As anyone who has put together a family budget knows, budgets balance revenues with expenses. The same stands for our two-year state budget. Our revenues are based on estimates projected more than two years into the future. It is more of an art than a science, but it is a vital part of the state budget process.
This year, the House’s estimate called for lower revenues, to account for potential economic downturn, and two months later, in early April, passed the budget to the Senate. As typically happens, at that time better revenue estimates were available. The Senate by-and-large adopted revenue estimates from Gov. Chris Sununu’s office, which were then revised slightly and accepted by the House and Senate when the budget passed in June.
Unfortunately, now the economy is showing signs of serious weakness. The revenues coming in – across the board – are lower. And business tax revenues are significantly lower than estimated.
So, how did we get here?
First, a slowing economy, with businesses recalculating their quarterly payments. Second, large businesses’ use of cash and tax credits they have left untouched on deposit with the state (sometimes for years) to pay future (now current) tax obligations. Third, large businesses asking for tax refunds due to overpayment of taxes last year.
The last point is due to a piece of federal tax reform passed in 2017 – repatriation – which gave incentives to U.S.-based multi-national corporations with foreign business earnings to bring business profits home and resulted in a large, one-time increase in New Hampshire’s business tax revenue last year.
Some businesses that made estimated overpayments to New Hampshire have now asked for and received large refunds. This means last year’s business tax surplus was actually much smaller than reported. But that surge was taken as a sign that our much smaller business tax cuts here in New Hampshire were working, even though no economist or expert has corroborated that claim. In fact, most revenue-watchers say corporate tax breaks at the state level only prevented business tax revenue for the state from being higher. A Pew analysis of all 50 states’ revenue growth rates from 2006 to 2018 show New Hampshire’s growth rate was about 37% of the 50-state average in 2018.
While Gov. Sununu has spent the better part of a year taking credit for the budget surplus, the fact is his “surplus” is now smaller because large refunds are now being removed from it – to the tune of $20 million and counting. The “surplus” also includes an unprecedented lapse of over $90 million by the Department of Health and Human Services, which left funds allocated for critical services for our citizens and communities unused. Because this money went unspent, there are now serious staff and service shortages in child protection, substance use disorder treatment and elder care.
The big picture is that the economy is slowing, state revenues will be less than estimated moving forward and the “surplus” is not what Gov. Sununu claims it is. We now know that we have less money to work with than originally forecasted.
Considering this news, any insistence that we enact even more business tax breaks would guarantee our state’s inability to provide a budget that tackles the critical issues facing New Hampshire – including mental health, workforce development and public education.
As budget negotiations continue, it’s time to put politics aside and have an honest conversation about declining business tax revenues and the impact of further business tax breaks on our state. To do otherwise would be fiscally irresponsible.
(Sen. Dan Feltes of Concord is chair of Senate Ways & Means. Rep. Susan Almy of Lebanon is chair of House Ways & Means.)