Hillsborough County Republicans

Update from State Senator Jeb Bradley

In passing the 2011 budget, the Legislature made tough decisions and difficult cuts to stabilize NH finances while also laying the groundwork for economic recovery.

Judging the 2011 budget must be made in the context of the previous two budgets which increased spending 23% from $9.36 billion to $11.5 billion. In those prior budgets, when tax revenue underperformed, Legislators resorted to unprecedented borrowing for operating expenses and Stimulus funds to close growing deficits. That gap from prior budgets was at least $800 million when current legislators began formulating the 2011 budget. Difficult choices could not be avoided!

Those of us tasked with producing a balanced budget also recognized that New Hampshire taxpayers, working families, and small business owners were still reeling from nearly 100 new or increased taxes and fees passed in the previous four years. Those new levies included the job killing LLC business owner income tax and the camping tax that proved to be so odious they were repealed. Given the negative impact that higher taxes would have on job growth and hardworking Granite Staters, higher taxes were an obvious non-starter.
Two of the more difficult decisions involved funding for hospitals and the University System. Due to the fact they are both large expenditure items, cuts in these line items could not be avoided if the budget was to be balanced. Very few legislators wanted to make these cuts, but unfortunately they were necessary.

Due to their not-for-profit status hospitals pay no business taxes and very little property taxes. Over the years these hospitals have absorbed numerous private physician practices that had previously paid taxes, but now don’t, because they are under the hospital umbrella. Meanwhile, some of these not-for-profit hospitals act like large businesses by engaging in expensive advertising wars fighting for market share. Nevertheless, a provision in the budget allows some future funding for hospitals should revenue become available.

While virtually all state departments received less funding, the Senate retained funding for the mental-health system and for families that have disabled children.

Other budget cuts that generated much discussion were in the Department of Transportation and were made necessary by the expiration of the $30 (and in many instances higher) surcharge on motor vehicle registrations. The surcharge was enacted in the 2009 budget and promised to be a temporary measure. New Hampshire residents complained about this surcharge as much as any of the nearly 100 taxes or fee increased in the previous four years — rightly viewing it as a “fee” to get to work.

Allowing it to expire as promised does have consequences in the Transportation budget however. Initially the Department proposed snow plowing cuts on secondary roads. Several legislators led by Sen. Chuck Morse and Rep. Gene Chandler objected and the newly appointed Transportation Commissioner announced an alternative plan that will ensure the same level of plowing as in past winters. Instead, reductions will be made in maintenance, mowing, road sweeping, tree trimming, and pavement markings in 2012 and the Department will work with the Legislature to meet budget constraints.

In my view, we must prioritize necessary maintenance over most new construction with the exception of projects such as Route 93 expansion, the Little Bay Bridge or Conway bypass that have state-wide traffic significance. There also must be recognition that maintaining our roads and highways costs money.

Because of realistic and conservative projections, revenue is somewhat ahead of expectations — welcome news indeed. Business taxes, the most important revenue source, are 12% above predicted. The rooms and meals tax, the communications tax, and the real estate transfer tax are all slightly ahead. It is a hopeful sign of possible light at the end of the recession tunnel, when business, real estate, and tourism revenue are improving.

A key priority, especially for the Senate, has been enacting legislation that improves the business climate for job creation. We passed bipartisan legislation (SB 125) that dramatically curtails the ability of the Department of Revenue to foist a de-facto income tax on the salary a business owner pays him or herself. We passed legislation (SB-86) that restricts the Department of Labor from imposing large fines on business owners for rather minor paperwork violations without first warning the business. We expanded net operating loss provisions to encourage start-up businesses and job creation by wrapping SB-126 into the next budget. Also included in the budget, SB-154 made changes to development rules near rivers and lakes that will encourage a depressed home building industry by easing requirements while still protecting the environment.

Furthermore, the Senate sought to relieve future pressure for tax increases through a number of government reform efforts. A new education funding formula sponsored by Senators Jim Rausch and Nancy Stiles ended donor downs and prevented unsustainable future cost increases while ensuring the cities and towns received the same level of funding in these difficult times. SB-147 reforms Medicaid, the largest cost center in our budget, saving significant present and future costs while maintaining quality services for those in need. And finally pension reform will save property taxpayers from skyrocketing costs.

This Senate legislation – much of which I was the primary sponsor of — will pave the way for more cost effective, efficient government and a demonstrably improved business climate. New Hampshire’s unemployment rate — while still too high — has dropped from 5.7% in November 2010 to 5.3% today. However, the fact that nearly 40,000 of our friends and neighbors remain out of work gives added urgency to these measures.

