Correction appended
A pending case in the New Hampshire Supreme Court could slash a hole in the state's $11.6 billion operating budget for the next two years, potentially broadening the scope of existing budget cuts and leaving the government tens of millions of dollars in debt. As the Democratic majority in the Statehouse attempts to balance a potential deficit, Hanover officials face a likely tax increase in response to budget problems trickling down to New Hampshire towns.
The case is related to Gov. John Lynch's proposed budget plan. Part of the budget's revenue would come from the surplus of the Joint Underwriting Association, a state-founded organization that provides malpractice insurance to state doctors. The JUA filed a lawsuit against the state to keep its funds, and the Belknap County Superior Court ruled against the state on Wednesday. New Hampshire plans to appeal the decision in the state Supreme Court, according to various news reports.
If the New Hampshire Supreme Court does not overturn the lower court's decision, the funds will be returned to the JUA, leaving a $110-million gap in the state's current budget plan. The potential pitfall has triggered widespread speculation about tax increases or budget cuts that might follow, Seacoast Online reported.
"This surplus money from the JUA was included in the state budget only after careful consideration and in-depth legal review," Lynch told Seacoast, calling such speculation about tax increases or budget cuts "premature."
It is not yet known when the state Supreme Court is going to hear the case.
Lynch's proposed plan includes wide-ranging cuts, but the Associated Press reported that, if passed, it would pay off the debt from last year's budget and greatly reduce the $550-million gap between spending and revenue for the upcoming two years. The budget cuts the plan proposes would result in the dismissal of 300 workers nearly 3 percent of the state's workforce and shut down some state-run liquor stores, courts and prisons.
Meanwhile, changes in the current biennial budget, which was instituted July 1, have already left towns with potential shortfalls in their annual operating expenditures, according to Betsy McClain, director of Administrative Services for the Town of Hanover.
Traditionally, New Hampshire has engaged in revenue sharing, in which state tax surpluses were shared "back to the local level to mitigate the property tax," McClain said. That money is temporarily being used to fill other revenue holes this year, she said, forcing town administrators to use other means to balance the budget.
"[Hanover is] going to see $177,000 less in revenue than we've seen in the past," she said. "For us, that's pretty significant we'll see a change in the tax rate."
Supporters of Lynch's budget plan claim that these tax hikes will be mitigated by increased education spending, funds for which are largely bolstered by the national stimulus bill. Lowered taxes from the area's School Administrative Unit will nullify any effects on taxpayers, state senator Maggie Hassan, D-Exeter, wrote in a letter to Seacoast.
McClain said in an interview with The Dartmouth that she was skeptical about whether tax breaks on education would leave New Hampshire towns fiscally sound, noting that programs with unfixed costs, like special education, make it unclear if the stimulus funds will fully compensate for the budget shortfall.
"There's really no clean way to say the Town [of Hanover]'s going to be made whole, because there are a lot of factors going into it," she said. "My position is that the world's not perfect."
McClain also noted that the stimulus bill will only affect state budget revenues for one year, whereas a moratorium on revenue sharing may be less temporary than expected.
"We're likely to be in the same or worse position [at the creation of the next biennial budget]," she said. "Two years from now, it's going to be harder to give it back to us."
Other components of the current budget depend largely on funds from the stimulus bill, including the $230 million allotted for Medicaid over the next three years, according to the Associated Press.
McClain said that the state Supreme Court decision was unlikely to affect the cuts already in place for local administrators. On the state level, however, legislators are preparing for the worst, Charlie Arlinghaus, former head of the state Republican Party, told Seacoast.
Arlinghaus, who is also president of the Josiah Bartlett Center for Public Policy, a think tank based in Concord, N.H., told Seacoast that members of the Statehouse "are in the equivalent of mourning" about the ruling. He also speculated that a special session of the State Legislature will likely convene before January when it is scheduled to return in order to reconfigure the budget.
"Everyone knows there will be a special session," he told Seacoast. "The question is when."
