New Hampshire’s Next Budget Conversation: Spending and Revenues in 2010-2011

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Executive Summary

It will come as no surprise to those experienced with the state budget that New Hampshire is facing a potential budget deficit in the next – 2010 and 2011 – biennium.   In the 1990’s, the state’s independentauditor declared that the state had a structural deficit – a situation in which natural growth in expenditures exceeded natural growth in state revenues.   As a result of this ‘biennial budget problem’, every two years the legislature must carefully address spending growth and, in most biennia, find new revenue to balance the budget. The size of the ‘biennial budget problem’ has varied significantly over time due to variations in the economic situation, demand for state services, revenue growth, and changes in programs resulting in spending increases or reductions. 

The upcoming biennium may bedifferent, and in important respects, more problematic than in the past. As a result of a changing revenue picture, states across the country are adjusting both revenue and spending plans to account for the economic dislocation associated with the currenteconomic downturn.  New Hampshire’s Commissioner of Revenue Administrationrecently presented revenue estimates to the legislature that fell$100 million below those projected as part of the last budget. In the Center’s current analysis of revenues for 2010-2011, the gap between historical growth in revenues, and what is anticipated given the economic situation, could be as much as $286 million or more if the economy does not recover in the next two years.  

In response to the changing revenue picture, the legislative and executive branches of government have alreadytaken actions to reduce spending and adjust revenue. In the past 8 months, the Governor and the Legislature have enacted a variety of spending and revenue changes designed to balance the budget and position the state for the future. 

These changes, however, will not be sufficient to meet the budget challenges of the next biennium, absent a quick economic recovery.   In this analysis we extrapolate recent trends in General and Education Trust Fund revenues and expenditures from 2008 – 2011 based on the Center’s understanding of current law. The results suggest that the combination of declining trends in revenue (estimated $286 million), potential increases in the state’s financial participation in local education costs ($100 million), and growth in the demand for state services will require the Governor and the Legislature to make changes in the state budget totaling between $372 and $495 million dollars over the next three years, beyond current state law. 

Such a large problem is not without historical precedent.   In 2000, the state faced a similarly sized budgetary problem. The NHSupreme Court’s ruling on the state’s role in financing education required a significant increase in revenues. The legislative response increased revenues by approximately $400 million. While the root causes of the next biennium’s budgetary gap are different, the size of the problem appears to be similar. 

This paper is not meant to provide a precise estimate of what will happen in the future. Instead, this paper is designed to provide policymakers with a measurement of the scale of the types of changes that will have to be implemented to balance the budget in the next biennium in the absence of a strong economic recovery.   Althoughspending reductions can narrowthe projected gap in 2010 and 2011, such spending reductions will only reduce, not eliminate, the potential problem. Even if the State level funds expenditures at 2009 levels through 2010 and 2011, the budget could be out of balance by as much as $156 million. Given that spending constraints and the existing revenue structure singly are insufficient to meet the budget obligations of the state in 2010 and 2011, any budget conversation will have to include discussions about both revenues and spending.