There are also budget storm clouds on the horizon. The federal government seeks to recoup $35 million of excess Medicaid payments made to New Hampshire several years ago. This calls for continued careful budgeting and living within our means. Governor Lynch was able to save $26 million from the previous budget through carefully managing each department’s expenditures.

A budget provision supported by Governor Lynch as well as Senate and House budget writers would curtail welfare eligibility saving $8million per year. Though almost most legislators agree with this change, a drafting mistake was made and the language was not reflected in the final budget.

Realizing this, the Senate met in early September to pass fix-it legislation before more money was spent. Unfortunately, the House waited for a month to address the issue which cost nearly a million dollars. The House then added a non-germane amendment that will foolishly cost another two million dollars.

The State needs to continue to practice frugality to protect hard pressed New Hampshire taxpayers and to help our economy weather the national recession.
–

Jeb Bradley is a State Senator serving District 3

On Wednesday, both the House and Senate passed a comprehensive two year budget that Governor Lynch has said he will not veto. Some have praised the budget’s fiscal responsibility while others have criticized the cuts it makes to services. From my vantage point, it is a budget that makes tough choices, establishes priorities, and makes long overdue reforms so that government services will be delivered in a more cost effective manner – all of which will enable NH’s competitiveness and future job growth.

Six months ago NH confronted a gaping $800 million projected budget gap. Despite a languishing economy, the previous two budgets had increased spending 23% from $9.36 billion to $11.5 billion. Prior budgets had relied on inflated revenue estimates that never materialized, borrowing for operating expenses, and one time federal stimulus dollars. Alarmingly, despite nearly 100 tax and fee increases, an $800 million gap loomed. Voters said enough last November.

The 2011 Legislature established two goals: NH would not raise taxes that would harm economic recovery and NH government would live within its means — just as working families and small business owners have been forced to do in the current economic climate. Budget writers knew great caution was necessary in predicting future revenue and certainly the last six months have proven the wisdom of that caution as revenue has not met expectations. They also knew continued borrowing for operating expenses was unsustainable. Lastly, budget writers knew that with a $14 trillion dollar federal debt and trillion dollar deficits stretching as far as the eye can see — federal largess was neither possible nor warranted.
Extraordinary tough choices had to be made and priorities established, which meant programs – many worthy — were cut. Governor Lynch initially proposed significant reductions to hospitals for uncompensated care, cuts to programs that serve troubled youth, catastrophic aid for schools districts’ special education costs, Healthy Children, and to the Post Secondary Education Commission, as well as cuts to virtually every state agency except prisons. The Governor also proposed complete elimination of the 35% state assistance for cities and towns’ retirement costs which would have the effect of increasing property taxes by $85 million annually.

Governor Lynch also presumed that revenue growth would be a relatively healthy 3.5%. Unfortunately as winter turned into spring, revenue in the current budget was $42 million less than projected. Legislative budget writers had to make further spending reductions than those proposed by the Governor. NH has learned the hard way: spending that depends upon revenue that may never materialize is foolhardy.

When the budget reached the Senate, the chair of the Finance Committee, Chuck Morse, effectively established priorities. Senator Morse added funds back in to the budget for mental health programs, the developmentally disabled, Service Link, troubled youth, adoption initiatives, and catastrophic aid for special education. Morse proposed key reforms including allowing up to 600 inmates to be incarcerated at private prisons to create savings to pay for some of these adjustments. The Governor’s proposed elimination of retirement assistance to cities and towns was mitigated by pension reform legislation – benefitting hard pressed property taxpayers.

Given the significantly under-performing revenue, funding could not be restored for the University System or to hospitals. Some people have asked why then was the tobacco tax lowered and why were net-operating-loss provisions expanded. Supporters of the tobacco tax decrease believe there will be no net revenue loss as an increase in cross border sales will occur that will help small businesses. If there is a revenue loss, then the budget calls for the tax decrease to be removed in two years. The net-operating-loss provisions will only take effect in the next budget. These provisions allow business to better carry forward losses against future profits. This will improve New Hampshire’s business climate and has been an important priority for chambers of commerce across the state.

In total, spending has been reduced to $10.2 billion — an 11% cut. Taxes have not been raised, borrowing for operating expenses has been eliminated, no federal bailouts have been assumed, and rosy revenue projections have been rejected. This budget does what small businesses, working families, and taxpayers have been doing for some time: making tough choices to live within their means.

While much has been written about the budget’s bottom line and the impact on particular programs, less discussed are the reforms that will enable state government to deliver services far more effectively and efficiently.

