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In Sununu's Budget Address, Pandemic As Backdrop And Tax Cuts At Forefront

Governor's office
Gov. Chris Sununu delivered his budget address via livestream Thursday, Feb. 11, 2021.

Gov. Chris Sununu presented his two-year spending plan Thursday, a $13.8 billion package that proposes sweeping tax reductions and a series of what the governor called "generational investments" in the state.

The budget plan, which would increase state general fund spending by 7% over the current budget, includes a handful of new proposals, like the creation of a state Department of Energy and the merger of New Hampshire’s public higher education systems, as well as cuts to several of the state’s major revenue sources. Sununu, a Republican overwhelmingly re-elected to a third term in November, described the overall proposal as a balanced approach to meeting the state’s financial needs in a time of economic uncertainty.

“This budget makes smart, strategic, targeted investments without having to balance it on the backs of our essential workers,” he said in an address delivered via livestream. “And it focuses on core, everyday services that prioritize the people of our state.”

State lawmakers will now take Sununu’s proposal and rewrite it to their own terms, with negotiations likely to stretch until June when the current state spending plan expires. Several of the proposals Sununu outlined Thursday are sure to attract scrutiny from the Legislature. This includes a plan to merge New Hampshire's public university and community college systems, a move the governor said will create administrative efficiency and better outcomes for students as campus enrollments decline with more education going digital.

"Allowing students the ease of creating their own pathway in education will be the defining characteristic of this modernized 21st century system," Sununu said.

Other new initiatives proposed by Sununu include the creation of a Public Integrity Unit at the New Hampshire Department of Justice, as well as an independent office to investigate local police misconduct. Both proposals come from a taskforce the governor established last year to examine issues around police conduct, transparency and accountability in the wake of the killing of George Floyd.

Spending for social services

Throughout his address, Sununu alluded to the ongoing COVID-19 pandemic, praising his administration's management of the crisis and noting the impact the coronavirus has had on businesses, schools and local communities across the state.

Sununu's budget outlined several changes in social services programs that have been affected by COVID-19, including mental health services, developmental services and child protective services.

His plan would fund the state's current mental health plan, which Sununu says is critical in the face of strain caused by COVID-19. He would also increase spending at New Hampshire Hospital by $50 million over the next two years. And his budget adds $47 million in new spending on services for people with developmental disabilities.

Sununu also envisions a $50 million bump in funding for children's mental health, more than twice the planned spending in the current state budget.

"And we are not stopping there,” Sununu said. “My budget spends millions more on mental health for seniors and our veterans as well. These vulnerable populations faced the brunt of the COVID-19 pandemic the hardest and we have to focus our efforts where the struggle is greatest."

Sununu’s proposal also revived several ideas lawmakers rejected in his last budget proposal, including a voluntary paid leave program that would start with the state workforce, and a $10 million student debt relief program funded with money generated by 529 college savings plans.

Tax cuts at the forefront

A centerpiece of Sununu’s proposed budget is a sweeping list of tax cuts aimed at residents, retirees, businesses and tourists.

“Tax cuts for everyone,” said Sununu. “Whether you are a small business just starting out, a family of four looking to enjoy a meal out, or are retired and enjoying life in the Granite State.”

His plan would trim the Meals and Rooms tax, currently at 9%, to 8.5%. He’s also backing a cut of one of the state's major business taxes, the Business Enterprise Tax, as well as increasing the filing exemption for small businesses with a value under $250,000.

Sununu also proposed a five-year phase out of the Interest and Dividends Tax, which last year generated $125 million in revenue.

“We are providing equitable, across-the-board tax relief for the people of our state,” he said.

Sununu’s focus on tax cuts is in line with the prevailing Republican ideology on the matter in the State House right now. Several bills moving through the Legislature would enact versions of Sununu’s tax rate changes, and with Republicans now enjoying majorities in both chambers, further tax cuts seem all but certain this year.

Despite the lower rates, Sununu’s budget relies on an optimistic forecast of economic growth, with business taxes still projected at bringing in $75 million more in revenue over the next two years, and total tax revenues growing to $2.73 billion in the next fiscal year. That is up from this year’s projected tax collections of $2.69 billion.

Funding education in the pandemic

Sununu says that in spite of slight revenue shortfalls, his plan does not cut aid to public schools.

His budget proposes a fix for districts that have seen their free and reduced lunch applications plummet this year because of the pandemic, allowing schools to use last year's pre-COVID numbers to calculate state aid. Broader versions of this proposal have bipartisan support in the Legislature.

Sununu also proposes adding $15 million each year to the Public School Infrastructure Fund, which helps fund safety and facility upgrades to schools.

And the governor proposes sending more revenue from the state’s Meals and Rooms tax back to cities and towns, to the tune of about $15 million more in additional money over the next two years.

In spite of proposed decreases to adequate education aid, Sununu says that his budget “ensures that we spend more money per child on public education than ever before."

A spokesperson for the governor’s office did not go into detail about that claim, but the budget assumes that the number of children enrolled in public school will continue to decline.

Critics said Sununu's plan still fails to meet the true needs of the state's public schools.

"It's likely that his proposed budget will fall well short of what local schools need to be able to serve the students in their communities," says Jeff McLynch, Director of the New Hampshire School Funding Fairness Project, which advocates for more public school funding and property tax relief. "Right now, cities and towns are staring at a likely $90 million decline of state education funding in the face."

A new Department of Energy?

Sununu also proposes creating New Hampshire’s first Department of Energy, which would include a focus on offshore wind and would combine the Office of Strategic Initiatives, Public Utilities Commission and Site Evaluation Committee.

A summary provided by the governor’s office says the move will allow the PUC to focus on regulation as an “administratively attached agency,” while the new department's leader heads up energy policy-making and program implementation.

State utility consumer advocate Don Kreis has wanted this for a long time. He says the PUC's quasi-judicial structure is not ideal for taking public input.

“Dis-aggregating those two functions has the potential to make policy-making more accessible to people who want to interact with the policy-makers and influence them,” Kreis told NHPR.

This new structure would be similar to what's in place in Massachusetts and Vermont. Kreis hopes the proposed agency’s leader would be more focused on ratepayers than energy producers.

“Ultimately, energy is a means to an end, and we want our energy to be as sustainable and as reliable as possible while not becoming too expensive,” Kreis said. “The right kind of commissioner to make sure that happens is somebody who has a pro-consumer orientation.”

The new energy department, with a proposed budget of about $70 million, would also take over the state's fledgling office of offshore wind industry development. Sununu said in his address that this will let the state “continue to take big steps to harness the massive potential for renewable energy production off the coast of New Hampshire.”

The state is involved in a joint federal task force on wind development in the Gulf of Maine. The roughly decade-long process kicked off just over a year ago.

Reactions and next steps

Democrats say Sununu's plans – particularly his desire to cut business taxes – run the risk of increasing the burden on local property taxes.

“The governor’s optimism of an increased business tax revenue while instituting business tax cuts is completely counterintuitive,” said Sen. Cindy Rosenwald, a Nashua Democrat. “Several of his proposed measures could very quickly lead to shortfalls that will be left to fill by New Hampshire's property taxpayers.”

Sununu is sure to encounter different priorities from some Republicans at the State House as well, though with his party in the majority, he may have an easier time with this budget than in years past. The governor's budget proposal now goes before the House Finance Committee, which begins hearings next week.

(Reporting in this story came from NHPR's Josh Rogers, Annie Ropeik, Todd Bookman and Sarah Gibson.)

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