Chandler: Rebuilding New Hampshire’s Rainy Day Fund Should be a Priority

by House Republican Leader Rep. Gene Chandler (R-Bartlett)

New Hampshire’s Rainy Day Fund – sometimes called the Revenue Stabilization Account  – was drained of $80 million by the Democrat controlled legislature to maintain or increase spending levels, rather than making spending cuts, during the recent recession.

Under the 2012-2013 Republican budget, New Hampshire was left with a surplus. While most of the money in the surplus was used to help fund the 2014-2015 budget, there is about $15 million left over. The debate in the legislature this year has been whether or not we should spend some of it, or save all of it.

Just one month ago, House Democrats passed a bill, HB 1411, that spends a large portion of the $15 million surplus. They have also passed a bill, HB 1635, that spends some of the projected surplus from the current budget, which we can’t even be sure will actually materialize. Given the frail condition of our Rainy Day Fund, we find this type of legislation to be irresponsible. Thankfully, HB 1411 was defeated in the Senate. We hope HB 1635 meets the same fate. Both set terrible precedent by reopening the budget to increase spending.

Republicans in the House and Senate agree that we need to begin rebuilding our Rainy Day Fund. In a presentation to the Senate Finance Committee in January, State Treasurer Cathy Provencher agreed. She said in order to maintain New Hampshire’s credit rating, we should strive to have a balance equal to 5%-10% of unrestricted general fund revenue. In New Hampshire, 5% would equal about $70 million, 10% would equal about $140 million.

Our current balance of $9.3 million equals just 0.7% of General Fund Unrestricted Revenue. That’s not enough to run our state government for more than 2 days.

Our research into how New Hampshire stacks up to our New England neighbors when it comes to financial security reveals that we rank dead last in both overall reserve balance, as well as when that balance is compared to the overall population of the state. New Hampshire has just $7 in the Rainy Day Fund per capita. The next highest is Maine, with $45 per person. Massachusetts leads New England with $205 per person. We often boast about the New Hampshire Advantage, but in this case, we are far from a role model for our neighbors.

It’s no wonder then, that a leading rating agency, Standard & Poor’s, last week issued a report downgrading the outlook from stable to negative on New Hampshire’s general obligation and state-guaranteed bonds citing, “Relatively low reserves, with a Rainy Day Fund balance of less than 1% of expenditures,” and, “Low pension funding level, currently 56.7%, well below that of most other states, which we believe could result in additional pressure on future budgets, “ in addition to concern over the recent Medicaid Enhancement Tax court rulings that could result in loss of significant revenue. Days after the Standard & Poor’s report, another major rating agency, Moody’s, labeled New Hampshire as “credit negative.”

We were warned by our State Treasurer in January that without a significant change in policy in regards to our Rainy Day Fund, we could see our credit rating drop. While our reserve balance is not the sole factor in the ratings change, it does compound the problem and affects our ability to address potentially major issues like what we face with the recent Medicaid Enhancement Tax court rulings, that could leave New Hampshire with a major hole in funding. When situations like this occur, even though we realize it will not cover the whole shortfall, it is important to have a reserve account that could help offset the impact if we were to experience a financial emergency.

It’s time to bring New Hampshire back from the brink. SB415, a bill that would deposit the entire $15 million surplus into the Rainy Day Fund, is currently before the House Finance committee, and will likely be voted on by the entire House in the coming weeks. We have the chance to begin to rebuild New Hampshire’s financial security. $15 million may not get us to our goal, but it is a small and important step. Even if the Medicaid Enhancement Tax issue is resolved, our current situation is a prime example of why having sufficient funds in reserve is the responsible thing to do.

Republicans will also continue to propose solutions that will help reduce New Hampshire’s multi-billion dollar unfunded pension liability and work to reform our tax code. We have the opportunity to learn from our current situation. Responsible spending and budgeting, responsible reserve allocation, and reforming our tax and pension systems will protect our financial stability and credit rating for future generations.