New Hampshire’s new fiscal picture

Through the months-long debate over the state budget, much attention focused on the size of the spending reduction from the last budget. And while the new budget does spend significantly less than the last one, focusing on the bottom-line obscures an important fact: The bulk of the spending changes come in a handful of programs. And each of those changes poses its own challenges and opportunities that bear watching over the coming months.Retirement systemThe new budget includes many changes to the state retirement system. They include increasing the amount public workers must contribute to their pensions and redefining the terms for calculating future pensions. These changes are intended to offset the elimination of the state’s practice of contributing a share of the municipalities’ retirement costs. But the revisions have already been met with legal opposition from public employee unions and the Retirement System’s board.The full impact of these changes is still unclear: Will there be more difficulty hiring public workers because of a perceived reduction in benefits? Will court challenges undo the cost-containment elements of the changes, leaving towns and school districts to shoulder a larger share of pension costs? And while the Legislature’s intent was to avoid shifting new pension costs to local communities, it is unlikely that the changes will hold those communities harmless.Higher educationSome of the deepest spending reductions in the new budget come in state support for higher education. The university system saw a 45 percent reduction in state funding, while community colleges saw a roughly 20 percent cut.The schools will absorb those cuts through a combination of measures: tuition increases, faculty and staff reductions and other cost-saving efforts. Those changes could affect many aspects of school life, including class size, student loan debt, and the ratio of tenured professor to adjunct faculty.The changes may also encourage schools to accelerate fundraising campaigns and administrative efficiencies to compensate for the reduction in state support.CorrectionsThe budget establishes a committee to study the possibility of privatizing the Department of Corrections. It also authorizes the corrections commissioner to transfer up to 600 inmates out of state and requires an additional $13 million in unspecified savings over the next two years.These policy changes pose several questions, among them: How far will proposals for privatization of state prison operations go, and will they help stem the trend of steadily rising prison costs?Hospital paymentsIn past years, the state levied a tax on hospitals and used that money to draw down matching federal funds. Part of that federal money was returned to hospitals to offset the cost of caring for Medicaid clients or uninsured patients. The rest went to other state programs. While individual hospitals saw net losses or gains, the full amount of the original tax was returned to the hospital industry as a whole.But under the new budget, only 26 cents of every dollar of the state tax will be returned to hospitals. The rest will be directed to other state programs. The change is an effective reduction in Medicaid reimbursement for much of the state’s hospital sector, one that represents 5.6 percent of total hospital revenues.The hospitals will absorb the impact of these changes in several ways, including shifting the cost to the private insurance sector or eliminating support for community clinics and other services. In the long term, hospitals could also respond to these changes by lowering the costs of the services they currently provide.PersonnelChanges to the state’s workforce will be a big part of implementing this budget, though the actual impacts are hard to measure. The budget calls for a cut of $50 million in salaries and benefits for state workers. If that target can’t be met through contract negotiations with state workers, the governor may have to resort to layoffs to achieve the savings. While a final figure is not yet known, cuts throughout the budget could result in 200 layoffs.Among the questions this process raises: Will agencies manage to find efficiencies to offset the reduction in manpower? What impact will it have on the public’s ability to receive government services? Will it foster more long-term efficiencies in the delivery of state services?Finally, budget writers set a goal of not raising taxes in the 2012-13 budget, and the final budget does not include any direct tax increases. What impact will that have on improving New Hampshire’s broader business climate and its ability to recover from the recent recession?While identifying the impact of state budgetary decisions on the private economy is difficult, policymakers should pay attention to this in the coming months, as it was a stated intent of the new budget.Steve Norton is executive director of the New Hampshire Center for Public Policy Studies, a nonpartisan think tank based in Concord. Daniel Barrick is the center’s deputy director.