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Charles Arlinghaus: Spending New Hampshire's surplus already?

October 08. 2013 5:12PM

The state's newly announced $76 million surplus is not as good as it sounds, and already politicians are lining up to spend the money they are supposed to be unable to touch. Our rainy day fund law has become a joke and its routine suspension had lawmakers on the verge of a feeding frenzy.

The state has just announced a surplus left over from the budget prior to the current one. New Hampshire's two-year budget finishes up on June 30 of the next Legislature's term, and the unaudited final numbers aren't announced until October. So we just received a final report (actually semi-final, there will be slight changes to the audited number) on the budget passed in 2011.

You remember that budget. It reduced spending for the first time in two decades to make up for the gimmicks of prior budgets. The governor at the time refused to sign it and the current governor spent a campaign and most of the recent budget process talking about what a horrible, distasteful thing it was.

That was then. This is now. The governor now takes great pride in the "sound fiscal management" that has produced a $76 million surplus, the largest we've enjoyed since the $82 million Benson surplus announced eight years ago. Sadly the abuse of that Benson surplus looks to be our fate a decade later if we aren't careful.

After warnings in 2003 from budget expert Doug Hall about the precipitous decline in the state's reserve funds, two successive budgets should have rebuilt them. The state's reserves had declined to just $17 million. Gov. Craig Benson had made rebuilding the reserves — largely the state's rainy day fund — a priority.

By law, the $82.2 million surplus his budget produced should have been automatically transferred to the "rainy day" Revenue Stabilization Account. The point of the fund was to build up reserves during surplus years as a buffer against the revenue shortfalls of the cyclical economic downturns. It's a sound policy — if you follow it.

By the time the surplus was calculated, Benson was no longer governor. Legislators suspended the law in the next budget and started planning how to spend the money. One of my early diatribes in this space encouraged people to "Stop them before they spend the surplus."

Pressure forced them to spend only part of it. The next budget ended in a $51 million surplus, but again the next Legislature suspended the rainy day fund law. The state should have had $150 million in its rainy day fund, but the large, eager eyes of legislative spenders decided to spend it. In the monsoon that followed, our reserves quickly vanished.

The budget passed in 2011 cut spending significantly to bring fiscal balance out of the chaos of the prior four years (spending had increased by a billion dollars in two successive budgets and holes were plugged with gimmicks, borrowing and a one-time federal bailout). That budget, as annoying as then-Gov. Lynch and current-Gov. Hassan found it, has produced a $76 million surplus. The rainy day fund law would require that surplus to be automatically deposited into the state's rainy day fund. But it won't be.

The recently passed budget uses $57 million of that surplus to balance itself, so the leftover is only $19 million. The governor is talking this week about adding more spending back into the budget and making a small deposit in the rainy day fund if any is left over. Other politicians are whispering about alternate ideas for spending the money, as if they'd won the lottery. Never mind that the rainy day fund law would require all $76 million be set aside if that law hadn't been "temporarily" suspended again.

This is how the state gets into financial trouble. We have a good year and the first thought politicians have is "hey, money, let's spend it." Former Gov. Hugh Gregg spoke about this short-sightedness a decade ago in a piece he wrote for my organization advocating spending restraint: "When business is good and help wanted signs are posted everywhere, governments tend to be profligate and don't worry too much about tightening their budgets." Gov. Gregg pointed out that the level of spending that seemed sustainable during revenue peaks was not sustainable during the inevitable downturn to follow.

The point of a rainy day fund law is to restrain the short-sighted spending eagerness of politicians not looking beyond the next election. Neutering that law is recipe for disaster. Every penny not already spoken for in the budget needs to be deposited immediately into the rainy day fund to remove temptation from politicians who are unable to resist.

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

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