State Republicans call for the hard work necessary to cut state spending
CONCORD, N.H. ― Public policy experts and Republican lawmakers outlined the Granite State’s compounding spending problem earlier today at the Grappone Conference Center, where attendance was so high that a standing room crowd overflowed outside the meeting room doors.
“We do not have a revenue problem in Concord, we have a spending problem,” said House Republican Leader Sherm Packard, R-Rockingham-3, at the Stop the Spending Summit today.
New Hampshire House and Senate Republicans organized today’s Stop the Spending Summit with the help of Fred Tausch, founder of STEWARD of Prosperity. The summit was a response to a two-day Tax Summit held last week by the progressive Institute for Taxation and Economic Policy, which is funded by the likes of George Soros and the TIDES Foundation.
At the time, free market advocates such as Citizens for Sensible Legislation chided the Tax Summit, saying the state’s money problems are due to excessive spending, not insufficient taxation. Granite State Republicans quickly filled in the gap by organizing today’s event.
Perhaps the most poignant data about the state’s spending problem were delivered by Steve Norton, executive director of the New Hampshire Center for Public Policy Studies, who summarized lawmakers’ intent to spend by reviewing actual budget bills passed by the Legislature in the last 20 years. (Read his whole report or a Manuse.com archive.)
In his presentation, “New Hampshire State Spending in a National Context,” Norton explained that the Legislature has voted to increase average compound spending by 14 percent during the last 20 years. For example, the Legislature supported $3.241 billion of spending during the 1990-1991 budget, $5.499 billion of spending during the 2000-2001 budget and is now supporting $11.550 billion of spending for the 2010-2011 cycle.
The largest spike in spending, a 42 percent increase for the 2002-2003 $7.802 billion budget, arrived during Gov. Jeanne Shaheen’s term as governor. Gov. Craig Benson oversaw moderate spending and Gov. John Lynch has overseen a return to double digit spending increases.
“The primary dynamic is that we’ve spent more money than we’ve raised; this is not a new problem,” Norton said. “[These are the questions we should be asking]: What is the price of government, what outcome do we want as a community and how do we want to pay for them?”
In general, the New Hampshire Legislature spends $3,459.69 per capita, which is considerably less than the national average of $4,773.04 per capita, however, the state employs 550 people per 10,000 residents, compared to a national average of 546 per 10,000 residents, Norton said. Thus, cutting state employee jobs and otherwise “shrinking” the size of the state government could realize some cost savings.
Contrary to the typical response of progressive legislators that most state spending is required by state or federal law and thus can’t be reduced, Norton said program expenses that can be altered or abolished by state laws make up 73 percent of the state budget.
Most state spending is centered on education and health and human services, and cost-cutting efforts, in decreasing order of magnitude, could focus on better defining an adequate education, school building aid, Medicaid, the corrections system, the State Retirement System and constraints on hiring, travel and purchasing, he said. Some of the cuts will require political will and coalition building with people from other mindsets, he said.
New Hampshire spends slightly more on education than the national average, but contributes less to cities and towns. Education and the definition of what makes it adequate and/or a constitutional amendment to restore New Hampshire’s local control of educational decisions are among the politically charged options for addressing the cost for that category.
Corrections stands out as a major area where cuts could be made in New Hampshire, which spends $25,949 per inmate, compared with a national average of $22,650 per inmate. So far, lawmakers have focused on creating programs to reduce recidivism (the propensity of criminals once released to return to prison). These programs have been costly and are not well measured for their effectiveness.
Certainly, looking at concepts to decriminalize non-violent acts, such as marijuana possession and similar activities, could reduce the number of people who go to jail, and thus the cost. Also, providing alternatives to jail such as home confinement for some crimes may also prove effective.
Another large driver of cost in New Hampshire is Medicaid, with state expenses at $6,047 per enrollee in 2006 compared with the U.S. average of $4,575 per enrollee, Norton said. With provider reimbursement and eligibility requirements close to the national average, lawmakers really need to look at why the Granite State spends more money per person. The eligibility filter, benefit changes and how services are used could be areas of focus for cost cutters, he said.
The New Hampshire State Retirement System was hit hard by stock market losses in the last two years, which means obligations to retirees have caused a budget crunch. Creating a tiered system for older and newer state employees or changing the funding requirements could help reign-in spending on the system, Norton said.
Ultimately, the State Legislature needs to come up with a better way to manage its spending, Norton said. The budget is handled without a true understanding of spending, and a lot of programs are just repeated because they “have always been done that way.” The state has thorough reports on how much revenue it collects from taxes and fees, but it does not report on how much it spends. He said state law should be changed to require reporting.
“In order for us as a state to grapple with this issue, we need the data on it,” Norton said. “Hopefully that will help us manage things better.”
