Grant Bosse: Look out, lawmakers, sunset is coming
The next governor and Legislature will have to face the sunset. Steps taken by past Legislatures to balance the budget are set to expire next year, putting pressure on the state budget at a time when the economy is still recovering slowly. The decision whether to keep these spending reductions in place or let these programs come back will determine the size of the fiscal hill the next Legislature has to climb.
Revenue from New Hampshire’s meals and rooms tax has always been split between the state and municipal budgets. Under the current formula, cities and towns get the same amount as the prior year, plus 75 percent of any increase in revenue, up to $5 million a year statewide. In 2009, Gov. John Lynch and the Democratic Legislature capped this revenue sharing at Fiscal Year 2009’s level of $58.8 million. The Republican Legislature last year kept the FY ’09 cap in place.
But that cap expires this year, adding up to $15 million in revenue sharing. The next Legislature could simply keep the cap in place, but mayors and selectmen across the state are going to pressure their representatives to bring back annual revenue sharing increases.
State law dedicates money from the $25 real estate fee to the Land and Community Heritage Investment Program, known as LCHIP. For the past three budgets, the Legislature sent that revenue straight into the General Fund. LCHIP gets money for overhead but has not received any new state money to make grants. Under current law, the fees would go back into LCHIP next year.
That means an extra $4.5 million in annual spending, unless the next Legislature extends the sunset.
New Hampshire’s UNIQUE 529 College Savings Plan lets parents save for college, with qualified earnings free from state and federal taxes. Due to a deal struck by State Treasurer Georgie Thomas when New Hampshire set up the fund through Fidelity, the Granite State not only gets 0.1 percent of the fund balance annually, but the New Hampshire plan is the default for Fidelity’s 529 account nationwide. UNIQUE has more than $11 billion in assets, generating $11 million annually to the state.
That revenue had been dedicated to low-income scholarships, but the current budget temporarily directed UNIQUE revenue to the University System of New Hampshire. That provision sunsets next year. The next Legislature could keep sending UNIQUE revenue to the university system or restore the scholarship program.
Since 2005, the Knowledge Economy Education Plan for New Hampshire, or KEEP-NH, has spent more than $100 million for capital construction projects across the university system. KEEP-NH expires in 2013. The university system is pushing a successor program, KEEP-UP, which would carve out $35 million a year from the state’s capital budget to pay for deferred maintenance on campus.
These expiring budget provisions total $116 million over the next two years. There’s nothing wrong with building sunsets into the budget. It’s the Legislature’s way of saying, “We’d really like to fund this program, but we can’t afford it right now.”
Sunsetting forces the next Legislature to re-examine the issue. Nothing prevents lawmakers from reviving a suspended program, but sunsets are a way to distinguish budget priorities that came up just short.
Certainly, the use of sunsets to get the state through tough budgets is preferable from the avalanche of gimmicks that dominated the budget from 2007 to 2010. Lawmakers shifted general fund spending into the capital budget and then claimed to cut spending. State debt increased 43 percent in just four years, an increase of $285 million. Budget writers made pie-in-the-sky revenue projections and were forced into a special session to fill a $300 million deficit when revenue didn’t come in.
The 2010 budget fix may have been even worse than the budget that caused the deficit, relying almost exclusively on wishful thinking and budget gimmicks to paper over the state’s fiscal dilemma. This train-wreck of a budget left the current Legislature with an $800 million hole to fill.
None of the sunsetting budget provisions force the state to increase spending, but they will increase political pressure to restore cuts that Democrats and Republicans promised would be temporary. Will our economy recover quickly enough to restore funding for programs that the last three Legislatures decided we couldn’t afford?
(Grant Bosse is vice president for media for the Josiah Bartlett Center for Public Policy, a free-market think tank based in Concord.)