New Hampshire's precarious fiscal state.

BY Charles M. Arlinghaus

In the midst of ongoing political debate over deficits, shortfalls and fiscal management, one important truth about New Hampshire's fiscal state of affairs is impossible to obscure. We're a mess and it's getting worse not better.

The governor and his opponent spout dueling budget histories and have defenders of their numbers. The governor's tells us correctly that what is labeled general fund in the current budget is a smaller number by 1 percent than the items labeled general fund in the last budget.

What gets left unmentioned is that $248 million that was labeled general fund in the last budget has been moved off-budget to make it appear to be cut even as we continue to spend the money.

A good example: liquor spending was called general fund in the last budget. This year we still spend $90 million but we label it as liquor fund. If you consider relabeling a spending cut, then the general fund is down. If not, it's up.

Avoiding some of those games, challenger John Stephen proclaims total spending is up 24 percent over the last two budgets. Former candidate Mark Fernald has criticized the number for not including cuts and for including a lot of spending that he wouldn't count (retirement contributions or federal funds for example). But again, if you compare apples to apples and back out of each number spending reductions, lapses and other budget deductions, the increase is 23.7 percent not 23.6 percent.

But at the end of the day, bickering over the precise number is much less important than explaining the problem. Let's go ahead and leave out all the federal dedicated funds and state dedicated funds that the governor and Mark Fernald want us to. How then does the state operating budget look, the programs supported with general tax and fee revenues?

In New Hampshire, as in most states, state spending be paid for by hook or crook. Once we spend we must tax, borrow, or do something else to find the cash.

Because taxes have been flat the last few years, the government was only able to increase spending by finding the money through borrowing and bailouts.

The current budget uses $156 million in borrowing to pay for operating expenses, mostly school building aid grants and to pay the interest on debt.

In addition, we used $351 million in federal bailouts. One kind of stimulus money went to specific projects like a bridge or road paving but another pot of money was a bailout for state governments to put in their operating account. New Hampshire's total was $351 million.

Finally, we used another $90 million of one-time revenues like the money the state hopes to reap from selling off unused or unwanted state assets — not a bad idea but you can only sell something once.

Those three categories of special revenue total $600 million and won't happen again. We can't sell a second time, there won't be another state bailout, and borrowing again is regarded as insane across party lines.

So when people speak a deficit next year, they mean that the starting point for the next is a gap between revenues and existing spending that must be closed.

That $600 million won't recur so it must be replaced or spending cut to a lower level.

In addition to that $600 million one-time revenues, the legislature made some temporary cuts.

For example, aid to municipalities under a program that began when the business profits tax took over local revenue sources in 1970 was suspended. But we told towns not to worry that it was just for two years. Get through this budget and the program returns.

A series of similar temporary reductions that are by law scheduled to come back amount to $159 million in the current budget.

Because of implementation, revenue growth, and differences between the first and second year of the budget, my own estimate of the starting deficit is about $691 million. Some analysts are 10 percent higher or lower, but at the same order of magnitude.

The point is not to argue about the precision of the number to three decimal points. Rather we need to understand that we are in a bad place. While the majority of the states cut spending to close a gap, we used borrowing and a federal bailout. It means that the most difficult decisions are still to come.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank based in Concord. He can be reached at Arlinghaus@jbartlett.org