In every legislative session there are three or four issues that dominate the media's attention while some of the most important long-term decisions pass by with little notice. You'd be forgiven for thinking the gas tax, gambling, and Medicaid expansion are the only three issues before the Legislature. These are important, but you'll forgive me if I take a moment to talk about the state budget.
Too often legislatures focus on the budget one year and completely ignore it the next year. The budget passed last year was balanced in its own way, but it had a few problems that the Legislature wants to correct. The most important one is a simple but controversial partial correction to the state's rainy day fund.
Recall that our budget is balanced on the basis of a two-year estimate of revenues. Estimating 24 months of revenues in an uncertain economy is necessarily imprecise. Lawmakers, typically but perhaps not always, try to estimate cautiously, which tends to leave a small remainder at the end of the two-year cycle. By a state law honored more in the breach than in the observance, that residual is supposed to be set aside for a rainy day.
No one wants to create a slush fund with the remainders, so the fund has a cap on its total amount (larger amounts should obviously be returned to the payer) and relatively strict rules about when withdrawals can be made.
The last two-year budget ended with $72.2 million that should, by law, have been transferred to the rainy day fund. Instead, lawmakers spent most of it. Rather than balancing projected revenue and spending, they took about $50 million extra to enhance their spending and "temporarily" suspended the law that requires it to be put in the rainy day fund.
In the final accounting, it turned out that there was more money than they thought. What to do with the extra $15.3 million? Predictably, one group has spending eyes. A second group, the Republican leadership of both houses, wants to deposit it into the rainy day fund. It's about time.
State law would have required a $72 million deposit. Republicans want to deposit just the $15.3 million the compromise state budget hasn't already spent. Oddly, that's too much for Gov. Hassan. Rather than be satisfied that she's managed to tap into $57 million she's not supposed to have, she wants to spend most of the extra as well. Ridiculous.
The $15.3 million should merely be an opening, good-faith deposit. The first of two fiscal years of this budget will see about $25 million in revenue above the budget — depending on business tax receipts the next two months. That money should also be set aside, by law, to get us to half of what should have been deposited.
This is not merely a side issue unrelated to important things. Rather, it is a test of whether the Legislature can discipline itself. We have state laws that create structures to impose modicums of discipline. Those laws turn from discipline to cynical mockeries of the taxpayer if they are merely suspended every budget season.
Some lawmakers are under the mistaken impression that we are still laboring under the supposedly dramatic cuts of the 2011 passed budget. The state's operating budget (general and education funds plus a handful of relabeled funds) that year was merely a reversal of the prior increase. That prior increase was not supported by tax dollars, but by a one-time windfall (borrowing and a bailout). The pre-bailout amount of $2.336 billion became $2.327 in the dramatic cut year.
That cut itself was almost entirely erased in the current budget. The pre-cut operating budget was $2.465 billion. After a brief decline, operating spending came back up to $2.457 billion in year two of the current budget. This time, however, the spending is supported largely by tax revenues, not by hundreds of millions of dollars of one-time windfalls. The money that should have put in the rainy day fund is one-time revenue, but only 1.2 percent of the total budget. The borrowing and bailout budget of 2009 had 9.8 percent of its revenue from one time sources.
Future budgets are dictated by current discipline. We can save ourselves a lot of trouble tomorrow by exercising discipline today. Until the proposed rainy day fund deposit is $72 million, all calls to spend it instead should be resisted. Proposing $15.3 million is a pittance and ought not be controversial.
Charles M. Arlinghaus is president of the Josiah Bartlett Center, a free-market think tank in Concord.