Understanding NH's Budget Deficit

Budget experts warn that New Hampshire faces a deficit in its next two-year budget as large as $900 million. If you think the looming deficit is due to runaway spending in Concord, you’ve been misled.

The deficit is not the result of huge spending increases by Democrats.

Figure 1 shows that State general fund spending has been growing about as fast as the State’s economy. Our state government is not taking a bigger bite out of our economy than it did twenty years ago. There was a bulge in spending in the mid-nineties, when New Hampshire received a huge bailout from the federal government. During the past two years, general fund spending has dropped faster than the dip in the State’s economy.

Some items of general fund spending, particularly school building aid and liquor store expenses, were moved out of the general fund in recent years. However, even if those items are added to the general fund to allow for an “apples-to-apples” comparison, the growth in general fund spending since Governor Lynch took office has been slower than during any of his five predecessors, both Republican and Democratic. In New Hampshire, state spending per capita remains fifth-lowest in the nation.

New Hampshire has a structural deficit.

New Hampshire’s tax revenue grows more slowly than the economy as a whole. Our only broad-based tax is the property tax, which is used to fund schools, and municipal and county government. Our state taxes are narrow-based taxes, and some of them have grown much slower than the economy. For example, as smoking declined in New Hampshire, tobacco tax revenue fell. Beer tax revenue has barely increased over the past twenty years. In addition, the estate tax and the inheritance tax were eliminated early in the last decade, removing about 5% of general fund revenue.



To maintain the basic services of the State, the legislature has repeatedly added taxes and increased rates over the past twenty years:

• The tobacco tax was increased in 1989, 1990, 1997, and 2009.
• The business enterprise tax was added in 1993.
• The real estate transfer tax was increased in 1989.
• The telecommunications tax was increased in 1999 and 2001.
• The interest and dividends tax was broadened in 1995.
• The meals and rooms tax was increased in 1981 and 2009. 

(The legislature has also increased the taxes on tobacco, real estate transfers, telecommunications, meals and rooms, and businesses to fund state aid to education, which is not part of the general fund budget.)

Figure 2 shows that if the taxes and tax rates in place in 1988 had remained unchanged through 2010, New Hampshire’s general fund revenue would have fallen 37% below the growth in the economy.

The current budget crisis is not due to runaway spending; it’s due to a huge drop in revenues. State tax revenues decreased over 9% in 2009, and have yet to recover.

In the past, the legislature would have tinkered with state taxes to maintain state services. Not this legislature. The majority party adheres to an ideology that no part of government is so important as to justify any change in our revenue structure. If revenues do not meet needs, then needs will not be met.

With a projected deficit equal to 12% of the general fund budget, will nothing be spared? After mass murder by a mentally-ill man in Tucson, will our legislature cut funding for community mental health centers? Will it throw children out of daycare centers and take away their health care? Will it cut state aid to schools and municipalities, solving the state’s fiscal problem on the backs of property taxpayers? Will state troopers be laid off?

The answer to all of these questions may be yes, because we have a legislature that was elected with the belief that state spending is out of control, even though all evidence is to the contrary.


Mark Fernald is a former State Senator and was the 2002 Democratic nominee for Governor