Liz Canada 0:00

So I went back to a previous email I had sent you. I literally did the most research for this episode that I've done, actually, is going back into my archives of emails. And I have one from 2022 where I emailed you a question and you responded in four minutes as well back then.

Phil Sletten 0:17

Well, you ask good questions, Liz, right? Those are ones that I have answers to.

Liz Canada 0:23

So... You are listening to New Hampshire Has Issues, and I am your host, Liz Canada. And I am just here to say, if you haven't listened to part one yet with Phil Slutton, please go back and do that first, because the topics we're going to cover in this episode is about the money that goes out from the state. But you have to better understand how money is coming into the state and how it is not, because that money has gone down by a lot. You can hear me go through a episode. So before you listen to this episode, go back, listen to the first Phil Slutton episode. If you would like to support the show, incredible. Thank you so much. You can do that by visiting patreon.com slash NH has issues. I have the link in the show notes. Okay, thank you for listening. And I will pass it back over to me in shock and awe still, and Phil Slutton, the research director at New Hampshire Fiscal Policy Institute. Let me try to do a Quick and snappy recap. Cut a tax that was for super wealthy folks on wealth that has generated a lot of money for folks who have a lot of money sitting in a CD or stocks or something like that. Got rid of that a few years ago. Yes, so far. Yes. I hope so. Yes. Thank God,

Phil Sletten 1:50

Well, I should say it disappeared in 2025. So this is the first year that we have nothing

Liz Canada 1:55

whatsoever. Because it had been phased out. So it's gone for this next fiscal year. For the first time, no interest and dividends tax since 1922. Other taxes have been intentionally decreased?

Phil Sletten 2:07

Yes. Business profits tax, business enterprise tax, meals and rentals tax also went down a half a percent as well in the 2021 budget.

Liz Canada 2:15

Which state lawmakers, those are the folks who make those decisions, are the folks in the state house. Yes. Okay. And then we also have to be aware of variables happening now where tourism may be affected by how folks are feeling about how much money they actually have for travel. And so that could impact the money in New Hampshire as well.

Phil Sletten 2:41

Yes.

Liz Canada 2:41

Okay. So we also have what money is being spent in the state. So we have all of these variables. cuts intentionally. This wasn't magic that this happened.

Phil Sletten 2:53

No, none of this is magic.

Liz Canada 2:57

There is no magic in the state budget. It's all hard numbers and difficult to process, actually. What decisions did state lawmakers make this year? Because now the process is over. They finished it up. They wrapped it up. It was a photo finish, it seemed. But what decisions did they make in terms of how they are going to spend money, what they are actually going to fund. Because the episodes we've had about child care and housing and things like that, did they do it, Phil? Did they fund the things in this environment?

Phil Sletten 3:31

So housing and child care, which I'll start with those two because you mentioned them, those are very small parts of the state budget. We're talking about investments in housing supports, whether that's housing assistance, funding, you know, for example, the Housing Appeals Board, aid to the Affordable Housing Fund that flows from the real estate That portion of the state budget is probably about four tenths of a percent. of all the state budget is for housing.

Liz Canada 4:10

That's

Phil Sletten 4:10

it? Yes. And childcare is a little bit less, at least if we count childcare that's aid to individuals and to childcare centers, is a little bit less as a percentage of the state budget. So we're not talking about significant portions of the state budget, right? And when it comes to the dollars spent that go out the door. Again, we're talking about a lot of health services. We're talking about a lot of education, right? Those two together, health and human services and education are about two thirds of the state budget.

Liz Canada 4:35

So Phil, because they are such a smaller amount. They were funded all the way, right? That's what you're going to tell

Phil Sletten 4:42

me? Not quite. So there were many investments in the state budget that just ended. There were significant investments in housing in that state budget. There was an additional $50 million in one-time funds put into housing. There was also an additional $15 million in state money put into early care and education or into child care. And that followed a lot of federal money that went into support both those efforts in terms of keeping childcare infrastructure stabilized in the state and building that infrastructure and helping keep people in their apartments and their homes with federal dollars, particularly the emergency rental assistance program that came out of the several large federal aid packages associated with the COVID-19 pandemic. So that federal money has been disappearing. The state put in some of its own money in the state budget that just wrapped up. In the new state budget, there is still some continued appropriations for services to unhoused individuals, right, homeless and how And there is a provision where if there are certain federal block grant dollars available, then the state will repeat its $15 million investment in early care and education workforce with those dollars. But there aren't new investments. There are some repeated investments, but there aren't new investments in housing and childcare in the state budget. It's not maintaining status quo because the current state budget or the state budget has just wrapped up. Okay, so not...

