New Hampshire's biennial budget-writing process took its first official step Thursday morning, as Gov. Hassan released her budget proposal for 2014-15. Here's some data and analysis to provide context for this discussion, as we continue to break down the numbers in greater detail in the coming days.
Figure 1: Governor's proposed FY2014-15 budget and FY2013-13 spending, in Total Funds
Figure 2 below shows the trend in state budget spending, for both Total Fund and General Fund only amounts, with the Governor’s proposed budget included.
Figure 2: New Hampshire state spending, Total Funds (top) & General Funds (bottom)
While a thorough analysis is difficult at this point, as the Executive Office has not yet released a complete Excel version of the Governor’s spending plan, it is possible to draw some basic conclusions about her proposal.
The biggest spending increases come in the Department of Health and Human Services ($573 million increase), the Department of Education ($76 million increase), the Department of Environmental Services ($62 million increase), and the state University System ($59 million increase.)
The Governor proposes increasing spending on Medicaid by $290 million over the biennium, with the majority of that increase coming from expanded coverage associated with the implementation of the federal Affordable Care Act. In the coming budget biennium, the costs of the newly eligible individuals are funded by federal dollars. Other significant changes proposed by the Governor include increases in funding to the state mental health system and the developmental services waitlist.
In terms of public higher education, the Governor would partially undo cuts made in the previous budget. The Governor’s spending proposal would bring the University System to $90 million in state funds in the last year of the next biennium, compared to $100 million a year in state support before the cuts made by the previous Legislature. Her budget would bring state support for the Community College System to $82.5 million for the FY2014-15 biennium, which is slightly higher than what the System received in FY2010-11 and a 30 percent increase over current funding levels.
In her Capital Budget, the Governor proposes building a new 328-bed women’s prison, at the cost of $38 million, the largest single line item in that budget.
While the Governor estimates relatively modest growth in existing tax sources, with a 2 percent increase in FY2014 and 1.9 percent increase in FY2015, she includes several new revenue sources to cover spending increases. The largest new revenue source is an anticipated licensing fee paid by the developer of a new casino. The Governor puts that fee at $80 million, allocating $40 million a year in unrestricted spending over the biennium.
In addition, the Governor proposes raising the cigarette tax by 30 cents per pack, which she estimates will bring in $20 million a year in new revenue. She also proposes adding auditor positions at the Department of Revenue Administration, which she estimates will result in $26 million in new revenue over the biennium.
The Governor also proposes delaying some planned changes in state business taxes that will possibly result in lower tax collections.
Points to watch
As the budget process now moves into the Legislature, where members of the House Finance Committee will set their own spending plan, here are a few areas to monitor.
While the Governor did not include a specific proposal for legalizing expanded gambling in her budget, she does count on revenue from expanding gambling to balance her budget. The Governor included $80 million ($40 million in each year of the biennium) from an anticipated license fee to be charged to a developer to build a new casino in the state.
In her budget address today, the Governor acknowledged a bill, now working its way through the Legislature, that would allow a single gambling facility in Southern New Hampshire. Lawmakers have always looked skeptically at the idea of legalizing casino gambling in the state, though recent the recent legalization of casinos in Massachusetts may change the terms of the debate this time.
In any event, by counting on revenues from a gambling license fee in her budget, the Governor has put the expanded gambling debate at the center of the budget process. There are two important issues to be considered. First, there is some uncertainty regarding the size of the license fee for developers interested in New Hampshire. The amount of money the state might reasonably expect from a one-time license fee would depend on the details of the actual proposal (tax rate, development requirements, etc.) and on potential competitive activities in the Massachusetts gambling market. The second point relates to timing. While it's theoretically possible, under the proposed legislation, for expanded gambling to be established by the end of the next biennium, it would require state officials to create a regulatory structure and implement a bidding process which in other states has taken considerable time. In Massachusetts, for example, legislation to expand gambling passed in November of 2011 and nearly 1½ years later, no license fee has yet been developed. Another question relevant to this conversation is whether budget writers should include a one-time fee as unrestricted revenue, since it will likely require future budget writers to come up with new revenue to compensate for the loss of that money in the following biennium.
Expanding the state’s Medicaid program has been a subject of debate in recent months, as policymakers debate the short-term and long-term costs and social benefit of providing health insurance to more of the population. The Affordable Care Act offers states the option to expand coverage to individuals earning up to 138 percent of the federal poverty level. The final form of the expansion will materially impact the costs and, in some instances, the savings to the state associated with the expansion of the Medicaid program. Although final authority for action lies with the state Health commissioner, legislators will likely provide multiple options to discuss the exact shape of the program.
State aid to local municipalities has steadily decreased over the course of the recession, as state lawmakers have looked for ways to trim spending. Not counting adequate education aid, state aid to cities and towns fell 36 percent from FY2009 to FY2013.
It’s unclear at this point exactly how the Governor’s proposed budget impacts local aid. But she mentioned several programs in which she wanted to restore financial assistance to cities, towns, and school districts including: school building aid, special education spending, and meals-and–rooms tax revenue that has traditionally been distributed to municipalities.