State House mulls options on budget

There's also a more immediate problem: making sure that the state's finances are balanced by the end of the current budget year, June 30. Slumping tax revenues mean the state will need to fill a financial hole of at least $150 million before then.

The financial pressures are daunting. The national economic slide is taking a chunk out of the state's major sources of tax dollars: business taxes, real estate taxes and the tax on meals and rooms. That trend is likely to continue, especially if the national recession worsens.

Meanwhile, state expenses are rising. Previously negotiated salary increases for state employees will take effect in January. Energy costs continue to fluctuate. A new school funding system is scheduled to take effect in 2010, at an estimated cost increase of $100 million over two years. And the worsening economy means more residents are looking to the state for help with heating costs and health care, among other expenses.

Estimates vary, depending on how long the slide continues, but recent calculations by the state agency heads estimate that it will take an additional $457 million over the next two years for the state to provide the same services it does now. Budget experts say filling that gap will require a combination of sharp spending cuts, new revenue sources, and big policy changes that yield immediate savings.

"Tinkering around the margins is not going to solve this set of problems," said Steve Norton, executive director of the New Hampshire Center for Public Policy Studies, a nonpartisan research group. "The size of this problem is sufficiently large that the Legislature and the governor are going to have to make a serious effort at prioritizing state activities and thinking carefully about revenues for the next two years."

Lynch has already ordered spending cuts and freezes on hiring to close the gap in this year's budget. But a continuing drop in tax collections has opened that deficit even wider. Lynch will bring more money-saving suggestions to lawmakers later this month.

One potential solution to these financial challenges seems unlikely: Lynch has vowed to veto an sales or income tax.

Rep. Marjorie Smith, chairwoman of the House Finance Committee, said she doubts lawmakers will fill the budget gap with sweeping changes such as across-the-board spending cuts or major tax increases.

"I expect there will be adjustments to revenue sources," said Smith, a Democrat from Durham. "But we're going to have to act responsibly to come up with a mix of solutions, because this is going to be a very difficult budget."

Lawmakers and aides to the governor stress that they're a long way from proposing specific solutions to the budget crisis. The new Legislature won't officially take office until January. But among the ideas being considered:

• Legalize some form of gambling, with the state sharing in the profits.

• Sell state properties deemed peripheral to the operations of state government. One example: the state nursery in Boscawen.

• Reinstate some form of the inheritance and estate tax, which the Legislature repealed in 2002.

• Lay off state workers. Or, the state could try to renegotiate salary and health benefits for employees.

• Reduce the state's contribution to the public employee pension fund.

• Cut spending on long-term, preventative health initiatives.

• Dip into the state's savings account, also known as the "rainy day fund," which currently stands at about $89 million.

• Reduce the amount of money the state reimburses health-care providers that care for people on Medicaid.

• Reconsider the state's guidelines for sentencing certain felons, which some lawmakers say would save money on inmate health care.

All of these options carry some degree of uncertainty and risk. For example, layoffs will not go over well with the state employees union, a vocal and well-organized group. But state officials say the economic crunch will require creative thinking and likely overshadow the Legislature's ability to do much else in the next year.

"This is certainly not going to be a time to explore new initiatives," Smith said.

Sen. Lou D'Allesandro, a Manchester Democrat, said he expects more of his colleagues to consider expanded gambling, perhaps adding slot machines at the state's racetracks.

"Now, more than ever, we've got to look at that carefully," D'Allesandro said. "It will bring job creation and new revenue."

Some help may come from Congress, which is debating whether to send emergency aid packages to states and municipalities struggling with their budgets.

There are also political ramifications to the crisis. Republicans say the gap in the current deficit is the result of excessive spending and unrealistic revenue predictions by the Democratic majority last year. Democrats blame the national economic slump. Next year, you can expect plenty of partisan bickering over which party is best able to set financial priorities for the state.

Sen. Ted Gatsas, the Senate minority leader, said his party will push for spending cuts above all else. He said the GOP's ability to shape the budget will be limited given the party's minority status, but Republicans must play the role of "watchdog."

"We were in the minority for the past two years, and it was a foreign position for us," Gatsas said. "We didn't understand how to play that game. But in this second term, we have to make sure we pound on the table and put the Democrats on defense."

"The bottom line is, Democrats have the votes to do what they want to do," said Rep. Sherman Packard, a Republican from Londonderry. "We can make suggestions, but if they don't adopt them, then it's going to be their budget."

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