Charles Arlinghaus: How will Gov. Hassan deal with the existing budget deficit?
New Hampshire's last two-year budget is in its final four months. At this point we already know there is a revenue shortfall that would leave a deficit if unaddressed. The immediate culprit is the Medicaid enhancement tax. That tax on hospitals will raise $34 million less than the budget counted on. Other revenues are on track to be about $10 million less than budgeted.
The total shortfall amounts to only 2 percent of the operating revenues, but it has to be addressed. This isn't Washington. By statute, we have no choice but to address the problem. Unlike what passes for a federal government, we aren't allowed to ignore the laws of fiscal reality.
This sort of thing happens all the time, so there is ample precedent. In fact, over the last 30 years each of Gov. Hassan's predecessors has dealt with budget difficulties. Each of them chose the prescription in state statute: curtailing current-year spending.
Each governor issues an executive order (most issue them multiple times) that cuts existing spending authorization. In the most analogous situation, Gov. Craig Benson took office and immediately found a potential deficit in the end of his predecessor's budget. This is not unusual in a budget that estimates revenues two years in advance.
Benson acted immediately. On Jan. 15, 2003 (six days after being sworn into office), he froze certain categories of spending and state hiring. On April 16, he issued an executive order cutting $19 million from 31 agencies.
Benson's action was not unusual. He did the same thing in each fiscal year he was in office. His predecessor, Jeanne Shaheen, issued similar orders in each of her final three fiscal years. Steve Merrill, Judd Gregg and John Sununu did so as well. John Lynch issued three such executive orders in a nine-month period in 2008.
The state law not only contemplates this, but seems to demand it. The state budget law says that if there is a revenue shortfall "the governor may, with prior approval of the fiscal committee, order reductions" necessary to balance the budget. Getting the approval of the Legislature's fiscal committee helps serve as a check on capricious action, but in recent history no spending cut has been denied.
In the law and the common actions of her predecessors is a prescription for Gov. Hassan that is different from her early actions.
So far, the only action to close the deficit she has suggested is to take money from dedicated funds and use their fees for general purposes. In fact, her budget would grant her the authority to undedicate any fee and sweep the money into the general fund without any specific approval or oversight.
Her predecessor did this in 2010, sweeping 16 dedicated funds into the general fund. But Gov. Lynch proposed specific funds and specific amounts, which were then debated in a special legislative session and passed by the full Legislature. Bringing in the Legislature to debate which funds are to be used and give some sort of approval is somewhat better than granting the governor carte blanche to undedicated any fee she sees fit.
Some fees which might not otherwise be allowed by state law are passed because the funds are dedicated for the express purpose of implementing a regulation or paying for certain activities the fees cover, or they are used for enforcement. Legal theory suggests that many of these fees would be illegal if the funds weren't used for the express regulatory purpose.
So, in general, undedicating dedicated funds is a bad idea. Doing so without oversight is worse.
The bigger problem is that a $30 million to $40 million deficit ought not be solved strictly on the revenue side. Every other governor has solved his or her problems on the spending side. Gov. Hassan should follow suit.
This isn't a radical thought. It's something Jeanne Shaheen and Steve Merrill both did for each of their final three years in office. It's something Craig Benson did twice and John Lynch did four times, and how often did they agree?
There's a real problem with the Medicaid enhancement tax. It is causing a $100 million to $120 million problem in the governor's proposed budget and a $35 million deficit in the budget just ending.
The governor should call her department heads today and ask them to help find savings while there's money left to save. Every governor does this. It's the management part of executive branch management.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.
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