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February 13. 2013 5:41PM

Charles Arlinghaus: A state budget preview; revenue estimates key


 
Today, the governor presents her budget to the Legislature. Every program and priority of the administration is part of the budget. The discussions and negotiations over those priorities include dozens of decisions that must balance revenue estimates and spending priorities.

The most important and difficult debate will occur over revenue estimates. The federal government may have carte blanche to spend as much money as it can print or borrow, but spending at the state level is limited to the amount lawmakers estimate they will be able to raise. For decades, spending committees anxiously await the result of the Ways and Means Committee's prognostication of how much each tax will raise.

Naturally, this places some undue pressure on the tax estimators to be optimistic and thereby allow more money to be spent. Yet if they are inaccurate then difficult emergency budget cuts have to be put together halfway through the budget process. Cuts will come not necessarily from lower priorities as much as what is easily cut regardless of importance.

The most important part of the governor's address, then, will be her estimate of revenue. As a starting point, we have the official government estimates required by law to be compiled at the end of 2012. State officials at that time estimated that basic revenues (regular taxes exclusive of the Medicaid enhancement tax) for the fiscal year beginning July 1 would be almost identical to the current fiscal year, with an additional $21 million (on a base of $2 billion) in the second year.

Those estimates, like other estimates at the end of the year, presumed modest economic growth in the two years ahead. Since then, the federal government announced that GDP actually contracted at the end of 2012, raising significant fears of a recession.

If growth is flat or perhaps negative, then the end-of-the-year estimates are too high to use in the budget. Certainly to raise them higher than the original state estimates will require a great deal of explanation and generate a great deal of skepticism. Look for finalizing this number to be a central part of the budget debate for months.

Coupled with how cautious revenue estimates are is the question of whether the budget will include potential revenue from things like gambling. Gambling is likely to be among the most controversial issues debated this year. It probably can't generate any revenue until the second year of the budget, and then only for franchise fees.

The gambling debate could go either way. So any programs funded with those receipts are on a shaky foundation. Any budget should make clear which specific line items are attached to that prospective funding. If gambling didn't go through, those programs would not go forward.

Perhaps revenues will allow for slightly more than the $20 million in additional funding the end-of-the-year estimates call for. But it would have to be much higher for anything new to be funded.

Although debt flattened out over the last two years, the previous budget saw state general obligation debt increase more in four years than in the previous 20. The debt service on that higher number must be paid. That means an additional $17 million in the next biennium.

After that, simply doing exactly what we did last year will demand an additional $237 million according to department heads. Other priorities include special education aid, which is $20 million short of current law, and an additional $20 million or more in local aid programs that have been suspended. The education and hospital priorities many candidates talked about in the last election would cost an additional $21 million for the community colleges, $94 million for the university system, and perhaps $100 million for hospitals.

Those numbers add up to more than $500 million in additional spending when lawmakers probably only have $20-$30 million additional available.

So if your local state representative looks a little stressed, you'll know why.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.

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