Liz Canada 6:19

Not great, is what I'm hearing. Not super great in terms of how our state is maybe prioritizing those issues specifically. What about public education and school funding? How did that go in terms of the state budget that, by the time this is published, we are currently in?

Phil Sletten 6:37

So we'll split public education into higher education and K-12 education. Oh, good. For higher education, the story is a little less favorable. The community college system of New Hampshire did Wow. I don't think

Liz Canada 7:31

I talked about this with Zach on our school funding episode, but I believe, and I know that you know this, I believe that New Hampshire has the highest in-state tuition for our public colleges and universities compared to other states. We have the highest in-state tuition for our own public colleges and universities. students. Is that right?

Phil Sletten 7:51

I'm not remembering the number off the top of my head, but I think we're in the top three. Top three. Okay. One thing that's very clear, if you look at the data, no matter how you slice it, by $1,000 of personal income or by dollars spent per student or by a percentage of tax and lottery revenue the state collects, we are at the bottom relative to all 50 states when it comes to public spending, public state dollars on our four-year higher education. So we're at the bottom there.

Liz Canada 8:20

How the state invests in the higher education system.

Phil Sletten 8:23

Right, in terms of the states, because the state budget doesn't include the entire university system. The state budget just includes the amount that the state as an entity provides to the university system, which it has established but doesn't control the budget of on a line-by-line basis. It gives basically a grant fund to the university system and the community college system. And that amount for the university system is going down in the state budget that was just approved.

Liz Canada 8:50

Not favorable. Less favorable. Less favorable, not favorable. for the higher education. And level funding, you said for the community college system, level funding means the same from this last budget to this budget, whatever they got just about. last time the community college system is getting this time as well.

Phil Sletten 9:08

In neither of these is there like an automatic inflation adjustment or anything like that, or a cost of education index adjustment. It is what policymakers decide to put in those budget lines every two years.

Liz Canada 9:18

Okay. Okay. So that's higher education. Not great. How about K through 12?

Phil Sletten 9:23

So in K through 12, we actually see some added funding. This is a place where policymakers did not, there were many parts of the state budget where they sought to find efficiencies and saw to trim in public K-12 education, so the aid to school districts, we see an increase in funding, particularly targeted at school districts that have relatively low property values per pupil. There's an additional layer of education aid that was added on to that. Now, the House had actually proposed also adding more aid for special education through the education funding formula. The Senate took that out, but both of them kept the governor's targeted special education aid as well. So, All that is to say, in the end, there's more aid for special education in the state budget than there was in the previous state budget. Now, that increase matches the costs that were reported by school districts in the last year. So it basically prevents that aid from being prorated, from being reduced relative to what the need is that school districts are reporting. So it's, you know, I don't know that I'd call it extra, but it is matching what the school districts are reporting as costs. And I'm, you know, and that was costs in a prior year So that's what they've set up for the next two years. So we'll have to see how those costs trend over time. The additional aid that was put into the state budget was put in by the House and the Senate kept that. There was a proposed $10.2 million reduction in assistance for the Manchester school districts. And that was basically a modification to the formula that would have only affected Manchester, maybe would have affected Nashua, depending on the demographics and how they'd break out in Nashua, the demographics of the students. That $10.2 million was proposed for this budget biennium. But in that photo finish that you referred to was pushed to the next year of the next biennium. So it's still on the books, but it's delayed by a year, which gives policymakers both in Manchester and at the state more time to adjust if they would want to. They've pushed it out to happen during the next state budget. So it's in state law, but it's pushed out further.

