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New Hampshire’sNew Hampshire s Budget JourneyNH CARES Community MeetingsMarch 2011
J ff M L hJeff McLynchExecutive DirectorNew Hampshire Fiscal Policy [email protected] c y c @ p o gwww.nhfpi.org
New Hampshire’s Budget JourneyNew Hampshire s Budget JourneyOverview
Where are we?
How did we get here?g
Where are we going?Where are we going?
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New Hampshire’s Budget Journey
Where are we?
How did we get here?
Where are we going?Where are we going?
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What is the New Hampshire Budget?What is the New Hampshire Budget?FY 2012-2013 General & Education Fund Appropriations,
as recommended by Governor Lynch: $4.7 billion
Health & Social Services$1,513M
31%
Education$2,275M
47%
ResourceProtection &
Transportation$2M 0%
Administration
Protection &Development
$63M 1%
General Government
$521M 11%
of Justice$467M 10%
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Source: NHFPI calculations based on Governor’s Executive Budget Summary
What is the New Hampshire Budget?What is the New Hampshire Budget?Lynch Administration Projections -
FY 2012-13 General & Education Fund Collections: $4.7 billion
Property Taxes$784.2 16% Real Estate
Transfer Tax$182 4
Liquor Commission
$272.8 6%
Gambling Revenue
$162.0 3%
Other $615.9 13%
$182.4 4%
Other Consumption
Taxes$212.1
4%
6%
BPT & BET$1,122.0
24%Tobacco Tax
$480.0 10%
4%
Insurance Tax$172.9
4%
Interest & Dividends Tax
$189.9 4%
Meals & Rooms Tax
$548.0 12%
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Source: NHFPI calculations based on Governor’s Executive Budget Summary
S i l S i B d t A t B htSpecial Session Budget Agreement Brought FY 11 Revenue and Expenditures into Balance …. Total General and Education Fund Revenue & Expenditures in $M, FY 2011
2 400
2,500
2,300
2,400
2,200
2,100Revenue Expenditures
Source: Office of the Legislative Budget Assistant, Comparative Statement of Undesignated Surplus, January 6, 2011
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… But Only TemporarilyTotal General and Education Fund Revenue & Expenditures after Adjusting for
Temporary and One-Time Changes, FY 2011
2,500
$40M from debt restructuring
2,300
2,400
of d
ollar
s
$180 M in temporary revenue adjustments
(inc. $60M from "monetization",
$100M from federal i l )
g
2,200
2,300
Milli
ons o stimulus)
2,100 Revenue Expenditures
Source: NHFPI calculations based on Office of the Legislative Budget Assistant data
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P d L h B d t R li U d l i RProposed Lynch Budget Relies on Underlying Revenue Growth, Spending Reductions to Achieve Balance
General & Education Fund revenues & expenditures in billions of current dollars
FY11 ongoing revenue
2.6
revenue
Revenue growth relative to FY11
2.2
2.4
Expenditures
Reductions in expenditures
2.0 e pe d u esrelative to FY11
1.8 FY 2011 FY 2012 FY 2013
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Source: NHFPI calculations based on LBA data & Governor’s Executive Budget Summary
Proposed Lynch Budget Relies on Underlying Revenue Growth, Spending Reductions to Achieve Balance
o Proposed Lynch budget would eliminate state
General Government Expenditures (General Fund only; millions of nominal dollars)
eliminate state contribution for public employee pensions$650
- 200 400 600 800
FY10-11Appropriations
o Contribution expected to total $97 million during the
t FY10 11
$618FY10-11Actual &
Authorized
current FY10-11 biennium$521FY12-13
Recommended
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Source: NHFPI calculations based on LBA data & Governor’s Executive Budget Summary
Proposed Lynch Budget Relies on Underlying Revenue Growth, Spending Reductions to Achieve Balance
o Under the Governor’s proposed budget, General Fund support for
Education Expenditures (General & Education Fund only; millions of nominal dollars)
500 1 000 1 500 2 000 2 500 community colleges would be reduced $18 million - or more than 20% - from current levels $2,321
- 500 1,000 1,500 2,000 2,500
FY10-11Appropriations
o General Fund expenditures for the state’s university system
$2,310FY10-11Actual &
Authorizedy y
would fall $33 million -or 17% - compared to FY10-11
$2,275FY12-13Recommended
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Source: NHFPI calculations based on LBA data & Governor’s Executive Budget Summary
Proposed Lynch Budget Relies on Underlying Revenue Growth, Spending Reductions to Achieve Balance
o Implementing the Governor’s proposal for Medicaid Managed Care will
Health & Social Services Expenditures (General Fund only; millions of nominal dollars)
- 300 600 900 1,200 1,500 1,800 produce $16 million in General Fund savings - or 2.5% of total Medicaid expenditures
$1,562FY10-11Appropriations
o Closing New Hampshire Healthy Kids will reduce
$1,330FY10-11Actual &
Authorized
Kids will reduce expenditures by $6.6 million by converting enrollees to Medicaid
$1,513FY12-13Recommended
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Source: NHFPI calculations based on LBA data & Governor’s Executive Budget Summary
New Hampshire’s Budget Journey
Where are we?
