New Hampshire residents weary of dreary summer rain received a frightening jolt of lightening when a Judge blocked Governor John Lynch’s attempt to transfer $110 million dollars of private funds to State coffers. Belknap County Superior Court Justice Kathleen McGuire ruled that an extremely controversial provision in the recently enacted New Hampshire Budget, which transferred $110 million from a fund controlled by the Joint Underwriting Association (JUA) to the State’s General Fund to balance the budget, is unconstitutional. Justice McGuire’s well researched, clearly written and completely unambiguous ruling, held that Governor Lynch and members of the Legislature who supported this proposed $110 million transfer, are in violation of both the ‘takings’ and ‘contracts’ clauses of the New Hampshire Constitution and the Fifth and Fourteenth Amendments to the United States Constitution. Governor Lynch has already indicated the State will appeal the decision but it is hard to imagine, given McGuire’s opinion, that the Supreme Court will overrule her.
The JUA was formed in 1975 to provide medical liability insurance to physicians and currently provides over 20% of the medical liability coverage in New Hampshire. The Judge ruled the JUA is independent from the State. More importantly, physicians, not the State, contribute to its funding and when the JUA faced a deficit in 1985 a surcharge on doctor’s policies was assessed to cover the gap–not State funding. Twice in the past, the JUA distributed surplus funds to policy holders–not the State. Given these facts, it’s political hubris and arrogance seldom seen in our State, for the Democratic supporters of this budget to simply expropriate $110 million. These unseemly political shenanigans, now defy both our state and federal constitutions.
The sanctity of contracts is one of the underpinnings of our society, as is the prohibition of the government taking a person’s property without just compensation. Good for Justice McGuire for upholding constitutional principles and shame on politicians who believe the State can simply break contracts and take property it doesn’t own, to enable the gravy train of a 10.5% state spending increase.
What does this $110 million hole mean for the New Hampshire Budget? First, the budget hole is not just $110 million. Recently Superior Court Justice Diane Nicolosi ruled in favor of the New Hampshire Health Care Association and blocked the State from garnering $9 million that nursing homes claim they are entitled to. Furthermore, the New Hampshire Municipal Association is set to file suit against the State for changes to pension contributions made in the recent budget. The State has historically contributed 35% of the cost of pensions for police, firefighters, teachers, and other employees. Under the recent budget the State’s contribution will drop to 25%, costing property taxpayers an estimated $27 million. Thus far, 143 towns and 53 school districts have agreed to join the Municipal Association lawsuit displaying the depth of anger at the Democratic leadership’s hike of property taxes.
In total, the State could be looking at a nearly $150 million litigation shortfall. As if misery did not already have enough company, when the budget was passed in June, its authors inflated revenue projections by $75 million to give the appearance it was in balance, at least on paper. The question now is if this budget, passed only a month ago, is even worth the paper it is written upon?
New Hampshire residents may quickly lose sight of the interminable Washington debate on new bureaucracies, taxes, and regulations involving global warming and government run health care and soon be consumed with the budget wildfire in Concord that not even all this rain will stamp out.
So where does the State go from here? The option I support would be to cut spending to balance the budget with available revenue. Spending reductions of about 3.5% would be necessary to make up the $110 million gap. During budget debates, Republicans in the House and Senate proposed larger spending reductions and unfortunately each and every one were rejected on largely party line votes. If Democrats won’t cut spending, then what other options will they pursue?
Are new taxes on the horizon? Unfortunately, that is more likely. The budget Governor Lynch signed increased tobacco taxes, taxes on rooms and meals, and numerous fees all while adding new taxes on gambling winnings, camping and owners of limited liability companies — the latter two new taxes without even the courtesy of a public hearing. The House earlier voted to increase gas taxes and implement new taxes on capital gains and estates. The Senate earlier voted to increases taxes on New Hampshire businesses small and large. At a time that the New Hampshire unemployment rate stands at 6.8% and families are struggling to pay their bills, there is no shortage of Democrats in the Legislature ready, willing, and almost gleefully able to raise taxes.
What about gambling? There is little question the prospects for gaming just improved. The Senate already voted for gambling (though I voted in opposition). Would the House reconsider? Even if the House does reconsider, and gambling fills this $110 million crisis of today, larger budget problems loom in the near future.
The budget that just passed included $500 million of one-time funding sources—much of it federal stimulus money. Given that the federal budget deficit this year will approach an unheard of $2 trillion and federal budget deficits are estimated to top $1 trillion per year for the next 10 years (before health care reform), no state should expect more federal largess any time soon.
So, today’s crisis involving an unconstitutional attempt to simply grab $110 million will quickly become an even larger problem that gambling revenue will not fill. Bottom Line: our State is hurtling headlong towards an income or sales tax, possibly both, unless we meet the challenge of reducing state spending.
Jeb Bradley is a NH Senator serving District 3