A state-run program that encourages communities to add much needed housing in New Hampshire, already defunded in the current budget, is on the precipice of disappearing altogether.
The House Committee on Housing voted 10-8 on Jan. 20 to repeal the so-called Housing Champions program administered by the NH Department of Business and Economic Affairs (BEA).
The repealing legislation (HB 1196) was authored by state Rep. Matt Drew, R-Manchester, who during the committee hearing, said: “This is a bad program. We can’t afford it, and we should end it.”
Nick Taylor, director of Housing Action NH, responded, saying the action “undermines the partnership between the state and local communities” to address the almost universally held acknowledgement here that New Hampshire needs more workforce and affordable housing and fewer roadblocks to create it.
A home under construction.
The action in Concord came the same day that the BEA recognized Exeter as a Housing Champion for what it described as the town’s “forward thinking on New Hampshire’s housing challenges through planning and local action.”
It also comes as the Legislature wrestles with the Business and Enterprise Tax (BET), which have a direct effect on state revenues, and as it looks at how Meals and Rental Tax (M&R) revenue is distributed and whether there should be an additional “Pillow Tax” on rentals.
A legislative proposal would reduce the BET from 0.55% to 0.50%. In response, the NH Fiscal Policy Institute (NHFPI) said in a new analysis that the “vast majority of businesses would see savings that are too small to significantly change hiring or investment decisions.”
The “Pillow Tax” is a local option $2 per night fee imposed on hotel, motel and rental stays to generate more revenue for communities that are heavily impacted by tourists.
And there’s a proposed adjustment to the M&R in the way that revenue is distributed to city and towns, which has a detrimental effect on the town of Durham, for one. Town Administrator Todd Selig said, “Durham’s annual M&R distribution would be reduced by roughly 70%, or about $1,055,000, which would shift more of the cost of municipal services back onto local property taxpayers.”
According to the BEA, cities and towns designated as Housing Champions become eligible for two sources of funds: infrastructure funding and per-unit production grants.
Drew questioned whether the program is proactive in its funding or reactive.
“The Housing Champion Program is not a subsidy, as I originally thought when I started researching this bill. It’s worse. It’s a subsidy subsidy — a state-funded incentive to get cities and towns to subsidize politically favored projects,” Drew said.
“It doesn’t even pretend to be the little nudge that gets a project over the line into viability. It pays off the cities after the projects are complete,” he added.
He said legislators already had some suspicions about the program when it provided no new funding in the state’s current two-year budget. Drew’s repeal bill wipes the program from the books.
Taylor at Housing Action NH called the committee vote to endorse the program’s repeal as “deeply disappointing.”
“The Housing Champions program is already delivering results: More than 25 communities have earned designation, municipalities are updating their regulations to allow for more housing, and communities are using these incentives to modernize water, sewer and safety infrastructure that directly supports new homes,” Taylor said.
Besides Exeter, other Housing Champions are Boscawen, Concord, Derry, Dover, Enfield, Farmington, Gorham, Hampton, Hillsborough, Hinsdale, Hooksett, Jaffrey, Keene, Lebanon, Lincoln, Manchester, Meredith, Nashua, New London, Newmarket, Newport, Plymouth, Portsmouth, Rochester, Rye, Salem and Somersworth.
Concord, for example, received $859,689 for sewer infrastructure upgrades that enabled development of 1,220 housing units, 60 of them affordable.
Proponents of the reduction in the BET, as they have with prior reductions, argue that less of a tax will encourage more business investment in the state.
“We know that when we lower taxes, we allow businesses to keep more of their hard-earned money, which fuels investment, job creation and innovation,” said state Rep. Joe Sweeney, R-Salem. He sponsored HB 155, which reduces the tax, and he made his remarks to the Ways and Means Committee earlier this month.
Phil Sletten, research director at the NHFPI and the author of a new study, doesn’t see it that way.
According to Sletten, historical data shows no consistent statistical relationship between BET rates and job growth in New Hampshire over the last four decades. Prior studies, he noted, including New Hampshire’s own Commission to Study Business Taxes, have found little evidence that business tax cuts generate enough new economic activity to replace lost revenue.
“Tax policy choices involve tradeoffs,” Sletten said. “This analysis highlights that a relatively small tax decrease for most businesses can translate into substantial revenue reductions at the state level. To balance the State Budget, policymakers must weigh those forgone revenues against funding needs for infrastructure, public safety, health care, and education.”
“A tax rate reduction is unlikely to generate more economic activity,” Sletten said in the analysis, adding, “revenue reductions associated with a BET rate change would likely lead to further curtailment of public services for Granite Staters.”
As it is, state revenues for the current fiscal period aren’t meeting long-term expectations. December results were above plan by $42.1 million (14.2%) and above the prior year by $49.3 million (17%), according to a report from the state Department of Administrative Services. But only because of the one-time windfall from the BET because of a one-time tax amnesty program.
“It is important to note that without that unusual windfall, regular revenues remain $7.9 million behind budget for the year and the state’s largest revenue source, business taxes, are below plan by $20.9 million,” said the DEA analysis. “Although revenues would be below budget by 0.7%, the one-time amnesty revenues plugged that hole and a little bit more — at least for this one year.”
According to Portsmouth Mayor Deaglan McEachern, the Pillow Tax would enable the city to generate about $1 million more in revenue per year. There are about 2,000 hotel rooms in Portsmouth to accommodate a regular tourist flow to its historic sites and retail, dining and entertainment offerings.
McEachern estimated that the city’s revenue from the currently structured M&T will be about $2 million based on the $40 million in meals and rooms taxes paid by Portsmouth businesses.
The Senate Ways and Means Committee on Jan. 14 voted 3-2 that the Pillow Tax was “inexpedient to legislative,” all but killing the effort. Committee chair Sen. Timothy Lang, R-Sanbornville, argued that an additional tax like this would hamper tourism.
Andrew Bagley, a member of the Portsmouth City Council, questioned Lang’s motives. “This isn’t about fairness or local control. It’s Concord protecting business interests and hotel lobbyists and shifting the bill onto residents. Homeowners are paying more so hotels can pay less,” Bagley said in a social media post.
House Bill 1474 establishes a revised formula to distribute 30% of the net meals and rooms tax revenue to municipalities based on population and equalized property value, targeting aid to communities with lower property values.
It helps certain towns: Derry, for instance, would get 28.4% more M&R revenue with the adjusted formula, Farmington would get 35.9% more, and Sullivan would get 30.6% more, according to an analysis by the New Hampshire Municipal Association.
Other communities, such as Durham, would get less. The town, in testimony offered to the House Ways and Means Committee, according to Selig, who noted that the M&R “is a form of revenue sharing, not a state subsidy, and that the proposal would create substantial inequities for many communities, including Durham.”
The proposal removes from the calculation the temporary residents in a community, such as a college town like Durham, where students still rely on town services (police, fire, etc.). “Removing these individuals from the formula would dramatically understate the true service demands placed on host communities like Durham, Plymouth, and Hanover, while also ignoring the economic activity they generate,” Selig said.
A state-run program that encourages communities to add much needed housing in New Hampshire, already defunded in the current budget, is on the precipice of disappearing altogether. The House Committee on Housing voted 10-8 on Jan. 20 to repeal the so-called Housing Champions program administered by the NH Department of Business and Economic Affairs.
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