When it comes to New Hampshire’s tax revenues, recent news has been both good and bad.
The good news: tax receipts are above where they were a year ago, with revenues for the General and Education Trust Funds up nearly 1.5 percent from this time last year.
Now the bad news: With just one month left in the current fiscal year (FY2011), New Hampshire’s tax receipts are lagging behind forecast. Tax receipts for May 2011 came in strong, but it wasn’t enough to offset shortfalls in prior months, particularly in April.
This gap – regardless of its size – presents two challenges. First, budget writers must make up the gap to balance the current budget. And they must also assess what the inconsistent revenue trend means for the next state budget. The Lynch administration has stated that the current fiscal year will be balanced by the time it ends in a few weeks -- through belt-tightening measures and by dipping into unused state accounts, among other steps -- but no precise plan has been released.
But the gap between tax collections and forecasts has set the terms for the recent debate about the next budget, covering fiscal years 2012 and 2013. Lawmakers have until the end of this month to come up with a final spending plan for those years, which has been constrained by uncertainty regarding future revenues and resultant conservative revenue estimates. Based on the belief that the economy would recover more quickly and more strongly, the Governor’s budget included revenue estimates that were 6.5 percent higher than the House’s estimates and 5.6 percent higher than the Senate’s.
This debate also presents a larger policy question: What should the state do once the recession loosens its grip on the economy and tax revenues start returning to historic trends – if, in fact, they do. Budget writers in the House and Senate have staked out different answers to that question. The House wants any excess revenue to go towards tax cuts, particularly business-related taxes. The Senate has included language in its budget which would require that any excess revenue be used to offset cuts to the state’s hospitals, which stand to lose millions of dollars in payments in the budget proposal.
Should revenue growth return to historic levels, there will also be differences about where to invest these “new” resources beyond the current budget conversation: In the rainy day fund? Infrastructure, such as roads and bridges? Education? Health and social service programs? Research and development tax credits? Those kinds of priorities and visions for the state’s primary policy document – the budget – have yet to be established.
The Center has for years offered its own revenue forecasts as a resource to budget writers. We also recently released a report describing our forecast methods. The report, “Counting on the Future,” also offers context for those wishing to understand why gauging tax trends is a difficult business, and it considers how other states tackle the task.
You can find the Center’s report here.