New projected revenue shortfalls add pressure to state budget negotiations

  • Republican Gov. Chris Sununu points to a poster featuring highlights from his proposed budget on Wednesday, June 12, 2009, in Concord, N.H. As lawmakers get ready to reconcile competing House and Senate versions of the budget, Sununu outlined areas where he believes all sides can find common ground. (AP Photo/Holly Ramer) Holly Ramer

Monitor staff
Published: 8/27/2019 5:28:21 PM

Since its fateful veto, the fight for the future of New Hampshire’s budget has been defined by a basic metric: size.

Republican Gov. Chris Sununu, who vetoed the Democrats’ budget in late June, has advocated for lowering business taxes and scaling back ongoing funds, shrinking the pie. State House Democrats have preferred reversing the planned tax cuts, increasing it.

In a period of strong tax returns and rapid fiscal growth, the stakes have been relatively low. The question facing budget-writers this time around has not been what to cut, but how much to spend.

Now, there’s a complicating factor. The influx of money is slowing down.

New revenue projections from the Department of Revenue Administration suggest that New Hampshire will collect less in business taxes than expected in the next two years, partially due to bigger economic trends and overpayments in past years.

While the Legislature estimated $808 million in Fiscal Year 2020 and $778 million in Fiscal Year 2021, the new estimates project only $769 million and $731 million respectively, according to the DRA.

That adds up to a $86 million gap between what the Legislature thought it could spend and how much it actually might have on hand.

According to the DRA, the drop in expected revenues are a product of a series of factors. For one, many businesses took advantage of “repatriation” incentives in the 2017 federal tax overhaul, creating a short term windfall for states like New Hampshire that has since passed.

Additionally, a number of businesses in 2018 reported overpaying their taxes from 2018, causing them to request carry-forwards to offset future taxes or refunds entirely.

And, more broadly, larger economic forces have taken a toll. An ongoing trade war between the United States and China has started to chill investment domestically, despite high consumer spending and low unemployment. In an interview, Lindsay Stepp, commissioner of the DRA, said longterm concerns about the health of economy factored into the new projections.

None of the figures released last week are necessarily absolute, Stepp stressed. But she said given the department’s ability to take a better look at the numbers for Fiscal Year 2019, which ended in June, the emerging projections are more solid than the ones the department usually has on hand during the spring budget season.

“There’s always room for volatility, because obviously we’re trying to project two years out,” said Stepp said. “But in terms of certainty, we at least now have the base that we’re working off of. The starting point is known, and now we just have to estimate what the revenue growth will be.”

The lowered projections add new constraints to a budget negotiation process already fraught with disagreements. A series of policy disputes are only causing further difficulties.

There’s the long-running disagreement on tax proposals. Because Democrats are seeking to roll back planned business tax cuts set in motion by Republicans, and set rates at their 2018 levels, their budget already had much higher revenue on hand – about $90 million.

Then there is Sununu’s aversion to the Democrats’ use of one-off funds that might not be sustainable in future years – a practice he’s referred to as the “structural deficit.” Taking that off the table would reduce the available amount of spending by another $93 million.

Altogether, the gulf between the budget passed by Democrats earlier this summer and the one supported by the governor and current revenue projections is about $272 million.

Democrats say that’s no small chunk of change, especially given their plans to increase payments to both Medicaid providers and struggling school districts. Balancing those objectives against falling revenues and a strong negotiating stance by Sununu could prove difficult.

Sen. Lou D’Allesandro, the Democratic chairman of the Senate Finance Committee, acknowledged that the new figures could mean that members of his party may have to scale back ambitions.

“I think you can do everything that you want, but you’re gonna have to reduce some things,” he said. “You have to reduce the spend, there’s no question about that, and you’re going to have to reduce some things.”

But he said the state’s finances were overall healthy and said they could be aided further by high “lapses” from state agencies.

Under state law, New Hampshire departments are required to send back to state coffers certain leftover appropriations that they don’t spend at the end of the biennium, or lapses. This year, some departments have higher lapses than usual, which could offset some of the financial divide, D’Allesandro said.

“But you know, you gotta cut,” D’Allesandro added.

Sununu, meanwhile, has downplayed the lowered revenue projections, arguing that much had to do with the federal tax law pushed through Congress in 2017. A spokesman for the governor, Ben Vihstadt, said in a statement that the governor would continue to push for one-off spending initiatives that could be scaled back more easily should revenues fall faster.

“To account for this potential volatility in business tax estimates, Governor Sununu’s budget appropriated these one-time funds to one-time capital expenses, as well as provided for revenue thresholds in order to ensure that base revenues were sufficient to support ongoing government operations,” Vihstadt said in the statement.

On Tuesday, D’Allesando and other House and Senate Democratic leaders met with Sununu for a 50-minute meeting to continue hashing out positions. But little was made public about the discussion.

“It was very good,” said D’Allesandro. “We did have a good exchange of views.”

(Ethan DeWitt can be reached at 369-3307.)

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