs will be hit hard, Hurley said, as cuts fall on other areas including defense-related spending.

Given the uncertainty, he said, most states aren’t taking any action to prepare for the expected cuts. New Hampshire has done no formal planning for how federal cuts might affect spending or revenue in the current budget year or in the coming biennium, said Legislative Budget Assistant Jeffry Pattison.

“That federal can has been kicked so many times down the street, I’m not sure where it’s going to end up,” Pattison said.

But Rep. Mary Jane Wallner, a Concord Democrat and chairwoman of the House Finance Committee, said she wouldn’t be surprised if state agency heads were making informal plans about possible budget cuts.

“I do think that they’re probably watching very closely. . . . I’m sure that the department heads are thinking about those and have them pretty well identified,” Wallner said.

State deficit, tax cuts

Pattison yesterday reviewed the state’s fiscal situation with the committee members, including the latest projections on state revenue.

After a $13.8 million surplus in fiscal 2012, he said, state revenue for fiscal 2013 is currently about $13.1 million below what was expected. That includes $10.3 million in securities revenue that arrived in December, a month earlier than expected, and a $36.8 million shortfall in Medicaid Enhancement Tax payments from state hospitals.

Pattison said, under state tax and privacy laws, he can’t announce which hospitals have paid less than expected.

Steve Ahnen, president of the New Hampshire Association of Hospitals, said he knows several hospitals had requested extensions from the state “because their ability to make those payments would have created a financial hardship.”

Together with other expenses, including lost savings due to the delayed implementation of a managed-care system for the Medicaid program, the state is running a roughly $25 million deficit, even including the $13.8 million surplus from 2012, Pattison said.

Those numbers will likely change by the end of June, when fiscal 2013 ends. Almy said if the state runs a deficit, that shortfall will have to be absorbed by the next budget.

Hassan spokesman Marc Goldberg said the governor’s office “will be examining closely” the Medicaid Enhancement Tax shortfall but said “traditional revenues” are running 5 percent above last year’s levels.

“Gov. Hassan will continue to enforce the freeze on executive branch hiring, purchasing and out-of-state travel and will partner with agency heads and the Legislature to work toward a balanced budget for 2013,” Goldberg wrote in an email.

Lawmakers yesterday also reviewed expenditures that were temporarily suspended in the last state budget and a number of changes to the state tax system that were passed by the last Legislature but won’t go into effect until the 2014 and 2015 budget.

In all, those pending tax changes will reduce state revenue by an estimated $26 million in fiscal 2014 and $34 million in fiscal 2015, though the effects of several changes can’t yet be estimated, according to Pattison’s office.

(Ben Leubsdorf can be reached at 369-3307 or
bleubsdorf@cmonitor.com or on Twitter @BenLeubsdorf.)

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