Charles Arlinghaus: Can the NH House fix budget mess by Friday?
The state budget is a mess. So what's new? House budget writers are working to make sense of that mess before Friday. Their budget will be different from the governor's, but is likely to leave a lot of work to be done.
In New Hampshire, governors present to the Legislature a budget that is more or less fully formed. Then the House of Representatives takes six weeks to develop its own draft, plug any holes in assumptions, and then pass that draft to the Senate for further work.
This year, the House had a little less time in some areas. The governor included quite a few policy choices in the narrative part of the budget. But while the spreadsheet part of the budget, the numbers, was released right on time, the narrative was not released until three weeks later, on March 5 (oddly, the state website lists it as being introduced a week before that even though it wasn't available to anyone).
That time lag left the House just three weeks to whip together its own draft of the budget, which must be ready by Friday.
From the beginning, the House was in a difficult spot. The governor's revenue estimates used to balance her budget were a little beyond what the House Ways & Means Committee (the tax committee) had been using for its own estimates. In addition, a few of the revenue sources were going to require some work to get them through the House (which, unlike the Senate, has a majority from the governor's own party).
Although the governor hopes to have $80 million for the general state operating budget from a casino, the bill to achieve that originated in the Senate. It won't be considered by the House before it has to pass a budget, and the version that passed the Senate doesn't allow any of the proceeds to be spent in the general fund. So the House wisely proceeded without it.
All in all, available revenues will end up about $135 million below the governor's level. That necessitates not spending in some areas or making very optimistic assumptions about spending.
Keep in mind that there are two different kinds of spending authority in the New Hampshire budget. One is a limit: for example, you may not, in this department, spend more than $1.4 million on salaries. The second kind of spending is an estimate of an aid program. For example, people receive Medicaid so long as they qualify. We estimate the approximate caseload for budgeting. But if we have more people eligible than we estimated, that money is still spent. It becomes important to estimate accurately.
Current reports on assumption-making are troublesome. Journalists from various sources are reporting that the budget being drafted this week will assume that an expansion of Medicaid will actually save the state $500,000 per year. They have also decided to lower the estimates of Medi-caid and other caseloads in the budget to produce "savings" of $12 million.
Sometimes, new information makes good things possible. But remember that we ran into trouble a half dozen years ago because budget writers in need of money produced optimistic and very unrealistic caseload estimates. Sometimes hope makes your job easier than realism and needs to be guarded against.
Also worrisome is a warning from veteran reporter Kevin Landrigan that some savings might be achieved through exaggerated lapse estimates. Every year, as part of the balancing process, we estimate how much money will remain unspent in each account (called a "lapse" in budget terms). Usually, it's a couple of percentage points, but if you estimate that number very high, you can finance a few tens of millions of dollars and only be forced to pay the piper more than a year down the road when you can easily blame some economic scenario or another.
Assuming debt payments will be lower by $8 million also falls into the realm of hope and optimism. The state's treasurer has aggressively refinanced the state's general fund debt over the last six years, getting New Hampshire rates that are not just low but even lower than our bond rating would suggest possible. It seems unlikely that there is any blood to be squeezed from that turnip that we were unaware of just four weeks ago.
Not that I'm opposed to keeping an eye on debt. I've been concerned for a few years about the massive run up of debt from 2007 through 2011 - an increase equal to that of the prior 20 years. While debt leveled off the last two years - increasing just 2 percent after a 22 percent increase the prior two years - we need to borrow less each year than we pay off to reduce debt service payments. While interest rates are at an all-time low, they won't remain that way forever.
The House budget is only a first step. But even at this point, we need to be cautious, make realistic estimates, and not let hope keep us from making difficult but necessary decisions.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.