One newspaper’s front page headline on Tuesday read, “For NH budget writers, it’s doom and gloom.”
The article was about a long day of briefings for House and Senate Finance and Ways and Means Committee members. Every two years the House and Senate invite in economic experts and analysts to put things in perspective as the budget writing process is beginning.
I remind my colleagues that the Governor will take the first step next month when she announces her budget plan in an address to a joint session of the legislature. That address will set out her spending plans that will tell us her policy goals. And she will explain her predictions on revenue for the next two years beginning on July 1.
Here is some of the news legislators heard.
First, economic growth is anemic. It is taking us longer to recover from the recession which officially ended months ago. And New Hampshire for the first time in memory is recovering more slowly than other states in New England except for Rhode Island. New England is also recovering more slowly than the rest of the country. That’s not good.
But what does that mean for budget writers? Using rough numbers, the state is currently taking into our general and education trust funds about $2.2 billion each year. If one assumes two percent growth in revenues, based on economic expansion at that rate, the state would take in additional funds of around $40 to $50 million per year.
Given that many costs of government are rising faster than two percent, such as personnel costs with increasing retirement and health care expenses, if we do the same things in the next two years at the same cost levels as we are doing them now, will have an unbalanced budget.
Compounding the financial challenge are bills passed by the legislature over the past two years to help small businesses. These changes to tax laws become effective in the next budget year and the Department of Revenue Administration expects they will reduce revenue by $26 million in the first year of the biennium and $34 million in the second year.
Between low economic growth, rising costs and reduced revenue due to tax law changes, it is tough to see how you get to a balanced budget. It makes sense that the Governor has asked state agency leaders to give her budgets that are three percent less than the state spent last year.
The revenue discussions last week assume no new sources of revenue. The Governor has pledged to veto a sales or income tax.
Second, New Hampshire could lose $32 million annually in reduced program money from Washington depending how the President and Congress resolve the national deficit and debt problems. The state’s economy could also be hurt by reduced payments to beneficiaries and smaller purchases of New Hampshire made products like military hardware and systems.
Third, the demographics of our state are changing. Kenneth Johnson from the Carsey Institute at the University of New Hampshire provided a fascinating presentation on population trends and how they are changing.
From 1970 to 2000, large numbers of people moved here from other parts of the country. The majority of migrants came from Massachusetts. People moving here had higher levels of education and earned more money than the native population. That helped the economy create jobs and grow.
The recession accelerated a slowing of migration to New Hampshire that was seen as far back as 2002. One of Professor Johnson charts shows that in each year, 2007-2011, more people left the state than migrated into the state. He suggested the net out migration may have slowed over the past year or so. During the recession, overall movement of people between states fell dramatically as he said “the recession froze people in place.”
New Hampshire is an aging state. We have the fourth oldest median age in the country. But we are tied for 24th of the states with our percentage of population of people 65 years of age and older. So, while we are in the middle in terms of people 65 and over we have a huge number of residents in the baby boomer generation, ages 46 to 64 years of age. We are in the top three of states with the percentage of our population in this baby boomer age category.
As this baby boomer population rapidly ages over the next two decades, the number of people in New Hampshire 65 and older will become an immense part of our overall population. This significant aging of our population will have serious implications for our workforce, social service and recreational needs and our consumer marketplace for goods and services.
Last, New Hampshire is becoming more diverse. While it is one of the least diverse states with 92.3 percent of the population being non-Hispanic white, 50 percent of our population growth in the minority population. Most of New Hampshire’s minority residents live in urban areas in the southern part of the state and are disproportionally young.
The growth of minority populations has an impact on education policy, social service and community spending and more diversity in our economic and civic lives.
Once again, legislators have much to contemplate as they determine state spending and public policies for the years ahead.
Sen. Bob Odell (R-Lempster) represents District 8: Acworth, Antrim, Bennington, Bradford, Croydon, Deering, Francestown, Grantham, Goshen, Langdon, Lempster, New London, Newbury, Newport, Springfield, Stoddard, Sunapee, Sutton, Unity, Washington, Weare and Windsor.
Filed under: Capital Comments, Commerce, New Hampshire, Opinion, Politics & Public Policy, State Government | Tagged: Bob Odell, economic growth, Government spending, New Hampshire budget, New Hampshire legislature |