Downshifting: What it is and what it isn’t

While campaigning for office last fall, Republicans promised no new taxes or fees and no borrowing gimmicks.We also campaigned on no additional downshifting of costs to local communities. But exactly what is downshifting?First, an example of actual downshifting from the previous budget: In 1970, in an effort to close loopholes associated with New Hampshire’s locally collected tax on inventory known as the “stock and trade” tax, the tax was repealed and replaced with the business profits tax, which was collected and administered by the state.Since the “stock and trade” tax benefited local taxpayers, the state was, in essence, taking money away from municipalities and putting it into the state treasury. To compensate for this, the state agreed to avoid downshifting by relocating the money lost with what came to be called “revenue sharing.”Under a formula used by the state, revenue sharing has for many years been set at $25 million a year. Unfortunately, under the current budget, passed by Democrats and Gov. John Lynch, payments to the cities and towns were suspended. That allowed the Democrats to increase state spending by $50 million, and saddled towns and cities with the bill.Another example of actual downshifting under the previous budget can be found in local retirement costs. Initially, as an enticement to get municipalities to join their retirement system, the state picked up a percentage of school and town employee costs. For a number of years, the state paid 35 percent of the retirement system costs for local employees’ pensions. After the Democrats went on their spending spree, they were desperate to balance their 2010-11 budgets, so they told municipalities that they’d only give them 30 percent in 2010 and 25 percent in 2011.This resulted in a downshift of $30 million for the biennium.What is not an example of downshifting?In the current budget, the Democrats raised the rooms and meals tax from 8 to 9 percent. Under a formula in place since the 1990s, some of the increase in rooms and meals revenue was supposed to go to municipalities. Their share would continue to grow until the split between the municipalities reached 60 percent state and 40 percent to municipalities.When the Democrats increased the tax from 8 to 9 percent, the municipalities should have received additional money. But the Democrats needed the full 1 percent to sustain their spending, so they “froze” revenue sharing. In other words, municipalities got the same amount that they received in the prior year, but they did not share in the increased revenue resulting from the tax increaseWhile Republicans felt this was wrong, it was not an example of downshifting because municipalities continued to receive the same amount as in the previous year. While the expectation of additional funds was not met, a failed expectation doesn’t amount to downshifting.Regardless of what is contained in the final budget, shouts of “downshifting” will undoubtedly be made by the opposition.Such claims are self-serving. For example, Minority Leader Terie Norelli recently claimed that because the House budget did not raise revenue sharing, Republicans were guilty of downshifting. That is false.The House held revenue sharing at its current level. Municipalities will receive the same as, not less than, the current budget. Democrats also forget to mention that Republicans rejected the over $150 million in downshifting contained in Lynch’s budget.Instead of dumping the burden on to the backs of property taxpayers as Lynch did, we opted instead for reduced spending in the state budget.Hopefully, by better understanding what downshifting is, Granite Staters will be able to distinguish fact from partisan political rhetoric and understand how the House Republicans are fighting against property tax increases.Republican D.J. Bettencourt of Salem is majority leader of the New Hampshire House. Republican Gene Chandler of Bartlett is speaker pro tempore.