Portsmouth Herald: Recession leaves lasting impact02-22-2012 (PDF Version)
Recession leaves lasting impact
A recent updated study by the New Hampshire Center for Public Policy Studies showed municipal budgets during the past decade of 2001-2010 rose slightly more than the pace of inflation, but faced new budgetary challenges as the recession took hold, property values dropped and state revenue sharing decreased.
"Cities and towns in New Hampshire continue to face tremendous financial pressure from the lingering effects of the recession," said Steve Norton, executive director of the center. "While the state is probably looking at a somewhat bumpy exit out of the recession, it's going to take one to two more budget cycles for local communities to recover."
Norton said while data in the study only went through 2010, it showed ways in which the recession has reshaped some fundamental aspects of municipal finance in the Granite State — namely that municipal budgets need to rely on local property taxes more. The study found the average municipal percentage of property tax for town government rose from 56 percent to 60 percent from 2001 to 2010.
Norton said two main sources of municipal revenue — state aid and property taxes — have been under strain, with per-capita state aid to cities and towns down roughly 14 percent from 2007 to 2010 and state education funding remaining flat. The real estate boom of 2004 to 2007 drove annual valuation increases but total property valuation per capita remained essentially flat from 2007 to 2010. Overall, cities and towns appropriated more than $5 billion in 2010, equal to the amount of state spending in 2010.
A look at financial challenges in Portsmouth and Exeter reveal choices made to limit tax increases. As voters in Exeter prepare for the town's March Town Meeting, they will consider a 2012 proposed budget of around $20 million, a slight increase from 2011.
"Exeter is in the same boat as many communities," said Town Manager Russell Dean. "It's been true over the last few years that every tax dollar has counted even more, and we're seeing service cuts and tighter operating budgets."
Dean said over the past few years as the state cut more than $284,000 in revenue sharing to Exeter, two positions were cut and other belt-tightening measures were enacted. Overall, he said, voters chose "to raise revenues when they have been needed. That shows Exeter has been pretty resilient when it comes to preserving the services they get in police, fire and public works, which make up 70 percent of our town budget."
City Manager John Bohenko said Portsmouth benefited from a policy by the City Council going back for more than a decade to have a "predictable and stable" approach to crafting the city budget. "The residents who live here and businesses that want to locate here don't want to be surprised by large (tax rate) increases," he said.
The city's non-education budget remained basically flat from 2005 to 2010 at around $60 million, but the recession unleashed a "perfect storm" of conditions, Bohenko said, that challenged city's financial capacity. The city lost more than $1 million in state grants and revenue sharing and motor vehicle registration fees dropped by as much as $400,000 as residents bought and registered fewer new automobiles. He said the recession also led to a drop in investment interest revenue of $1 million over the past five years.
One of the fastest rising expenditures throughout the state is county spending, due to increased nursing home and corrections costs. Portsmouth, as the largest municipality in Rockingham County, saw its share rise more than 30 percent from $3.2 million in 2005 to $4.2 million in 2010. "At the end of the day, we have to write a check (to the county) for $4.2 million, and that's $1.05 of our tax rate," Bohenko said.
Portsmouth has cut staff by 9 percent and cut its general government spending by $202,000 since 2009. Bohenko said the city has kept a lid on capital project debt service to no more than 10 percent of the overall budget. The goal has been to hold the line on property tax increases. In 2012, city property taxpayers will pay $17.27 per thousand valuation and that's down from $17.41 in the previous year.
Dean said the full impact of the cut in state revenue sharing will take hold in 2012.
"We are still feeling those effects as initially it was made up on the backs of taxpayers," he said. "I think when it happened here people gritted their teeth, because they didn't want to see reductions in services like recreation or the library, which are real cornerstones in Exeter."
Exeter's 2012 budget is projected to lower the tax rate by 17 cents per thousand valuation to around $24.44.
Norton said one potential consequence of the drop in state aid and an increased reliance on property taxes is the degradation of local and state roads, highways, bridges and sewer, water and wastewater systems.
But having weathered the worst of the recession, it's not likely going to get any easier in the near future. Bohenko said the town is preparing for a possible increase in retirement pension costs.
In Exeter, doing "more with less" is becoming normal operating procedure.
"In the past few years, there has been less property tax growth than in the years before, but there have been painful and difficult budget processes as a result," Dean said. "We've also shuffled around some departments and functions, and we keep doing more with less everywhere while trying to keep up with service demands and infrastructure issues like roads, sidewalks and bridges."
New Hampshire Center for Public Policy Studies