What does Judge McGuire’s decision on the state’s use of surplus funds from a state established medical malpractice joint underwriting association mean for the state budget? The state budget included $65 and $45 million of these funds in the 2009 and 2010 budget respectively. Obviously, if the decision holds throughout the appeal process the state’s books are out of balance. What that actually means, and how the state resolves the issue, is quite complicated.
Although the state has to pass a balance budget by law, the state can, and has, run a deficit in its general fund account a number of times in the past 30 years (see the yearly balance of the state’s general fund below, from the state’s Comprehensive Annual Financial Report). The critical question isn’t whether or not the JUA decision allows the state to close its books in the black (or at least even) for 2009, but rather, how the state re-fills the coffers or reduces the need for the revenues by reducing spending.
Governor Sununu, Governor Gregg, Governor Shaheen and Governor Benson faced (and perhaps Governor Lynch will face) a general fund deficit. For all of these Governors the deficit was in part a function of an economic downturn, and the recovery was in part a return of economic growth (and revenues).
How each Governor, or the Governors that followed them, balanced the books varied: Governor Sununu combined spending changes with robust economic growth, Governor Merrill (who received a deficit from the Gregg administration) was the beneficiary of manna from heaven in the form of federal disproportionate share funds (medi-scam to those who didn’t like the concept), Governor Shaheen experienced significant economic growth (and therefore revenues), and Governor Benson constrained spending and saw revenues increase. Governor Lynch is unlikely to see a resurgence of economic growth (and therefore revenues) in the short term, and so is left with difficult choices.
If the appeal process confirms Judge McGuire’s decision, does this spur a special legislative session to reopen the budget and renew conversations about revenue changes or spending reductions?
I think this is an interesting set of data given the current situation and I like the author's thoughts. I had a couple additional thoughts:
(1) Our budgets are two-year budgets so balance is only supposed to be achieved after the second year, the odd numbered year. In that case, a shortfall in the even numbered year is no cause for panic and might even be planned.
(2)I know there are different ways to consider this but I think if we label budgets by Governor (which can be useful), we should name it after the governor who signed the budget. The budget will have 6 months left in it when his or her term ends but the die is pretty much cast. Under that scenario, the budget Benson signed in 2003 that covered fiscal years 2004 and 2005 would be the benson budget. The budget just passed would be named after Lynch rather than whoever gets elected in November 2010. Doesn't change the data, just a thought.
(3)Also interesting, under current law the balance should always be zero at the end. Any surplus is automatically transfered to the rainy day fund and any shortfall is automatically made up from the rainy day fund. Recent surpluses have existed because the last few budgets (under both parties) have "temporarily" suspended that law to use part of the surplus in their next budget.
(4) I wonder if the huge deficit at the end of 1983 shows us the right path out of our current mess. 1983 ended with a $40M cash deficit and a $60M GAAP (accounting rules) deficit on an annual budget that was only $300M. The budget adopted for 1984 and 1985 (June 1983) eliminated the cash deficit and reduced the GAAP deficit the first year. By the end of the second year of the budget, they had a huge cash surplus and a GAAP surplus too. Two years, two steps. Halfway the first year, finish the job the second.
Posted by: Charlie Arlinghaus | Jul 31, 2009 at 12:45 PM