Grant Bosse: A long history of state budget gimmickry
Back in 2003, Doug Hall from the New Hampshire Center for Public Policy Studies concluded a wide-ranging overview of the state budget with a list of ways to balance the budget, some real and some not so real. In outlining the various budget tricks that could be used to make an unbalanced budget appear balanced, Hall was trying to alert policy-makers on potholes to avoid. Reading through the budget bill approved by the New Hampshire House this week, I’m afraid they used Hall’s warning as a do-it-yourself guide to budget gimmickry.
New Hampshire has a bipartisan tradition of fiscal sleight-of-hand. It’s tempting for politicians to hand
out money without being held accountable for taking from taxpayers.
Republicans and Democrats used a loophole in the federal Medicaid agreement for years to siphon federal matching funds into the state treasury. Mediscam placed a 5.5 percent Medicaid enhancement tax on hospital net patient receipts, and immediately refunded MET payments through the Disproportionate Share Hospital program. Washington would match the DSH payments, which the state would keep for itself.
Following the Claremont education lawsuit, the state had to come up with a way to pay for $600 million to $800 million a year in local education aid. To help lessen the sticker shock, the Legislature and Gov. Jeanne Shaheen passed a statewide property tax, initially set at $6.60 per thousand. Except they really didn’t. The new tax relabeled $360 million in local education spending as state money. Cities and towns collected the state tax themselves and applied the proceeds to the state aid they were scheduled to receive.
The easiest way to game the budget is with rosy revenue estimates. In 2007 and 2009, Gov. John Lynch and the Legislature assumed the economy would grow quickly, even as it began to melt down. As a result, they spent money the state would never collect.
If you can’t pretend that tax revenue will bring in enough to support your favorite programs, you can always borrow the money. New Hampshire strictly prohibits the use of bonding to pay for operating expenses. Unfortunately, the law doesn’t define operating expenses. Lynch slipped millions in spending through this loophole, shifting the building aid program into the capital budget for three consecutive years.
Wishful thinking and increased borrowing will eventually catch up with you. In 2010, Lynch faced a $295 million shortfall brought on by his rose-colored budget. His proposed solution was a perfect storm of irresponsible budgeting. The most transparently awful idea was issuing bonds to pay off part of that year’s debt service payments. He borrowed $40 million to pay off earlier loans.
Sixty million dollars of the Lynch supplemental budget package was supposed to come from selling off state assets. The Legislature was supposed to identify suitable properties, put them out to bid, pick the winners, and collect the money in just a few months. It’s been three years, and the total amount of revenue generated from Lynch’s asset sale is $0.00.
Lynch also adopted an idea from then-Transportation Commissioner George Campbell to sell a portion of Interstate 95 to the New Hampshire Turnpike System. This was a rather bold way to get around state law prohibiting the transfer of toll revenue outside the Turnpike System. The Republican Legislature duplicated the turnpike raid two years ago.
That’s also when House Speaker Bill O’Brien finally ended Mediscam. He didn’t want to repeal the MET, just the reimbursement. To be fair, this was more a political gimmick than a budgetary one. By turning a fake tax into a real one, he got to tax hospitals while claiming the budget contained no new taxes.
The House budget approved Wednesday is a greatest hits of budget gimmicks. It raids dedicated funds, moves $70 million out of the general fund to mask the overall spending increase, and relies on a massive spike in MET revenue that’s not likely to happen. It cuts charter school aid, while failing to increase adequate education grants when those students end up back at the local public school.
The most innovative trick is what I’m calling the Tobacco Loan Program. The big cigarette makers have been withholding part of their tobacco settlement payment for years because states have failed to collect escrow payments from the companies who didn’t sign the deal. If this case goes to court, we’d lose, so we’re entering into a new settlement that releases $30 million in withheld payments. In return, the tobacco companies will send us less money for the next five years. This will just about equal $30 million. To the untrained eye, it looks like a no-interest loan from Big Tobacco.
We’re probably getting the check this month, but the House doesn’t want to book the revenue until next fiscal year. If we put it on the books right away, we wipe out this year’s projected deficit, as well as Gov. Maggie Hassan’s reason to raid dedicated funds. We’d be using one budget gimmick to justify another. I don’t even think Doug Hall saw that one coming.
(Grant Bosse is editor of New Hampshire Watchdog, an independent news site dedicated to New Hampshire public policy.)