NH's Two-Year Bud...

The process for planning NH’s next two-year state operating budget is already well under way. The Governor’s budget is due February 15, and new budget must be in place by June 30.

There is uncertainty in every budget, but we may have a particularly difficult time projecting state revenue this cycle. An estimated 22 percent increase in combined business profits tax and business enterprise tax receipts, following the federal tax overhaul in late 2017, was likely due in part to businesses repatriating profits from overseas.

This analysis is from the NH Fiscal Policy Institute, an independent nonprofit, nonpartisan public policy research organization.

Our NH House Ways and Means Committee will begin work after the first of January with projecting revenues for the next two years. It seems clear to the NH Fiscal Policy Institute and to many members of the Ways and Means Committee that forecasting the revenue will be challenging. Our job is to provide the most accurate revenue projections possible so that NH continues to deliver a balanced budget for its citizens.


Insuring NH Meets...

The House Ways & Means Committee held a public hearing on HB 1422, a bill to add a protective trigger to the next round of state business tax cuts. The goal of the trigger is to minimize the state’s risk of revenue shortfalls which would reduce funding for the critical needs of NH citizens and businesses.

A trigger was used for the 2016-2017 state budget. The trigger target was met and the business tax cuts occurred. So why then are we not using a trigger mechanism in this budget?

HB 1422 adds the trigger mechanism that was proposed by House Republicans to the Senate in the 2018-2019 budget committee of conference but refused. HB 1422 would ensure that tax cuts scheduled for future years would only happen if revenues meet the growth projections needed for this term’s budget plan.

Representative Richard Ames, sponsor of HB 1422, stated, “If economic growth fails to materialize, HB 1422 will at least put a brake on our losses and give us space to respond in a different and better way.”

“We should heed the example of Kansas, and the safeguards in House Bill 1422 are sound and prudent fiscal management — the New Hampshire way,” stated Senator Lou D’Allesandro and Senator Dan Feltes in a joint statement.

Representative Joelle Martin added, “As a Ways & Means committee, it is our responsibility to make smart fiscal policy decisions for the state and minimize the risk of potential revenue shortfalls. Adding a trigger to future business tax cuts would protect Granite Staters from potential unintended consequences, including cuts in critical services to businesses and communities as well as tax increases.”


Take Another Look...

Dave Solomon of the Union Leader writes on Sunday July 17 that he received "a lot of feedback" on a recent column regarding the impact of lower business taxes on the state revenue.

In my opinion, today's piece tells a better tale about the impact of those cuts, whether the tax cut has improved NH revenues or the general growth of the economy is the reason for our revenue improvement.

State Sen. Dan Feltes, D-Concord says that the 2016 revenues that are so widely touted as proving the advantages of lower business taxes were based on business activity in 2015 and some of 2014 when the tax cuts were not in affect.

He goes on to say that the economy was taking off coming out of the recession and that the tax cuts of 2016 were not material to this improved revenue.

Economist Brian Gottlob of Dover says that state revenues have been strong over the past two years, but that business tax revenue was actually slightly lower in 2017 than in 2016.

He's correct. We studied these numbers in the House Ways and Means Committee and our group had lengthy conversations about the effect the new cuts may have on future revenues.

I've attached a link to Solomon's piece in the Press section below.


House Ways and Me...

Serving on the House The Ways & Means Committee means developing revenue estimates for NH.

Our General/Education Trust Fund estimate is $87 million below the Governor and $25 million below the agencies for the three years that include this year's final surplus and the two
-year budget being worked by the Finance Committee. For July16-June17, the fiscal year we are in now, we are $3 million below the agencies and $28 million below the Governor.

The Department of Revenue Administration has the lion's share of "agency" estimates, and gives us a fairly wide range for each tax. It's up to the members of the Ways and Means Committee to make the decisions about where they may be going.

Our ranking member of the committee Susan Almy of Lebanon, NH provides the following analysis of how we developed these revenue estimates.

The W&M estimate was unanimous. It is done by collecting as much data and opinion as we can get, then sitting down and having each committee member contribute their thoughts on what is influencing the changes we are seeing now in FY17 and expect or fear in the following two years. Then we all throw out
numbers, average them, think about it again, and vote on one or more options.

The primary problem is the business taxes. FY16 taxes (money in in July15-June16) were paid on FY15 economic activity. As it happens, national economic growth started to slow during mid-14-mid15, and
slowed more during last year's major election-year uncertainty. Businesses paid good taxes in FY16 on the FY15 activity, and set up estimates on that basis to pay during this fiscal year of FY17.

Few of them changed the estimates, they left them there till they file returns. As they began filing returns for their varied
fiscal years, more than usual asked for refunds, and produced new lower estimates.

We have had a large spurt in refunds, and we are not yet in the main filing period (March-April) for FY17. The DRA can't give us much information about the main filing period in time for the House budget to go out, but we intend to meet again to review the estimates on the 23rd and try to discern whether the risk seems lower.

If we guess too high, and the money isn't there after the budget is passed, the legislature will have to return and make cuts to budgeted programs, cuts that hurt more when you have to make up for 4 months of more of overspending.

What I think is happening is that part of the official surplus booked for FY16 is artificial, a construct of how accounting
works. We got extra taxes in 2016, more than we should have based on what the businesses owed. It is now seen as a surplus which can be used for one-time capital costs. But we are having to give part of that surplus back in refunds (and perhaps lower estimates) now. If we leave that money in an account for one-time uses, expenditures for basic operations in this next budget will be short-changed. And yes, all those tax cuts passed in recent years do not help the situation.