State government is flying blind into a deficit storm

[CNHT]

http://www.unionleader.com/article.aspx?headline=Charlie+Arlinghaus%3A+State+government+is+flying+blind+into+a+deficit+storm&articleId=a3081d32-6b2b-45a6-8c7e-bffc14399fa7


Charlie Arlinghaus: State government is flying blind into a deficit storm
By CHARLES M. ARLINGHAUS

Wednesday, Sep. 12, 2007

WITH ONLY HALF the necessary information available to it, New Hampshire's state government is flying blind into an uncertain economy and a huge budget deficit.

The budget passed in June contained a massive 17.5 percent spending increase and overly optimistic estimates of tax revenue. Preventing a fiscal crisis of historic proportions requires a constant vigilance to adjust spending to available tax revenue. We update the tax shortfall each month but have no idea where we stand on spending.

Every month, the Department of Administrative Services publishes a monthly revenue update. Every month, budget writers and any member of the public can track taxes raised against expectations. By the business day following the end of the month, we know exactly where we are compared to the budget.

The new fiscal year has only two months under its belt, but the early signs are not good. Although the budget depends on a significant growth in business tax revenues, we are already slightly behind last year. Only after next month will a significant trend be established because September collections will be about four times the first two months combined.

But in addition to a worrying early business tax indicator, the next four largest taxes are all running behind projections. The rooms and meals, communications, tobacco and real estate taxes make up more than half of revenue collected and are running behind budget.

I warned throughout the budget debates that revenues should be estimated cautiously because the state always overspends. Most years, revenue comes in a little higher than budgeted. It needs to because spending is rarely controlled.

In practice, spending is almost always higher than budgeted. For example, in the last five budget cycles, spending was higher than the budgeted amount in four of the five cycles -- $4 million, $5 million, and $11 million before a whopping $26 million in 2006-2007. The only exception was Craig Benson spending a whopping $53 million less than budgeted.

After overspending by so much in the last cycle, Gov. John Lynch sensibly announced in his budget address a plan to adopt Benson""style spending review: "As a state, we receive monthly revenue reports and we continually debate revenue projections. But we need to do a better job of tracking expenses on a statewide basis. That is why I have asked Commissioner Hill to develop expense reports, similar to the revenue reports, which will be available for our review monthly."

Unfortunately, seven months after that announcement, nothing has happened. The monthly revenue reports continue to appear promptly, but there is nothing on the spending side.

Revenue shortfalls have the potential to create an alarming problem, but the budget as passed was unstable to begin with. The 2008-09 budget called for spending of $108 million more than the taxes it optimistically expected to raise.

That enormous deficit is theoretically balanced three ways. It's only as low as $108 million if spending defies history and is kept $77 million less than budgeted. Second, it borrows $28 million from last year that legally should have gone into the rainy day fund. Finally, to achieve balance, it takes $86.6 million from the education trust fund.

As the new education "costing commission" develops a spending amount to report to the Legislature by February, no observer of any political stripe believes they won't take that $86.6 million and more to increase state aid from the $890 million budgeted. In fact, it's likely they will look to increase spending another $300 million or $400 million beyond that creating a bigger hole.

There is no way to face the coming storm without tight management of spending. Despite outspending the budget by $26 million last cycle, the budget needs to spend $77 million less than authorized in this budget cycle if nothing else goes astray.

In truth, storm clouds will make the problem much worse and require greater spending adjustment. We know that tax estimates are already starting to look problematic. They might recover but are more likely to end up short of projections, perhaps as much as $50 to $100 million each year.

If the $86 million of education money needed to balance the budget is not available -- and let's not kid ourselves, it won't be -- spending has to come down even more. Then, the Legislature has to find another $300 million to $400 million for education spending.

The deficit storm is in sight but with no regular spending updates, state government is flying blind to its doom.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.
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Time to vote these bums out!

[J’raxis 270145]

Creating a huge budget deficit sounds like a nice way of justifying the creation of an income tax or sales tax next session, doesn't it?

[KBCraig]

Creating a huge budget deficit sounds like a nice way of justifying the creation of an income tax or sales tax next session, doesn't it?

Exactly. I was going to respond that there was nothing "blind" about this: they're doing it with eyes wide open, knowing full well what it might lead to.

[Ogre]

It will be "For The Children (TM)," of course.

[CNHT]

If you replay el grande's broadcast from today, he's got some pretty damning stuff from the little governor.