Why we can’t raid dedicated funds

At the State House, memories can be very short, particularly under the stress of budget making.

Apparently, there is a lesson that needs to be repeated every biennium: The Legislature isn’t free to balance budgets by raiding “dedicated funds.” Dedicated funds are raised by special fees imposed to support special programs, rather than by general taxation. The Legislature has created quite a few of them, for a variety of purposes.

Two years ago, at budget time, funds raised by special fees for the Land and Community Heritage Investment Program were proposed as the raiding target. Fortunately, by the time the final budget was adopted, the raid had been abandoned and the LCHIP fund was left intact.

This time around, the fund in the crosshairs has been raised from special fees to support renewable energy initiatives under the Renewable Portfolio Standard program. The budget passed by the House would have looted the Renewable Energy Fund, diverting the proceeds to balancing the state’s general operating expenses. The Senate version would divert a major portion of the Renewable Energy dollars to support an entirely different and unrelated set of expenses – disaster and emergency response programs. The House eventually agreed to go along with the Senate.

Worthy as those programs are, they have nothing to do with renewable energy initiatives, and nobody is saying otherwise. The only justification seems to be that there is money in the Renewable Energy Fund that can be raided.

However, the New Hampshire Constitution says otherwise.

Our state Constitution requires that all taxes be “proportional,” which the NH Supreme Court has repeatedly said must be based on the value of the class of property being taxed, at a uniform rate. Excise taxes, which are taxes assessed at fixed dollars or cents per taxable item, are generally not permitted in New Hampshire, except for the “road toll” (gas tax), which is authorized by a special constitutional provision.

When it comes to imposing fees like the ones in LCHIP or the renewable energy program, the court has said that “fees” imposed for special programs must be related to a special service of value to those paying the fee, and all proceeds from the fee must be devoted to supporting that service, except for an amount that reasonably reflects the state’s cost in administering the special program.

Like LCHIP, the Renewable Energy Fund is raised from special fees, in this case, compliance payments by electricity providers unable to procure adequate supplies of power from renewable energy sources. The expense of making these payments is passed along to electricity ratepayers, which is just about everybody.

These payments can’t pass muster as a constitutional “tax,” because they are imposed at a flat rate and bear no relation to the value of any property or transaction. Raiding them to support general fund expenditures or purposes unrelated to energy conservation would sever the payments from the special purpose for which they were raised, in effect converting the payments from a permissible flat fee to an impermissible excise tax on the already high cost of energy in New Hampshire.

Once again, the Legislature is overlooking this constitutional limit on their taxing power. There is still time for them to remember the lesson and avoid the litigation.

Martin Gross of New London is senior counsel at Sulloway & Hollis and a longtime student of the New Hampshire Constitution.

Categories: Opinion