How did we get here?
Where are we going?Where are we going?
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New Hampshire is Not AloneNearly Every State in the Union Expects to Face a Budget Deficit in FY 2012
Source: Center on Budget and Policy Priorities
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National Recession Has Battered State Tax Revenue
Source: Center on Budget and Policy Priorities, February 2011
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M t M j S f T R i NHMost Major Sources of Tax Revenue in NH Have Declined Since Start of Recession
Projected Real Aggregate Change in Select NH Taxes, FY 2008 – FY 2011j gg g g ,
-21.5%
-40.0% -30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0%
BPT/BET %
10.2%
27.8%
/
Meals & Rooms
Tobacco
-26.8%
-19.1%
Interest & Dividends
Insurance
-10.6%
-26.0%
Communications
Real Estate Transfer
Source: NHFPI calculations based on NH DAS & US Bureau of Labor Statistics data
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St t R t L t L lState Revenues at Lowest Level Since the Creation of the Education Fund
General & Education Fund Collections in Millions of FY 11 Dollars, FY 2000-2013,
$2,600
$2,200
$2,400
$2,000
$1,8002000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: NHFPI calculations based on NH DAS & US Bureau of Labor Statistics data
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New Hampshire’s Budget Journey
Where are we?
How did we get here?
Where are we going?Where are we going?
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H B d t M M kHouse Budget May Make Further Spending Reductions of $522 Million
Anticipated FY10-11General Fund Expenditures by Category, $MAnticipated FY10 11General Fund Expenditures by Category, $M
Administration of Justice & P bli P t ti
General Government
Transportation
Resource Protection & Development
& Public Protection
Education
Health & Social Services
$0 $250 $500 $750 $1,000 $1,250 $1,500
Proposed House Spending Cuts
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Source: NHFPI calculations based on Governor’s Executive Budget Summary
Proposed Lynch Budget Would Make Sizable Reductions in Aid to Local Governments
State Aid to Cities Towns and School Districts by Biennium Constant FY13 $BState Aid to Cities, Towns, and School Districts by Biennium, Constant FY13 $B
$2.7
$2.1
$2.4
$1.5
$1.8
$1.2 FY04-05 FY06-07 FY08-09 FY10-11 FY12-13
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Source: NHFPI Calculations based on LBA, BLS data
Lynch Administration Expects Revenue Growth from FY10,House of Representatives Anticipates None
Projected General & Education Fund revenue in millions of nominal dollars
2,400
2,700FY 2010
collections
2,100
1,500
1,800
1,200FY 2011 FY 2012 FY 2013
House Governor
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Source: Governor’s FY 2012-2013 Executive Budget Summary; HR 11
A Statement of Priorities?“…a list of tax cut and repeal
bills that would reduce state revenues by more than $240
illi h million over the next two years.”
- NH Union Leader, January 30, 2011
“…a goal to cut further taxes or rebuild our depleted rainy da f nd sho ld e en es day fund, should revenues appear.”