Medicaid – the largest cost item in our budget – will be delivered through managed care as a result of legislation I sponsored and Governor Lynch recently signed. Managed care will save millions without sacrificing quality. A new education funding formula maintains funding levels, holds communities harmless, eliminates donor towns, while mitigating large spending hikes in Concord. Bipartisan legislation I sponsored will curtail the practice of revenue auditors assessing what in essence is an income tax on the salaries small business owners pay themselves – a key reform to enhance NH’s competitiveness. I also sponsored bipartisan Shoreland Protection legislation which protects our shoreland while also simplifying the permitting process and helping homebuilders create jobs. Prison and retirement reforms will also clearly benefit taxpayers.

Voters sent a clear message last November – government had to live within its means and stop reaching ever further into taxpayers’ pockets. This budget makes the tough choices to do exactly that. By doing our job in the Legislature ending the climate of spending hikes, unsustainable borrowing, inflated revenue projections, and ever more tax and fee hikes; the stage is set for further job growth –and when job growth is sustained — revenue will grow.

Tough choices, priorities, necessary reforms that will grow jobs — or as President Kennedy said a rising tide that will lift all boats.
—
Jeb Bradley is a NH Senator serving District 3

Over the last few weeks, many people, especially public employees, have called, emailed or spoken with me at the State House about the pension reform bill, SB-3, which recently passed the Senate. Many of these people have received misinformation about what the bill actually does and how it affects them. Reforming the pension system to ensure its long term viability has been an emotional discussion for some folks, and that’s why I believe it is so important for everybody to have accurate information on the exact changes that are called for in SB-3. It is my hope that this column will help provide clarification. As always, I remain open and available to discuss concerns or share thoughts on this issue.

Background

As of June 30, 2010 the unfunded liability of the New Hampshire Retirement System (NHRS) was $4.7 billion – approximately $3500 per person in NH. On July 1, employers — meaning taxpayers — will pay 13.95% of salary for teacher’s retirement, 25.57% for police officers, and 30.9% for firefighters. In two years those rates will escalate to 29.2% for police and 33.9% for firefighters – rates that are unsustainable in my view. Without SB-3, the entire unfunded burden will be borne exclusively by taxpayers. This will price employees out of jobs, drive up property taxes, make growing and attracting businesses to NH more difficult, and may lead to a downgrading of the state’s bond rating.

Impact of SB-3 on retired public employees — There will be no changes in the pensions of people already retired.

Medical subsidy eligibility — The medical subsidy is a payment to a retired teacher or municipal employee that allows them to stay on their former employer’s health plan. Legislation several years ago froze the 8% growth rate in the medical subsidy. SB-3 continues that freeze, but if a retired employee is eligible for the subsidy payment he or she will continue to receive it without a growth factor. The medical subsidy is now funded by employers.

Impact of SB-3 on COLAs – SB-3 does not change COLA status. Legislation several years ago established a 1.5% COLA in 2010 on the first $30,000 of pensions. SB-3 does not alter that but it also does not authorize additional COLAs.

Gainsharing—“gainsharing” is the practice of diverting revenue from the main pension fund into the Special Account to pay for COLAs and the Medical Subsidy. Gainsharing is one of the primary reasons the NHRS has an unfunded liability of $4.7 billion. Pension systems rely on good earning years to balance poor earnings. Gainsharing diverted $900 million from good earning years leaving the NHRS with no cushion for poor years. No pension system is viable when diversions occur. Legislation enacted several years ago eliminated gainsharing for the foreseeable future and SB-3 ensures gainsharing does not return. COLAs in the future will have to be funded from a different source.

Impact of SB-3 on employees who have worked for 10 or more years and are vested into the NHRS — Contribution rates will increase from 5 to 7% for employees and teachers; public safety employees will increase from 9.3% to 11.3%. Overtime, unused sick and vacation time, end of career payments will still count toward retirement calculations, and current multipliers will be used. Special detail pay will still be included in retirement calculations provided it is not higher than the average of the previous 7 years. Also, effective in July of 2016, no one will be able to retire at a level higher than 100% of their base pay.

Impact of SB-3 on employees who have worked less than 10 years and are not vested — Contribution rates will also increase similarly. Employees will not be able to count unused sick or vacation time or end or career payments toward retirement — though overtime will count. Retirement will be calculated over 5 rather than 3 years. Public safety employees will have to work somewhat longer depending upon years of service. Currently these employees can retire at age 45 with 20 years of service. Under SB-3 an employee with 8 or 9 years of service can retire at 46 with 21 total years. For someone with 6 or 7 years they will be able to retire at 47 with 22 years. Someone with 4 or 5 years of service could retire at 48 with 23 years. Someone with 1-3 years could retire at 49 with 24 years. For newly hired public safety employees, they will be able to retire at age 50 with 25 years of service with a pension multiplier designed to achieve 50% of base salary after 25 years.

For more information about SB-3 and the NHRS – SB-3 can be found at www.nh.gov and the NHRS at www.nhrs.org

—
Jeb Bradley is a NH Senator serving District 3