According to a November report issued by the national Governor's association, states now face a bleak fiscal landscape. The total deficit among states nationwide is in the tens of billions of dollars. While New Hampshire's current budget gap of 80 million dollars may seem far more manageable, it is still the largest in state history.
On Thursday, Governor Craig Benson will unveil his plan to balance the budget. But because he has vowed not to raise taxes, that plan confronts a significant hurdle. NHPR?s Josh Rogers has this report on what economists call the ?structural deficit?
That NH has structural deficit is not news.....The topic comes up every election year.....and during every budget cycle. Doug Hall of the New Hampshire Center for public policy studies has described this economic condition to lawmakers at many pre-budget briefings.
A structural deficit is defined as a situation where if the legislature just leaves all the laws on the books with no changes, then the revenue that will come in to fund state services will grow less rapidly than the costs themselves. So that with no further action taken a deficit develops.
The term ?structural deficit? may be a mouthful, but the reality boils down to this ? the tax system stays the same while other things change around it. For some lawmakers, this is a good thing. Republican Neal Kurk of Weare, chairman of the house finance committee knows all about the structural deficit and says it?s well worth preserving.
"The advantage of that is it forces you to take a serious hard look each time you do a budget at what's important and what's less important. And therefore make those decisions. Should you raise revenues because everything you are doing is important? Should you try to be more efficient? Should you eliminate some programs? How do you get your budget in balance?"
But others see it in a far less positive light. Democratic state Senator Clif Below says the structural deficit has made it more difficult for a growing state to honor past commitments. The population has swelled; the tax system has not kept pace. Below points to the lengthening waiting list for services for the developmentally disabled as just one example. And as Below stresses, a state decision to not cover such costs, does not mean they disappear.
?It means we chronically run short of needed funds of needed services....And we are constantly shifting costs to other sectors of the economy including the local property tax.?
Population growth isn?t the only change that strains New Hampshire?s tax system. Federal requirements ranging from environmental regulations to the cost of special education add to state expenses. Sometimes the granite state?s own policies have unintended consequences. Laws to keep criminals behind bars have increased the prison population, and with that, the cost of prisons.
Similar dynamics are now at work nationwide?.and like New Hampshire other states struggle to work with a tax systems that have changed less than other things around them. Ray Shappach, executive director of the National Governor's association says his group now believes as many as 45 states have been operating in structural deficit for at least the past decade.
?What happened is that these long run structural problems were basically camouflaged during the boom period. But what happened in 2002 is that revenues due to the collapse of the capital gains taxes and other things actually went negative by 6.3 percent. And we have never....if you look at all the numbers way back to the second world war....we never had a year that revenues were negative-so they sort of fell off a cliff.?
Sheppach says the problem extends beyond shrinking economies and rising health care costs. It?s breadth also suggests that the use of sales or income taxes offer no sure protection against structural deficits. Sheppach believes some fundamental tax assumptions need to change.
?Most state have systems sort of built for a manufacturing economy of the 1950s.....not a high service high technology international of the 21st centry so.....the growth of the economy is not keeping up with normal measures of economic output.?
A comparison of NH?s tax system to the economy over the past quarter century would seem to bear this out. A study prepared by the NH center for public policy studies, found that in 1971, taxes were equal to about 3 percent of the economy. Today, taxes are down by a third -- only two percent of the economy. According to Senator Clif Below, that?s ample proof that NH needs to change its ways to achieve true economic stability.
?What we?ve done is every budget cycle undertaken stop gap measures?.we?ve pretty much pushed all of our narrow based taxes and fees to the limit?.and we?ve done every accounting trick in the book and we still have a growing gap.?
The state will soon learn how Governor Benson plans to deal with this structural deficit. As one Republican lawmaker put it, his proposal will be a ?black hat? budget. An image that seems very much in keeping with the Governor?s tone during a weekend TV appearance on WMUR.
?People of the state of NH said no more new taxes. Live within your means just like we have to. And we are going to do it.?
Governor Benson will present his budget to the legislature on Thursday.
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