The State Budget 2010-2011 Presentation to New Hampshire Association of Counties February 6, 2009

1. 1 The State Budget 2010-2011Presentation to New Hampshire Association of CountiesFebruary 6, 2009

2. 2 All of our reportsare available on the web:www.nhpolicy.org

3. 3 Decisions on State Budget will Affect Counties

4. 4 2009

5. 5 The Good News?

6. 6 What is the State Budget?

7. 7 NH�s Budget Biennial Budget � 24 Months 2 fiscal years per budget Fiscal year runs from July 1 � June 30th

8. 8 The 2008-2009 Biennium

9. 9 First, some history:

10. 10 The General Fund in 2008 (est):

11. 11 NHCPPS Model Showing a $300m+ Revenue Shortfall

12. 12 What�s Next for 2009? Budget has been squeezed with relatively �limited� impact to program areas. Next round of budget cuts will depend on April business taxes and federal government decisions r.e. �bailing out� states. Next round of budget changes unlikely to avoid significant program impact. Rainy day funds are available, but it is likely to �rain� harder in the next biennium. Significant constraints in 2009 mean that traditional approaches to constraining expenditures at the margin are not available for 2010-2011.

13. 13 2010

14. 14 The State Budget Context for 2010-2011 Economic Dislocation Primary Budget Drivers Medicaid Retirement System Corrections State Participation in Local Education Uncertainty Very little information on business revenues to project future. How low will we go?

15. 15 When Will it End?(Economy.com)

16. 16 Consumers aren�t (and maybe won�t) spend disposable income

17. 17 Maybe worse in NH?

18. 18 A 1990-1991 style recession, without tax changes, equalsno State Revenue growth for five+ years

19. 19 Economic Change and Revenue? 2010-2011?

20. 20 Drivers Unlikely to Slow

21. 21 The 2010-2011 Budget Process November � Agency Budget Hearings scheduled for November 20, 21 and 24 December � Senate & House organized on December 3rd; legislative leadership makes committee assignments; Governor begins to craft budget Late January � Governor�s budget is being finalized February � Governor presents budget to the Legislature on February 15th; later in the month, House Finance Committee begins deliberating March � House Finance Committee takes action Negotiations until June 30th �. ?

22. 22 The 2010-2011 Budget Process and Biennium

23. 23 Agency Maintenance Requests (Have Come In) Maintenance Requests ask: �What do you have to spend to maintain existing services?� Estimate included growth in county long term care cap and hold-harmless appropriation. Agencies Answered: 12.5% increase from 2009 to 2010.

24. 24

25. 25 Spending

26. 26 State Appropriated $5.2 Billion in 2007 (all funds)

27. 27

28. 28 Levels of budget compulsion and discretion Federal constitution (e.g., elections for federal offices) State constitution (e.g., indigent defense, Secretary of State, adequate education) Federal law or regulation � mandate on all (e.g., special education) Federal law or regulation - quid pro quo (e.g., Medicaid, child care, vocational rehabilitation) Court order against the State (e.g., state prison system, community developmental services, juvenile services) State law mandating the activity (e.g., vital records, parole board hearings, dam inspections) Revenue-producing and deficit-neutral activities (e.g., DRA auditors, child support enforcement, liquor stores) State or federal law authorizing activity (e.g., school building aid, hunter education program) Agency regulation authorizing activity (e.g., complaint investigations at the Veteran�s Home) Historic practice without specific authority in law or regulation (e.g., National Governor�s Association & NCSL dues and meetings)

29. 29 Changing Spending: Process (e.g. Methods) Many different methods for changing spending that legislators can choose from: Shift Financial Burden to property tax by eliminating programs supporting local government finances, offsetting shift with a state-funded property tax circuit breaker for low income. Reduce administrative costs; Eliminate Government Activities no longer reasonable in this climate; State Library Nursery Last In, First Out; 10% Across the Board Reduction; Eliminate whole programs that could be later reinstated; Large scale reform of programs (longer-term)

30. 30 To control spending: have to focus on �. Medicaid (~$450 million in general funds) Corrections (~$350 million in general funds) Local Aid (~700 million) State Education Contribution ($500m?) Local Retirement Costs Catastrophic Aid to towns for special aid School Building Aid Meals and Rooms sharing Education Finance Reform Adequacy defined, but will cost an additional $100 million in spending under current law. Layoffs will happen: Employees as major driver of corrections, state hospital (and salaries and benefits?) Public system transformational changes may take too much time to impact 2010-2011.

31. 31 Transformational Policy Opportunities Medicaid Care Management � Significantly Broaden management of care (utilization) Retirement Tiered system (new vs. old employees) Contribution amounts Corrections Mental Health Management Re-entry Home-confinement County vs. State management of the system Reimplementation of good time

32. 32 What are the Revenue Options Now?

33. 33 How did the State respond to the 1990 recession? Early 1990�s recession was much worse in New Hampshire than in the US. Changes to state taxes were significant: BET created in 1994 M&R increased from 7% to 8% in 1990 RETT 30% 'temporary surcharge' in 1990 Communications Tax revamped in 1991 Utility Tax revamped in 1992 Tobacco Tax increased in 1990 and again in 1991 (17 cents to 21 cents to 25 cents) Medicaid Enhancement Revenue from $50m in 1991 to $250m in 1994

34. 34 The Stimulus Package and the Medicaid FMAP Increase How much will it be? House: 4.9% Senate: 7.6% Unemployment provisions? How will �excess� match distributed? a.k.a. what do the counties receive? Diversion to general fund may/may not be limited by House or Senate language

35. 35 New Hampshire State Revenue Options for the Legislature: Increase Ad Valorem Tax Rates Index per Unit Taxes to Inflation Increase the Tobacco Tax New State Revenue Sources Estate & Legacy Amusement Tax Luxury Tax Gambling Capital Gains

36. 36 5% Increase in Ad Valorem Taxes (2008 Revenues)

37. 37 Extra 2008 Revenue If Per Unit Taxes Had Been Indexed to Inflation for Five Years

38. 38 NH Cigarette Tax Increase of 25 cents.

39. 39 New (and Renewed) Revenue

40. 40 There is no crystal ball. But �. If revenues are flat (no declines!) and the Governor�s request for a 97% (of �09) and 100% (of �09) ? An estimated $231 million problem remains. When will federal FMAP arise? Condundrum ? need to cut services in order to meet 97% budget, does that make it impossible to draw down new federal dollars given maintenance of effort requirements? If no new federal revenues ? an additional reduction of spending of over 15%. Demand for services will increase (given economic conditions). Using the budget process to implement policy change will delay savings significantly, potentially out beyond 2010. Policy change needs to occur sooner rather than later.

41. 41 Options: History would suggest � a little of everything? �Balanced Budget� law and rosy glasses ? RSA 9:8-B Rainy Day Fund � When will it really start to rain? Further accounting changes Further bonding Sale of Assets Spending reductions of somewhere between 10-20% compared to historic growth, depending on federal response, and other legislative actions. Education Revenue Increase of existing revenue streams (e.g. the last three recessions) New (or renew) streams

42. 42 Longer Term Problems Corrections Retirement System Retirement System � Health Inexorable growth in Medicaid associated with aging.

43. 43 Decisions on State Budget Will Affect Counties

44. 44 All of our reportsare available on the web:www.nhpolicy.org