The current two-year budget for New Hampshire has spending 11 percent lower than in the preceding biennium. The spending reductions were necessary for the legislature to produce a balanced budget. With the end of stimulus funds from Washington that had pumped up state spending in the first two years of President Obama’s administration, spending cuts were necessary.
A study released a few days ago predicted tough-going down the road for states even if the economy bounces back. The State Budget Crisis Task Force, led by former Federal Reserve chairman, Paul Volcker and former New York lieutenant governor, Richard Ravitch, looked at six large states for indicators of the future health of state finances.
While what is going on in New York, Illinois or California may not be the best predictors of the future for New Hampshire, there are some important issues raised that hit on challenges we know will face our state’s budget writers beginning in January.
Health care expenses continue to rise including costs of the state’s Medicaid program that provides care for the indigent. The number of people eligible for this program rose during the recession and will remain high even as the economy recovers.
Our state pension system is underfunded. This liability will need to be addressed even as some reforms passed in the 2011-12 legislative session are implemented. And our infrastructure needs, roads and bridges particularly, must be dealt with soon.
And while the Task Force report suggests that current state budget policies "unbuild" state governments, it raises a politically sensitive question of what size state governments should be. And, of course, how do you pay for state government operations when current state revenue streams are not going up during the these tough economic times.
Most importantly, for me, is what the Congress does in the post election lame duck session. The federal government is borrowing 40 cents of every dollar it spends on daily operations which we all know is unsustainable. And nearly 50 percent of the funds that New Hampshire spends each year comes from federal payments and grants. That is about $2 billion per year.
The pressure is on Congress to not reduce defense spending. And there will be additional pressure to not cut Medicare and social security benefits in the short term. With those three major budget items possibly off the table, will the Congress simply reduce money going to the states? If federal funds going to states were cut 10 percent, New Hampshire’s share would be around $200 million per year.
The State Budget Tax Force sees states facing a series of crises for commitments previously made that are unfunded, and rising program costs. At the same time, the federal government will be looking to solve some of our national deficit problems by simply tightening the spigot on the money going to the states.
New Hampshire is in much better financial shape than the large states researched by the task force but reduced federal funds coming to our state in the next year or two will have a major impact.
When the 10-member Joint Legislative Fiscal Committee meets each month many of the items on the agenda deal with motions to "accept and expend" some amount of money that is "100% Federal Funds." That underlines the ongoing importance of federal money in the operations of state government.
Last week there were decisions made by the committee dealing with remnants of the American Recovery and Reinvestment Act (AARA) better known as the "stimulus program". As an example, the state Office of Energy and Planning had expected to spend $431,550 for a database management system to "accommodate weatherization reporting metrics." The Governor and Council turned down the idea on May 23, so the agency wanted to redirect the funds to weatherization projects through regional community action programs.
As the committee votes usually in support of agency requests, especially when it is federal money involved, if you added up the money accepted each month it would be substantial. Some items are small, $1,200 of money from Washington moved from a benefits budget line to pay a couple of months of rent for a project. And then some are more substantial, such as acceptance of $20 million in federal funds to be added to money from the State of Maine and the City of Portsmouth for bridge construction.
One transaction that is approved each year is the acceptance of Proportionate Share program (Proshare) funds from Washington. This is a contribution to public nursing homes by the federal government. The state, through the Bureau of Elderly and Adult Services in the Department of Health and Human Services, accepts $30 million on behalf of the county nursing homes. In turn, the counties actually return half of that money in another transaction back to the federal government. The counties net about $15 million.
Proshare is equal to about $13 per day per county home resident who is getting Medicaid benefits. The daily costs are around $200 per day per resident so the $13 only covers a small part of the cost. But, if that $13 did not come in from the federal government, that amount might have to be made up by property tax payers who pay for operating losses at county nursing homes.