Charles Arlinghaus: Gov. Hassan has to cut spending right now
The state budget law allows the governor to issue an executive order with the approval of the legislative Fiscal Committee in the event of a revenue shortfall and likely deficit. Doing this is not unusual. Every governor in the last 30 years has been required to do it.
New Hampshire's two-year budget will end in deficit if no action is taken. While revenue is coming in ahead of budget in general, there is a problem with the Medicaid Enhancement Tax (MET). The MET will likely end the year $36 million behind schedule. After accounting for a 2012 surplus, revenue ahead of projection in other categories, some spending savings, other savings that didn't materialize, etc., the problem is a little smaller, but the state still faces a $25 million deficit.
The MET was inaugurated as a sort of pass-through, pretend tax to dragoon more Medicaid money out of Washington. Hospitals paid the tax, the feds matched it as Medicaid spending, and hospitals received all of it back the same day as a grant that just happened to match what they paid.
Some changes were made because of Medicaid rules, but then in the last budget the pretend tax was turned into a real tax. Hospitals didn't get the money back. This created an incentive for them to actually care about how much they paid and to structure their finances - in the same manner as any other taxpayer might do - to minimize their liability and conduct business in a way to help their bottom line not the state's bottom line.
This is perfectly rational and predictable behavior. But it left the state with less revenue.
Fortunately, state law provides a solution. The governor can and should immediately issue an executive order curtailing $25 million worth of spending (about 2 percent of the annual general fund budget). Making adjustments to spending in the final six months of the two-year budget cycle is something every governor has to do. If she does not, then by state law those cuts must be part of the budget she proposes on Feb. 15.
Whatever she chooses, we have long known that the Medicaid enhancement revenues were unreliable. When Gov. Craig Benson vetoed the budget 10 years ago, one complaint in his veto message was that the state needed to reduce reliance on the MET for stability. Many people who disagreed with the veto itself agreed with his warning.
The state budget has problems when revenues are unreliable or vary a great deal. The MET is a problem especially now that hospitals can and should treat it as a normal tax. In addition, the federal government, which keeps threatening to repeal the loophole that allows it, is under great financial pressure.
Ideally, that revenue should be used not for general operating expenses, but for one-time, non-recurring expenses. The state should wean itself, or at least its general operating expense budget, off the MET over the next four years.
It also should serve as a warning for other revenue enhancements being considered. One-time or otherwise unreliable revenue sources should not be spent on annual expenses like salaries or ongoing programs.
Lawsuit settlements are a good example. If the state settles a lawsuit for tens of millions of dollars, that money cannot in good fiscal conscience be devoted to expenses that continue indefinitely. Fix a bridge or pave a road, perhaps, but don't use it to hire a permanent employee you can't afford when the windfall runs out.
We had a huge deficit, and therefore budget crisis, two years ago because we borrowed to spend or spent money we hoped to get but didn't. (In 2010, we budgeted and spent $60 million from "sale of state assets." Three years later, we're still at zero in that account.) We have a smaller problem now because of an unreliable revenue source. Let's avoid both mistakes.
READER COMMENTS: 0
- La. Gov. Jindal files federal lawsuit over Common Core - 0
- Central High parents reminded to use caution when dropping kids off - 0
- New Manchester school district standards to give teachers more leeway - 4
- Construction to begin on Hollis playground - 0
- New Derry school year launch honors everyday heroes - 0
- Stevens High School in Claremont to have start pushed back to Sept. 10 because of renovations - 0
- Plymouth State's $32 million health, track facility seen as student draw - 1
- Free school meals rejected as Manchester board bucks federal program - 51
- Proposed hike for Manchester's driver education course reversed - 1
READER COMMENTS: 0
- NHIAA Boys' Soccer Preview: Talent to boot - 0
- Last call at home for Fisher Cats tonight - 0
- Jessica Goldman was on the move - 0
- Band camp gets Memorial musicians in rhythm a week early - 0
- Drew Cline: Small sleights of hand in Republican primaries around NH - 0
- Where is Shaheen? Hiding from you - 0
- Portman's good point: A leadership deficit all around - 0
- Scott and Genevieve Kelley - 0
- Dan Tuohy's Granite Status: Shaheen takes on illegal immigration - 0
Reports: Market Basket doomsday plan would shutter 61 of 71 stores if deal not struck soon
GOP for legal pot? Hemignway's high help
Where is Shaheen? Hiding from you
Ohio's Rob Portman: GOP can win back Senate