- House Speaker William O’Brien, February 3, 2011
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A St t t f P i iti ?A Statement of Priorities?Tax Legislation Approved by NH House through March 18
HB37Reestablishing the monthly exemption to the communications services tax
$4 M
HB154 Increasing a threshold amount for taxation under the BET $12 M
HB213 Reducing the BPT rate to 8.0% by 2012 $27 M
HB166 Reducing the rate of the meals and rooms tax to 8% $54 M
HB156 Reducing the cigarette tax rate from $1.78 to $1.68 $30 M
HB557Regarding the reasonable compensation deduction for certain entities (LLCs et al ) under the BPT
$100 Mcertain entities (LLCs, et. al.) under the BPT
HB187Increasing the carry forward periods for the BET credit against the BPT
unknown
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TOTAL at least $227 M
Industries Affected by Meals & Rooms Tax Performing in Line with New Hampshire Economy
Percent Change in Employment, July 2009 through November 2010
3.0%
3.5%Accomodation& Food Services Industries
Total Non‐Farm Employment
1.5%
2.0%
2.5%
0 0%
0.5%
1.0%
-0.5%
0.0%
New Hampshire New England United States
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Source: NHFPI calculations based on US Bureau of Labor Statistics data
Most Businesses Owe Little or No BPT or BETShare of Combined BPT & BET Returns, by Range of Combined Liability, TY 2008
$1,000 to $10,000
28%
$10,000 to $50,000
5%Over $50,000
$500 to $1,00013%
2%
$0 35%
$1 to $50017%
Source: NHFPI calculations based on NH DRA data
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S S SState Business Taxes Are a Relatively Small Share of the Taxes Businesses Pay
Composition of State and Local Taxes Paid by New Hampshire Businesses, FY 2009
Property Tax59%
Excise & Gross Receipts
11%
Corporate pIncome
19%
Unemployment Insurance Tax
4%License and Other
7%
Source: Council on State Taxation
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A Fork in the RoadA Fork in the Road Public Supports Taking a Balanced Approach to Addressing New Hampshire’s Fiscal Crisis
Even Balance35%
Mainly Tax Increases, Some Spending Cuts“ Let’s turn to the Spe d g Cu s
9%Entirely Tax Increases
2%Unsure
…Let s turn to the state budget. Which approach would you choose for dealing Unsure
4%with the state’s budget shortfall?...”
WMUR Granite State Poll
Entirely Spending Cuts
Mainly Spending Cuts, Some Tax
Increases21%
- WMUR Granite State Poll, February 2011
29%21%
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A Fork in the RoadA Fork in the Road Revenue Options Are Available to Address State’s Budget Shortfall
Modify Existing Taxes Modify Existing Taxes
o Adopt a Business Profits Tax surchargePOTENTIAL IMPACT: uncertain, up to $30 million annually
o Expand the Interest & Dividends Tax to include capital gainsPOTENTIAL IMPACT: $90 million annually
o Adjust excise taxes (e.g. beer and/or motor fuels) to account for inflationPOTENTIAL IMPACT: $15 to $90 million annually
Reinstate Prior Taxes
o Bring back some form of an Estate Taxo Bring back some form of an Estate TaxPOTENTIAL IMPACT: $25 to $60 million annually
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Taxes in NH Very Low Relative to Aggregate Ability to Pay Total State and Local Taxes as a Share of Personal Income, FY 2008
20%
14%
16%
18% Effective difference between NH and national average in FY 2008:
$1.3 billion
US10.9%
NH8.7%10%
12%
14%
4%
6%
8%
0%
2%
AK WY ND HI NJ CA CT OH MN US PA UT IL IN MS AZ MA NC WA FL ID OK CO OR AL NH
Source: NHFPI calculations based on US Census Bureau, US Bureau of Economic Analysis data
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New Hampshire’s Tax System is RegressiveNew Hampshire s Tax System is RegressiveLow-income Granite Staters have an effective tax rate
that is four times that of the most well-off.Total State and Local Taxes in New Hampshire Non Elderly TaxpayersTotal State and Local Taxes in New Hampshire, Non-Elderly Taxpayers
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Source: Institute on Taxation and Economic Policy
New Hampshire’s Budget JourneyNew Hampshire s Budget JourneyReview
Where are we?Where are we?
NH faces a budget deficit of at least half a billion dollars; Governor Lynch’s proposed budget would close that gap through reductions in spending for education, environmental protections, and vital human services.environmental protections, and vital human services.
How did we get here?
D h d t t ti li l d fi it t f t t ’Down economy has suppressed state revenue, creating a cyclical deficit on top of state’s long-standing structural deficit.
Where are we going?
NH should take a balanced approach to addressing its budget deficit, one that includes tax increases and does not rely solely upon spending cuts.
Yet, legislative leaders may give priority to tax cuts.
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economic opportunity, prosperity, and security for all New Hampshire residents
103 North State StreetConcord, NH 03301
603.518.4495www.nhfpi.org
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