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Charles Arlinghaus: The House budget uses lots of accounting gimmicks

April 02. 2013 5:26PM

The current state budget is a work in progress that needs a lot more work and some more progress. As with any budget, there are good things and bad. Though the House version is a step forward from the governor's, it has a few glaring problems that need to be fixed.

To begin with, while general fund spending is up 9.1 percent over the two years of the budget, that fact is obscured by a return to accounting gimmicks that serve no real purpose except to hide the increase. Two large categories of spending have been relabeled so that they appear in the old budget totals under general fund but are left out of the new general fund total.

Perhaps Board and Care revenue/spending and plea-by-mail fines should be dedicated funds. But the happy political effect of removing them from the general fund makes it appear at cursory glance that those $71.3 million are not being spent. That makes budget writers appear a great deal more frugal than they actually are, unless you spot the sleight of hand.

Dedicating a fund brings up a much larger problem, potentially a legal one, with pretending that some funds are dedicated and then raiding them as if they are not. This budget employs another accounting gimmick for the sole purpose of making it easy to "clean out" dedicated funding sources and use the funds for purposes other than state law allows.

Some revenues, particularly some regulatory fees, are "dedicated" by having the revenue from the regulatory fee go into a special account, which is meant to be used for the particular activity. Usually, the dedicated regulatory fee is set at a level to cover the cost of regulation because the cost of regulation is the only excuse for assessing the charge.

Because of the relationship, the money collected stays in the account and doesn't expire. That ensures that the charges are never used to pay for spending outside of the purpose of the fee.

However, because some of these dedicated funds carry a balance, state budget writers routinely cast a covetous eye on those funds. But because spending that money for contrary purposes is of dubious legality, they rarely take the money. This year is shaping up to be one of the exceptions.

The governor's budget called for her to be given carte blanche to take any money from any fund without permission or accountability. The House budget would allow her to take the funds, but with legislative Fiscal Committee approval. In contrast, when Gov. John Lynch raided dedicated funds in 2010, legislation spelled out which funds and the amount to be taken.

The House budget calls for $31.7 million to be taken, in theory to balance a probable deficit in the current fiscal year that ends on June 30. One difficulty is that the supposed shortfall is apparently being artificially propped up.

In the next two weeks, the state will receive a $30 million tobacco lawsuit settlement, essentially a refund of amounts due from the previous seven years that were held in escrow instead of paid. Legislation was rushed through two weeks ago so we could accept the money.

Ordinarily, that money would be booked as 2013 revenue because that's when it will be received. But the House version of the budget calls for holding onto it and counting $24.1 million in the next budget instead. How does that help?

If the deficit in 2013 is larger by $24 million, budget writers can do the dubious dedicated fund sweep and have $24 million extra to spend in their current budget.

Sweeping out dedicated funds is of dubious legality and is generally only thought of in the most extraordinary circumstances. If the circumstances aren't extraordinary, we shouldn't artificially enhance the deficit to make it easier to take that money. Not to mention that propping up some spending on a one-time windfall is generally a bad idea.

The House version of the budget spends almost $42 million less than the governor's (after accounting for moving funds offline). It's a step in the right direction. But this version still relies on a number of sketchy assumptions even beyond the ones detailed above (for example: a small number of tax and fee hikes that won't pass the Senate, an assumption that more auditors can squeeze $26 million more out of businesses).

The next version of the budget should have fewer gimmicks and changes that hide rather than clarify spending decisions.

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

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