Capital Beat: Flashpoints in the New Hampshire budget standoff

Monitor staff
Published: 4/6/2019 2:36:57 PM

It’s no longer an abstract fear: New Hampshire seems very much on its way to a budget veto.

That was made clear months ago, when Gov. Chris Sununu planted a flag of opposition around his business profits tax cut reductions, which Democrats are pressing to partially reverse.

But what began as a singular disagreement has only magnified in recent weeks, as Democratic leadership in the House and Senate find more and more areas of significant divide.

Now there are any number of areas that could set off a veto, and with it a difficult series of negotiations for two parties that may see it as their best electoral interest to dig in. Sununu’s core philosophy of low taxes and one-time expenditures has met its political match in the Democrats’ focus on raising state revenue to pass down to towns and schools. And the differences may only widen when the budget heads to the Senate.

Last Wednesday, the House Finance Committee signed off on a vastly changed House Bill 1 and House Bill 2, the budget and budget trailer bill respectively. The vote breakdowns: 15-9, sharply along party lines.

A mile away, addressing a crowd of business representatives at a Grappone Center luncheon, Sununu took more than one swipe at the budget package.

“Someone asked me ‘Boy you have a really tough – you’re in a tough position now.’ No, I’m not,” said the governor, fresh off a weekend anti-tax rally on the State House steps. “There’s such extremism on the other side and no willingness to compromise. Vetoing isn’t hard.”

So what’s driving the gap? Ahead of a full House vote on the budget Thursday, let’s review the major points of contention.

Reversal of business profits tax cuts

It’s the 30,000 foot standoff. Since Sununu successfully passed reductions to the business profits tax in 2017 – from 8.2 percent that year to 7.5 percent in 2021 – Democrats have vowed to reverse it, labeling it a handout to major corporations that came at the expense of property tax relief. After some dithering, the party finally settled on keeping it at 7.9 percent perpetually.

But is it a freeze? That’s a subject of debate.

As of January, the rate for 2019 is 7.7 percent, not 7.9. Democrats argue that because that rate won’t be paid until April 2020, businesses effectively are still paying 7.9. But Republicans say that businesses are nonetheless making decisions this year based on the presumption that come tax day next year, their shares will be lower.

Either way, with Sununu championing the final, 2021 decrease as an important metric to help businesses new and old plan ahead, and Democrats looking to head it off in the name of small businesses and residents, it’ll take some time before we find out which side will blink.

Family leave

After locking horns for years, Democrats and Sununu will enter the familiar battleground of paid family and medical leave again this year. But as opposed to last year’s second-year bill that died in a Republican Senate, this fight will be waged through the budget. That raises the stakes.

As promised, Sununu’s budget put forward a “twin state” opt-in plan anchored to public sectors in New Hampshire and Vermont and allows businesses to decide whether to join. Democrats in the House removed that plan from the budget, going instead for a proposal initially proposed by former Concord representative Mary Gile: a mandatory structure that would give businesses the choice of a state- or self-run program.

Sununu has two words for the Democrats’ scheme: income tax. It isn’t a correct characterization; while businesses can deduct from their employees’ wages, that isn’t the default structure. But it’s a claim that’s stuck, and he and Republicans have decided to double down. How far they do so will be something to watch in May.

Capital gains tax expansion

Part convoluted, part innovative, an effort by Jaffrey Democrat Dick Ames to bring in more revenue to improve disparities in school funding is a late-blooming item that’s become its own flashpoint. Ames’s proposal would create a capital gains tax in New Hampshire pegged at the state’s existing five percent interest and dividends tax, while expanding exemptions under both taxes for lower-income users.

Ames has pointed to estimates from the Department of Revenue Administration that say the tax could bring in $150 million and he says it would fall on wealthier residents while helping out struggling towns. Sununu and other Republicans have opposed it on principle, and argue that it would only cause investors to flee the state or delay capital sales. If a veto comes, one side will have to give.

Secure psychiatric hospital

Early last week, Democrats in the House Finance Committee took a decision with major political risks: They decided not to fund a proposed $26 million, 60-bed psychiatric hospital designed to absorb civilly committed mental health patients currently in the men’s prison. That was something of a surprise. When Sununu announced support for the plan in his February budget address, the room erupted in applause. But Democrats said last Monday that plans for a facility were riddled with issues: they weren’t fleshed out, there weren’t appropriations for staffing, and the money would be better spent outfitting the New Hampshire Hospital for those patients and funding additional beds for other patients.

Sununu wasted no time in making political hay, lambasting the move to drop funding in a Tuesday press conference and a Wednesday business address. Amid the furor, even Senate Democrats are keeping their hands clear, with Majority Leader Dan Feltes saying only that the body is “waiting to see what comes over,” and “remains committed to ensuring that people who experience mental illness receive the care they need in an appropriate setting.” Long championed by Democratic Rep. Renny Cushing, the fate of the psychiatric hospital is now potentially in question.

Wait, there’s more

Think we’re done here? Hardly. The areas of disagreement extend well beyond big-ticket items. The House bill would remove a raft of proposals by the governor and make amendments to other items.

Gone from the House plan are efforts by Sununu to create a lead remediation fund for homeowners by diverting $2.5 million from the renewable energy fund, a prospect that had been hotly opposed by environmental groups; a move to overhaul the judicial retirement system and tighten payouts; and a shuffling of executive departments to create an office of military affairs and veterans services.

The committee also took out Sununu’s proposed $10 million fund for victims of the FRM Ponzi scheme of the 2000s, a student debt relief program funded via investments that currently go to university endowments, and an effort to establish an office of early childhood education.

And while it removed most of Sununu’s individual appropriations for cities and towns, dismissed by Democrats as “earmarks,” the committee built frameworks to allow some to continue such as through a “Statewide Public Boat Access Fund” that could help Lake Sunapee or a Department of Transportation demolition appropriation that could help clear decrepit state structures on Concord’s Stickney Avenue.

Meanwhile, House Democrats have a string of their own priorities, each with varying levels of potential support from the corner office.

They want to adjust the adequacy formula for schools – the base amount of per-pupil state aid – fund full-day kindergarten grants without Keno money, reintroduce fiscal capacity disparity aid to help schools with higher free-and-reduced-lunch students, and reverse cuts to stabilization grants meant to boost property-poor districts.

They want to add appropriations to increase reimbursement rates for mental health receiving beds in hospitals; to transitional housing beds for mental health patients leaving the hospitals; to add mobile crisis units for children with mental health issues; to train up child protection service workers working with traumatized health care workers; and to bolster Planned Parenthood and other reproductive health clinics in the face of federal cuts.

They want to accept and appropriate federal funds for a capital corridor rail study, a longtime political football, that has as good a chance of passing this year as any other.

And in a light jab at the governor’s behavior this year, the House Finance Committee moved to impose a Feb. 15 deadline for the release of House Bill 2 – the “budget trailer bill” that accompanies the main document. This year, Sununu’s was two weeks late.

With months left on the clock before the June 30 midnight deadline for a new budget by Fiscal Year 2020, any one of the hangups could be dropped or compromised. But as rallies are thrown and trenches are dug, a heavier question looms: At this point, what does compromise even look like?

(Ethan DeWitt can be reached at 369-3307,, or on Twitter at @edewittNH.)

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