1. NH State Revenue Options and Consequences NH Children’s Summit December 8, 2008 Dennis Delay Deputy Director, NHCPPS “…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.”

2. www.nhpolicy.org All of our reports are available on the web: www.nhpolicy.org New Hampshire Center for Public Policy Studies Board of Directors Donna Sytek, Chair John B. Andrews John D. Crosier William H. Dunlap Shelia T. Francoeur Chuck Morse Todd Selig Stuart Smith James Tibbetts Brian Walsh Kimon S. Zachos Martin Gross Staff Steve Norton Dennis Delay Ryan Tappin “…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.”

3. State Revenue Options  Revenue Sources Then and Now  How have they changed over time?  How did the State respond to the last two recessions?  What are the revenue options now?

4. First, some history:

6. General Fund over 18 Years Compound annual Rate of increase 5.6%

7. General Fund over 18 Years Compound annual rate of increase 3.8%

8. The State relied on new sources and increases………

9. …to keep pace with overall economic growth.

10. The General Fund in 2008 (est):

11. NH Volume (per unit) taxes don’t keep pace with economy.

12. A NH per unit tax with rate changes.

13. Does the rate effect the volume?

14. NH Ad Valorem (value based) taxes move with the economy.

15. How do the business taxes perform over business cycles?

16. How are the business taxes performing now?

17. NH Ad Valorem (value based) taxes move with the economy.

18. Revenue Risks in an Economic Downturn*  Business Profits Tax ($381m) Fell by 36% in 1990’s recession.  Business Enterprise Tax ($230m) More stable, larger base, but grows slowly.  Meals and Rooms ($214m) Stable, but also follows the economy.  Interest and Dividends($118) Was very strong, but faltering now!  Real Estate Transfer Tax ($116m) Was $160m at the peak in 2006, how much lower? *(Estimates for 2008 include GF+ETF)

19. NHCPPS Model Showing a $300m+ Revenue Shortfall

20. How Did the State Respond in the Last Two Recessions?

21. How did the State respond to the last two recessions? (early 1990’s)  Early 1990’s recession was much worse in New Hampshire than in the US.  Changes to state taxes were significant: BET created in 1994 M&R increased from 7% to 8% in 1990 RETT 30% 'temporary surcharge' in 1990 Communications Tax revamped in 1991 Utility Tax Revamped in 1992 Tobacco Tax Increased in 1990 and again in 1991 (17 cents to 21 cents to 25 cents) Medicaid Enhancement Revenue from $50m in 1991 to $250m in 1994

22. A 1990-1991 style recession, without tax changes, equals no State Revenue growth for five+ years

23. In 2001 to 2003, State Revenue would have recovered the peak in three years, without changes to existing taxes or new taxes.

24. What are the Revenue Options Now?

25. New Hampshire State Revenue Options:  Increase Ad Valorem Tax Rates  Index per Unit Taxes to Inflation  Increase the Tobacco Tax  Federal ‘Bail-Out’ including Medicaid Enhancement Revenue or FMAP increase  New State Revenue Sources Estate & Legacy Amusement Tax Luxury Tax Gambling Capital Gains

26. 5% Increase in Ad Valorem Taxes (2008 Revenues) All data in Millions of 2008 Dollars Business Profits Tax$19.1 Business Enterprise Tax$11.5 Meals and Rooms Tax$10.7 Interest and Dividends Tax$6.7 Real Estate Transfer Tax$5.8 Communication Service Tax$4.0

27. Extra 2008 Revenue If Per Unit Taxes Had Been Indexed to Inflation for Five Years All data in Millions of 2008 Dollars Court Fines and Fees$4.6 Board and Care$3.0 Beer Tax$1.9 Electric Consumption Tax$1.0 Dog & Horse Racing$0.5 Gas Road Toll Tax$20.9 MV Registrations$11.4

28. NH Cigarette Tax Increase of 25 cents. Increase in the Tobacco Tax on Cigarettes at Current Annual Sales Cents per Pack Increase$0.25 =$38m

29. New (and Renewed) Revenue All data in Millions of 2008 Dollars Estate & Legacy tax at 8% $24.0 Amusement Tax at 5% $32.0 Luxury Tax (Example 10% on Luxury Homes, $500K) $60.0 Gambling (Video Slot Machines) in New Hampshire $100-200 Capital Gains Tax at 5%$181.7

30. New Revenue May Not Come in as Expected

31. New Hampshire’s Gaming Geography

32.  Questions?