Fiscal

What Maine could learn from New Hampshire about fiscal responsibility

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Last month, New Hampshire Governor Chris Sununu vetoed a two-year state budget because it would have reversed the direction of his state from four years of fiscal restraint and prosperity to a lack of economic growth and a large fiscal deficit. 

The budget would have increased the business profits tax back to 7.9 percent after Governor Sununu and lawmakers worked to schedule reductions to 7.5 percent by 2021. The business profits tax is assessed on profits from business activity conducted in the state. In January 2019, the tax was decreased to 7.7 percent to help new Hampshire businesses grow. Liberal lawmakers in the Granite State claim they need the $90 million in additional revenue to fund their legislative priorities, where Governor Sununu argues the tax rate reductions will help grow the state’s economy. 

Maine’s state budget revenue primarily derives from the sales and income taxes on individuals. In contrast, New Hampshire does not impose a sales or income tax, and therefore state government is funded through taxes on business profits and enterprise, meals and rentals and property taxes.

In his veto message, Governor Sununu said, “With a $260 million surplus, it just doesn’t make sense to increase taxes by 12.5%. This budget creates nearly a $100 million deficit for the next Legislature – that’s just not responsible management.”

While he vetoed the budget, Governor Sununu also signed a 90-day resolution to keep government open to negotiate a better deal. The current fight is to remove the developmental disability waitlists funding from negotiations and spend an emergency $15.9 million to deliver services to more than 500 people currently in need. In addition, it appears the governor is not going to budge on keeping the business profits tax at or below 7.7 percent.  

Unlike Sununu, Maine Governor Janet Mills did not make funding waitlists for individuals with developmental disabilities a priority in her state budget. Her biennial budget included funding for only 300 individuals with developmental disabilities to be removed from Section 21 waitlists, which was required by law. This expense totalled $9.35 million, which pales in comparison to the funding allocated to expand Medicaid to able-bodied adults in Maine. Currently, there are more than 1,600 people with developmental disabilities waiting to receive services.  

Governor Mills signed Maine’s state budget almost immediately after the legislature passed it in June. This budget expanded the size of state government by more than 10 percent, which does not include Governor Mills’ proposed bond package totalling $239 million. Lawmakers will have to consider this bond package when they convene again in the coming months.

The days of fiscal restraint and discipline in the Blaine House are behind us, at least for Governor Mills’ term. It remains unclear if Mainers can count on Governor Mills to exercise her veto powers in the event the legislature sends her a future budgets that increase taxes in areas that are major sources of revenue for the state, such as the income and sales tax. Despite her promise not to raise taxes on the campaign trail, she did sign into law bills that will increase taxes and fees on Mainers. 

Unfortunately, Maine no longer has a governor who will be prudent when spending other people’s money. The 2020-21 Maine state budget increases state government expenditures by more than 10 percent over the biennium despite a large budget surplus and an improving economy. 

On the other hand, Governor Sununu is acting as a watchdog for state taxpayers. He has assessed what lawmakers proposed to spend relative to the budget surplus and evaluated the impact lavish spending would have on taxpayers and the business community in the future. 

Before long, Maine will be forced to increase taxes to sustain the newly-approved spending increases, whereas New Hampshire will likely continue to perform better economically, especially if the state maintains its current tax code. 

About Adam Crepeau

Adam Crepeau serves as a policy analyst at The Maine Heritage Policy Center. He can be reached at acrepeau@mainepolicy.org.

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