Two-year budget crisis, not a $50 million problem
Charlie Arlinghaus: We face a two-year budget crisis, not a $50 million problem
By CHARLES M. ARLINGHAUS
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LAST WEEK, the Lynch administration finally admitted there are serious problems with the state budget. Because of the budget crisis, Gov. John Lynch's state of the state speech today will have to focus on the state's looming financial problems. To understand the problem, you'll have to read between the lines of his speech.
This deficit is radically different from the mythological deficit of two years ago. Before the 2004 election, some observers thought that state might face a $300 million deficit over three years. But in the end Craig Benson left Lynch not a deficit but an $82 million surplus, and a booming economy improved state revenues.
The new governor -- Lynch -- added a $110 million tax increase and not only was there no deficit, but spending increased a little.
Back then, a deficit-that-never-was turned into a surplus. Now we face the opposite. There is no surplus and the budget hole is growing.
Some will try to blame the national economy, but reckless budgeting right here at home is the real problem. Overall, economic conditions are just as they were predicted to be, but our Legislature needed rosy revenue estimates to justify the largest spending increase in the last 20 years -- 17.5 percent higher than the last biennium.
To agree to those rosy revenue estimates, the governor and legislative leadership had to ignore national economists warning them of the economic slowdown.
To start the year, Business Week published annual economic forecasts.
The consensus was a slowdown in growth, with corporate profits growing
only 5.5 percent after three years of explosive growth that had
approached 20 percent.
The Federal Reserve's Monetary Report to Congress in February 2007 confirmed a general slowdown. Nonetheless, the governor and our budget writers projected business tax growth in line with the historical highs.
Federal Reserve Chairman Ben Bernanke projected that the housing market would continue to slowdown. He announced in his March testimony that the market would continue to be weak for longer than expected.
Nonetheless, budget writers in Concord second guessed him because they needed the money. Real estate transfer taxes were projected to be flat and then rise a little. Visions of large spending increases in Concord require bountiful tax estimates, realistic or not, so they decided the chairman of the Federal Reserve couldn't possibly know what he was talking about.
Time and again in the budget process, hope for more money trumped every caution sign. The best symbol of the pressure for money occurred during the final weeks of budgeting. House and Senate leadership were about $34 million short in negotiating the final package. Overnight, someone merely revised the revenue estimates to "find" the $34 million.
No wonder the current budget is a house of cards.
The problem is a lot worse than anyone is admitting. The governor has said he might have to propose cutting as much as $50 million from the budget. But the problem is much larger than that.
The governor's own department heads are projecting shortfalls just on the revenue side between $140 million and $190 million. Those projections include only a $40 million shortfall for the current fiscal year. My projections for The Josiah Bartlett Center find a shortfall of perhaps $75 million the first year alone.
To fill the revenue hole, the governor will need to cut three times as much spending as he's proposing. A $50 million cut might delay the toughest decisions until after the next election, but it won't solve the problem.
To make matters worse, we have no idea where we are on spending. A year ago, the governor proposed monthly spending updates like the monthly revenue updates the state publishes. But one year later, no spending updates have been released and spending is still hidden from the public.
No real debate is possible without a good indication about spending levels. Medicaid spending is already projected to be over budget, making the budget hole even larger. We just don't know about other programs.
Whatever solution is proposed must not merely paper over the problem for a few months. There is a strong temptation for politicians not to face the problem but to just cover it up for a short period of time -- perhaps until the next election has passed. That just won't do.
We are in a mess, a mess created by refusing to face reality six months ago. Any plan to deal with the budget hole must do more than delay the problem for another six months.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord, and a former executive director of the state Republican Party.
The Federal Reserve's Monetary Report to Congress in February 2007 confirmed a general slowdown. Nonetheless, the governor and our budget writers projected business tax growth in line with the historical highs.
Federal Reserve Chairman Ben Bernanke projected that the housing market would continue to slowdown. He announced in his March testimony that the market would continue to be weak for longer than expected.
Nonetheless, budget writers in Concord second guessed him because they needed the money. Real estate transfer taxes were projected to be flat and then rise a little. Visions of large spending increases in Concord require bountiful tax estimates, realistic or not, so they decided the chairman of the Federal Reserve couldn't possibly know what he was talking about.
Time and again in the budget process, hope for more money trumped every caution sign. The best symbol of the pressure for money occurred during the final weeks of budgeting. House and Senate leadership were about $34 million short in negotiating the final package. Overnight, someone merely revised the revenue estimates to "find" the $34 million.
No wonder the current budget is a house of cards.
The problem is a lot worse than anyone is admitting. The governor has said he might have to propose cutting as much as $50 million from the budget. But the problem is much larger than that.
The governor's own department heads are projecting shortfalls just on the revenue side between $140 million and $190 million. Those projections include only a $40 million shortfall for the current fiscal year. My projections for The Josiah Bartlett Center find a shortfall of perhaps $75 million the first year alone.
To fill the revenue hole, the governor will need to cut three times as much spending as he's proposing. A $50 million cut might delay the toughest decisions until after the next election, but it won't solve the problem.
To make matters worse, we have no idea where we are on spending. A year ago, the governor proposed monthly spending updates like the monthly revenue updates the state publishes. But one year later, no spending updates have been released and spending is still hidden from the public.
No real debate is possible without a good indication about spending levels. Medicaid spending is already projected to be over budget, making the budget hole even larger. We just don't know about other programs.
Whatever solution is proposed must not merely paper over the problem for a few months. There is a strong temptation for politicians not to face the problem but to just cover it up for a short period of time -- perhaps until the next election has passed. That just won't do.
We are in a mess, a mess created by refusing to face reality six months ago. Any plan to deal with the budget hole must do more than delay the problem for another six months.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord, and a former executive director of the state Republican Party.
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10 Water Street | Concord, NH 03301 | Phone: (603) 225-9341
E-mail: Steve@NHgop.org
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