CONCORD — Republican Gov. Chris Sununu laid out his vision for a budget compromise with the Democratically controlled Legislature that does not include some of their biggest policy objectives on paid family leave, business taxes and education funding.
At a Wednesday morning briefing on his “Roadmap to Common Ground,” Sununu outlined several areas in which he suggested possible compromise, but he also drew some lines in the sand.
He said he could not sign a budget containing the paid family medical leave plan that has cleared both House and Senate with 0.5% payroll withholding. The governor calls that an income tax.
He pledged to veto any budget with the tax on capital gains to fund education that passed the House, but was not included in the Senate budget.
The governor also said he could not sign a budget with the elimination of business tax cuts scheduled for tax years 2019 and 2021.
When asked if the freeze on business tax cuts would be in the budget handed to Sununu, despite his veto threat, Senate Finance Chair Lou D’Allesandro said, “Absolutely.”
“You cannot construct a budget without the freezing of the business taxes,” said the Manchester Democrat. “I think it’s an area there will be a lot of discussion on.”
According to existing law, the Business Profits Tax (BPT) went from 7.9% to 7.7% on Jan. 1, 2019, while the Business Enterprise Tax (BET) — essentially a payroll tax — went from 0.675% to 0.60%.
Democrats would rescind those reductions, even though some businesses have already made quarterly tax payments based on the 2019 rates.
On Jan. 1, 2021, the BPT is scheduled to go down to 7.5% and the BET to 0.05% — cuts that would not take place according to House and Senate budgets.
D’Allesandro said the rollback of the tax cuts adds $100 million over the two fiscal years, which is needed to balance the legislative versions of the budget.
Senate Majority Leader Dan Feltes, D-Concord, said business taxes at 2018 levels are already the lowest in New England.
“Threatening to veto an entire state budget because of his opposition to paid family leave or opposition to freezing business taxes, when we have the lowest business taxes in New England, is financially irresponsible and holds New Hampshire back from making progress on issues critical to small businesses and working families,” he said.
In a letter to Senate President Donna Soucy, D-Manchester, and House Speaker Steve Shurtleff, D-Concord, Sununu reiterated his aversion to tinkering with the tax cuts, which he said have contributed to the state’s booming economy and record high tax receipts.
“We should not sacrifice this success by reversing course and raising tax rates,” he wrote. “All told, we are expecting almost $190 million more in revenue in fiscal year 2021 than we are receiving now. We do not have a revenue problem and there is no need to raise business tax rates.”
Rather than approve the Legislature’s plan for paid family medical leave funded through a 0.5% payroll deduction, Sununu said he would push for his voluntary plan that would start with state-funded family medical leave for the state’s 10,000 employees.
While standing firm against some of the biggest tax and policy initiatives in the legislative budgets, Sununu said he was willing to compromise in several areas, including Medicaid provider rates.
The Senate budget includes $52 million for rate increases, while Sununu initially proposed $0. His “common ground” compromise calls for $30 million.
The governor also seems willing to give up the idea of dispensing $52 million in surplus funds for targeted municipal projects, in favor of a Senate proposal for $40 million in revenue-sharing for municipalities to spend as they wish.
“My plan targeted towns of specific need across the state, especially those on the property-poor side,” said Sununu. “The Senate has a revenue sharing program which is a great way to do it. Not nearly as much money as I would have spent on it, but it includes more towns, so we found a lot of middle ground there.”
Sununu said the parties can also find common ground on funding for the university system. “They want to increase operational dollars for the university system, and I think there’s a way we can do that, perhaps not at the level they want,” he said.
Sununu proposed a new 60-bed forensic psychiatric hospital, while the Senate budget reduced that to 24 beds. The governor’s “common ground” proposal calls for 36 beds as a compromise.
One of the biggest concessions by the governor would be his willingness to go along with restoration of so-called stabilization grants to local school districts, which are designed to help keep per-pupil state funding stable, even as enrollment declines.
Those grants were being phased out, and restoring them fully would cost $34 million in each year of the two-year budget, according to Senate estimates. Sununu said he would favor restoring stabilization at 90 percent.
Sununu’s “common ground” proposal also includes $64 million in building aid to property-poor school districts and a $32 million student debt assistance program, neither of which are in House or Senate budgets.
“I think we’ve given a lot here,” he said. “Any time you don’t get everything you want and they can say they didn’t get everything they want, but we can say we’ve had a positive impact on a lot of these programs, that’s a big win.”
Despite the disagreements that remain, House Majority Leader Doug Ley, D-Jaffrey, sounded optimistic that a budget veto can be avoided.
“In a negotiation no one party will get everything that they want, but I am confident we will form a compromise that will work for all parties and the people of New Hampshire,” he said.