The state simply has to cut spending immediately

By CHARLES M. ARLINGHAUS

From the Union Leader: Wednesday, Oct. 15, 2008

In the face of the worst budget crisis in the recent history of the state, the growth of state spending has emerged as the most important issue in the upcoming election. Because taxpayers are sensitive to spending and the taxes that accompany it, advocates of higher spending try to explain away spending increases. But by any measure, the increases of the past two years are significantly higher than average and will have to be rolled back to balance the budget.

A new political wind swept through the state in 2006 and with it a new approach to the state budget. Supporters said the new budget funded priorities that had been neglected by the previous budget and were critical. Fiscal conservatives quickly charged the new budget spent much more than we could afford and used unrealistic revenue estimates.

I was at the front of the criticism pointing out here and elsewhere that the new budget was $475 million higher than the last and represented a 17.5 percent increase. More important, that increase was the single largest budget increase in the last 20 years. As the 17.5 percent number has taken hold, critics have tried to dismiss it.

Most recently, Gov. John Lynch has been traveling the state telling newspapers that the number is misleading or the process of a bad accounting method. That's a clever political ploy, but it's pure unadulterated balderdash!

New Hampshire passed a two-year state budget. The budgets as passed are maintained on the Legislature's own Web site under the Legislative Budget Assistant tab. The budget passed in June 2007 had general fund spending that was 17.54 percent higher than the budget passed in June 2005. This is a direct comparison of the exact same row of numbers from one budget to the next.

When compared to biennium over biennium increases for each budget in the last 20 years, 17.54 percent is higher than any other budget and significantly higher than the average of around 10 percent.

These numbers are increases in the general fund, which is the state portion of the budget paid for with state taxes. Whether federal grants go up or down is out of our control. We compare state dollars paid with state taxes. This is the budget number used by my think tank, the Josiah Bartlett Center, and also by the state's other budget watchdog, the Center for Policy Studies. The numbers are hardly misleading.

Since the year 2000, state taxes, such as the business profits tax or the rooms and meals tax, also support the Education Trust Fund. The ETF is a subset of the general fund. Despite a state law requiring each fund to be balanced, these two are balanced together and both paid for by the state's general taxes.

Because the ETF is a recent development, there are fewer years to compare with. The three previous increases of the state's total general and education funds averaged 5.5 percent. The 2008-2009 increase was budgeted to be 13.8 percent. So by this measure as well, the current state budget was the largest recent increase.

Under former Gov. Craig Benson, spending by this measure actually decreased by 1.5 percent, but the current 13.8 percent increase is also double the 6.9 percent increase in Gov. Lynch's own first term.

To make the increase seem smaller, the governor and others decided that the two-year budget should be discussed in terms of its average annual increase, not its total two-year increase. That measure gets the increase down from double digits into single digits.

This sounds much better, but it isn't. The average increase in general and education fund spending over the two years of the current budget was projected to be 5.9 percent (as more cuts are required, it will go down). That sounds relatively modest. But the average annual increase since the creation of the Education Trust Fund was 2.4 percent.

If the budget for these two years had increased at that historical average instead of two-and-a-half times the historical average, we would have spent a total of $290 million less than we planned to. A few percentage points can make a huge difference.

By any measure, the current budget contains the largest spending increase in recent history. What's important is to look forward and not make the same mistake next time.

The slowing economy means the next budget would need around $600 million in revenue to support a spending increase at the historical average of 2.4 percent. We certainly can't afford to increase spending at two or three times that rate.

The largest spending increase in decades got us into the worst budget mess in recent times. We're going to need to start rolling back those spending increases to fix the problem. Denying there was a problem isn't helpful.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord