House Budget in the Red

Democrats Agree Upon Unrealistic Revenue Projections

Concord—Despite warnings that “A Perfect Storm is brewing,” from former Ways & Means Chairman Norman Major (r-Plaistow), the Democrat-controlled New Hampshire House today accepted inflated revenue projections in support of the state’s first $10 billion budget that are overly optimistic and unsustainable.

“I believe the revenue projections are irrationally exuberant and, at $100.3 million, far too high,” said Major.  “The Democrats need hundreds of millions of dollars to support their 16% increase in spending and their revenue projections are much higher than economic forecasts will support,” added Major.

Rep. Major and the Republican minority, using revenue projections that utilize all the latest economic factors, provided the House with projections that differ significantly from those of the Democrats, in five areas:

The Business Profits Tax and Business Enterprise Tax—According to economic forecasters, business corporate profits peaked in 2006 and are now falling, with no recovery in sight for at least five years.  Despite the fact that corporate book profits are not expected to return to the peak of 2006, the Democrats created a budget that relies on a 6 percent increase in these associated revenues for each year of the biennium.  There is a $53.1 million discrepancy between the Democrats’ projection and the Republicans’ fact-based numbers.

Interest & Dividends Tax— New Hampshire has seen an increase in revenues from this tax over the last few years as businesses that are doing well pay out greater dividends.  However, economic forecasters are predicting a decline in profits and a cooling of the economy.  As a result, it is irresponsible to project a 10 percent increase in each year of the biennium.  The Republicans have projected a modest 5 percent increase, calling for $15.7 less in revenue than the Democrats.

Tobacco Tax—Democrats on the Ways & Means committee are relying on a 45 cent increase in the state’s cigarette tax—17 cents higher than the governor’s proposal.  Currently, New Hampshire enjoys a $9.10 per carton advantage over Massachusetts .  This advantage would be cut in half under the Democrats’ proposal.  Not only would this reduce gross sales and fall short of the projected revenue, but it would also damage the New Hampshire Advantage and likely result in a loss of jobs.  Republican estimates, compared to the 45 cent increase, would result in a $9 million difference in revenue projections.  In addition, the negative effect of a 45 cent per pack tobacco tax increase  on sales of other products, including lottery tickets, were not taken into consideration by the Majority party an could amount to additional revenue losses in the tens of millions of dollars.

Insurance Premium Tax—It is unclear on what the Democrats based their insurance premium tax projections.  Rep. Major, in conjunction with the Insurance Commissioner, has provided estimates that result in an $8.2 million discrepancy with the Democrats’ projection.  

Real Estate Transfer Tax—The market has slowed significantly, sales are down 18 percent from last year and prices continue to fall.  Many economists fear that this fragile market could be pushed even lower by the crisis in the sub-prime mortgage market.  It is irresponsible to project increases in revenue from the Real Estate Transfer Tax when the latest indicators show a steady decline in New Hampshire .  Based on projections of flat revenue in 2008 and only a 3 percent increase in 2009, Republican revenue projections for the Real Estate Transfer Tax are $14.3 million less than the Democrats are expecting.

“We are betraying the citizens and taxpayers of New Hampshire by creating a budget based on overstated revenues,” said House Republican Leader Mike Whalley (r-Alton). “What happens when these revenues do not come in? We are going to have to raise taxes or create new taxes to cover the spending we are passing today.   The pain we will inflict on taxpayers is not worth inflating these revenues.”

According to Rep. Major, the revenue shortfalls would likely not be noticeable for six to eight months into the first year of the biennium, after the elections.  It would then require action by the House to either increase taxes or cut items in the second year of the budget.

“It is my fear that by adopting the Democrats’ inflated revenue estimates, we are setting the state up for the Perfect Storm,” concluded Major.

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