To highlight the state’s spending problem further, Charlie Arlinghaus, president of Josiah Bartlett Center for Public Policy, analyzed the budget shortfalls that the Legislature will have to deal with in the coming years. The state is currently spending $188 million more per year than it is bringing in, he said.
Arlinghaus, who also spoke at last week’s Tax Summit organized by House Democrats (coverage by Grant Bosse), concluded from the event that business taxes are way too high to stimulate job growth in the current economy and advocated they be cut. He noted that an income or sales tax are probably not in the state’s future, so spending cuts remain the only good option for the state’s future.
To effectively reduce spending, he advocated hunting for programs to cut, such as a current budget item for lilacs along the side of the highway, as well as effective leadership from the governor and bipartisan political coalitions. Coalition building is the only way to defeat department heads who highlight the two or three most politically charged functions of their departments when asked to make cuts, he said.
“At the end of the day, you’re going to want to say that the other party is a bunch of morons,” Arlinghaus said. “The truth is that everyone is in error. … [Fixing the states’ spending problem] will involve talking to someone you don’t like.”
Lawmakers should not play politics by referring to the budget process as a “crisis” every few years and talking only about the General Fund. The health of every state fund should be clearly articulated as part of regular budget efforts, Arlinghaus said.
The state’s operating budget includes the General Fund, the Education Trust Fund and other smaller funds such as Highway, Turnpike and Fish & Game. Federal tax dollars cover about 30 percent of the budget on average, but this year federal taxpayers are covering even more due to the American Recovery and Reinvestment Act of 2009. When those federal stimulus dollars dry up ― and they will ― the state is in for a whole new world of hurt.
Even with the federal dollars, the state is facing a $208 million shortfall in 2010-2011, according to Arlinghaus. By 2012-2013, absent any federal assistance, the state could be down by $627 million, he said.
Politicians have traditionally looked to economic growth to work their way out of future budget troubles, but this is a false hope, Arlinghaus said. If the state economy enjoys an ambitious 4 percent growth through 2012, that’s only $92 million more in revenue assuming everything else stays the same. Inflationary forces stand only to make the problem worse, he said.
Additionally, the Legislature must learn to manage the ebbs and flows of the economy better. Typically, during good times, the state spends every dollar in the budget, then scrapes by during tough times. Lawmakers should always exercise restraint, even during good times, and put surplus money into the Rainy Day Fund, he said.
Former Health and Human Services Commissioner John Stephen noted several areas of legislative reform that may be necessary to help stop the gravy train. As a consultant, the possible contender for the 2010 New Hampshire governor race has been working with governors across the United States on best practices to reign in spending.
“We have a tyranny of custom,” Stephen said. “Everyone wants to do the same thing over and over and not bring up new ideas.
“If we just catch up to best practices of other states, we’ll be able to make a difference and cut spending,” he added. “Structural changes will create new opportunities. We can’t stop with best practices, New Hampshire should be a leader of innovation.”
Questions the Legislature should ask before any reform, include, “Should the government be doing this? ― If we’re going to do it, how would you build this from scratch? ― How are other states providing the service? ― If the service isn’t running as efficiently as possible, how can you do it without disruption?” The answers to these questions bring about real change, he said.
To fix some of the problems, Stephen said the state constitution or state laws must be changed. He suggested changes to RSA 9:4 to require department heads to submit 5 percent reduction budgets and a constitutional amendment to give the governor a line-item veto. New Hampshire is one of only seven states that don’t have a line-item veto, he said.
Stephen also suggested changing RSA 6:12 to cap dedicated funds that are non-lapsing. He noted the Legislature pours money into 250 dedicated funds without checking whether the funds are all being used or whether the programs are successful. The Legislature should only appropriate to funds where new money is necessary to continue desired operations, he added.
Stephen advocated for the consolidation of services that are shared by multiple agencies. He said there is no reason for every department to have employees for financial management, procurement/vendor management, human resources, legal issues, hearings or government transparency. Those services could be provided to all departments by one group of state employees, he said.
He suggested changing Medicaid into a managed care product and repealing Chapter Law 144:161, so surplus Nursing Home money is returned to the General Fund rather than vanishing into an abyss.
Like Norton and Arlinghaus, Stephen advocated for more transparency to ensure everyone in the state has a chance to look closely at the budget and identify savings.
Finally, state Reps. Neal Kurk and Doug Scamman of the House Finance Committee said state lawmakers and candidates for office should start talking now about what savings may be identified in the next budget cycle. They said by the time the budget season comes along, there is no time to look closely enough for savings. They said it is the primary reason why the state government continues to spend as usual, year after year. By starting the process early, the Legislature may just achieve what’s needed most: less spending.