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January 07. 2014 4:38PM

Charles Arlinghaus: Demand NH adhere to its own budget law


 

A new legislative session begins today. Most of the big issues are predictable, but some less-noticed issues will decide whether New Hampshire adopts the spend-it-today-not-tomorrow management style that characterizes Washington. Politicians have managed to convince themselves that the state's rainy day fund law is an unusual act of charity rather than sound fiscal policy.

State revenues climb unevenly. Revenues explode during good economic times, followed by periods of stagnation. Because we predict revenues two years at a time, those predictions are inexact. Other than during recessions or estimating errors, there are generally small revenue surpluses at the end of the year.

The state revenue excess is not meant to be kept in petty cash or be available for budgeteers to use next year. Budgets are meant to balance: we aren't supposed to spend more than we raise by tapping leftover money from last year. To do so creates long-term structural imbalances.

The law requires that any surplus be automatically deposited into a Revenue Stabilization Account, commonly called a rainy day fund. In theory, the money is a small reserve collected in good times and set aside for unexpected shortfalls (just as you might save at home in case your furnace dies).

Politicians, however, are not happy planning for the long term at the expense of their current needs. In this way, they are similar to small children who are still developing impulse control.

Saving money to avoid a crisis five or 10 years from now is not nearly as politically fun as spending it now and making someone happy before the next election. As a consequence, politicians of both parties routinely enact a "temporary suspension" of the rainy day fund law as part of the budget. That way, the leftover money from before can be spent rather than saved.

Four of the five budgets over the last decade have produced end-of-budget surpluses that should have been deposited in the rainy day fund. Yet in precisely none of those cases was the surplus saved as required by law. In each case, the next Legislature saw the surplus coming and was worried that we would save the money and they would be unable to spend it.

The record $82 million Benson surplus was the subject of political pressure, and eventually most of it was saved. But of the total $151.1 million from three budgets (04-05, 06-07, and 10-11) that should have been put in the rainy day fund, only $71.7 million was.

The last Legislature produced a budget with a $54.5 million surplus. Combined with the $17.7 million they should have deposited in the rainy day fund but chose not to, there is a current balance of $72.2 million that should, by law, be set aside for a rainy day.

This is not supposed to be a choice. Without the discipline of a law, politicians will almost always make the wrong decision. And in fact, they want to make a bad decision.

The budget that passed the Senate 24-0 with no discussion of rainy day funds is now law. It, too, suspended the rainy day fund law that we apparently keep on the books as some sort of inside joke to amuse budget writers.

Senate leadership wants to save $15 million of the $72.2 million. The governor wants to innovate by saving just $7 million. Why is no one advocating saving the entire amount required by law? Because they already spent it. The budget counts on spending $57 million of savings to balance itself.

By the way, this means that the budget they leave the next Legislature starts out with a $57 million hole.

Saving the $15 million not already spent is a start, but only a start. Revenues for the new budget are very slightly ahead of estimates ($17 million so far, with the expectation of $25-$30 million when the fiscal year ends in June).

Lawmakers should not wait. They should pass a law saving the $15 million now and authorizing the automatic transfer of any above-budget revenue from the current fiscal year. The transfer should be automatic because past experience has shown us that they can't be trusted. If they wait and see, they might find the revenue intoxicating and spend it.

For future budgets, we should demand merely that the Legislature follow the law that is on the books. Any repeal, however temporary, of the budget law should be a stand alone bill not done surreptitiously as one line in a 1,000-page document.

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


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