Liz Canada 11:29

They

Phil Sletten 11:30

could change it before it happens. There are two legislative sessions, including a budget session in between. And the Manchester school district also has to adjust because they'll be setting their budget with that assumption baked in probably in early 2027 and that reduction would take effect july of 2027 so there's you know it's it's not a copious amounts more time but it is more time than would have been there was also a boost in funding for public charter schools and and that was that was a pretty significant increase in public charter school funding and an increase in funding for education freedom accounts and when i say increase in funding i'm talking about increase in budgeted funding and And again, we're not talking about school districts anymore, but we're talking about education more generally. I'm talking about an increase in budgeted funding. The policy is really what drives it, however, because just like the education aid that goes to local public schools, which is based on how many students are in that school district, and they project how many students they're going to have, but if they have more than that, they still get the reimbursement from the state. That's also true for education freedom accounts, which are those individualized payments that go to families that don't have their kid or kids in public school and instead are accessing those dollars that would have gone to the public school district. The income cap on eligibility for that program was lifted. There is an enrollment cap that can be adjusted each year upward, but does prevent the program from adding all the potentially eligible students in one year But there was additional funding added to that in the budget lines. However, just like the school district payments, if there are more students than are projected who show up in the Education Freedom Account program, then they would receive those dollars as well, up until the cap on the number of students, which doesn't affect all students, it just affects some students. And I'm happy to talk about the details of those a little bit.

Liz Canada 13:18

And this is good because this is a recent episode about the Education Freedom Accounts, and the cap is kind of Kind of squishy, a little bit, because it's a cap of quote-unquote 10,000 students, but that cap doesn't include students who were already enrolled. Is that true?

Phil Sletten 13:36

So for students who were under what was the old income cap, and in certain other circumstances, I think, for example, individuals with disabilities, right, a student with a disability, the numbers of those students enrolled can exceed the cap.

Liz Canada 13:49

Right.

Phil Sletten 13:49

So by the way, if you reach within, I think it's 1,000 students of the cap, then the next year the cap is automatically raised by 25%. So it's a within-year cap, but it can be adjusted each year. So yes, it is not a hard cap, if you will, and if that makes it a squishy cap, then it's

Liz Canada 14:07

a squishy cap, but it's not a hard cap. It's a bit squishy, yeah. 10,000 is not like we hit 10,000, no more students in this program. There are actually these little caveats of like, well, if you're a sibling, you can still get the cap. education freedom account. If you have an income of 350% or lower, just like the old system, you can get an education freedom account, even if we hit the 10,000. So like, it's not not exactly a cap. And like you said, it can increase every year, if they get within 1000, they just bump up the cap, which is not how caps work. But that's okay. We don't have to get into the semantics of that one, too, I guess.

Phil Sletten 14:44

And if the cap is not increased for two years in a row, then it disappears. The

Liz Canada 14:51

cap entirely disappears?

Phil Sletten 14:53

That's my understanding of what's in the statute.

Liz Canada 14:57

Welcome to New Hampshire Has Issues, the podcast that dares to ask, what is a cap? What does it mean? What does this word mean by itself? Okay, boy oh boy. What are the other issues that have been debated besides the topics we've already covered of child care, housing, education?

Phil Sletten 15:12

So the House had in its budget proposal included a reduction in Medicaid reimbursement rates. Remember, Medicaid is the single largest program the state operates, right? It included a reduction in Medicaid reimbursement rates by 3% across the board. It had included a significant reduction in funding for community mental health services, about a 37.5% reduction there, and reduced funding for the developmental services waitlist, which meant that there would have been a waitlist of, the state had at least identified probably 278 people who would have been waiting for funding for services. The Senate didn't agree with those, and those reductions didn't end up in the final version of the state budget, so that's not included. There was a large discussion around what some of your listeners may have heard of, referred to as Group 2 retirement.

Liz Canada 16:00

Oh, Group 2, the talk of the town, Group 2, yes.

Phil Sletten 16:03

So what does that mean, Group 2? We're talking about public safety personnel, really police and firefighter personnel primarily, in local governments and the state government, are in a separate retirement group. And there was a change in law in 2011 that affected the retirement benefits that individuals who had recently become employed, it changed the amount that they would have received relative to what they were expected when they agreed to be employed in their profession, right, or in that particular job. So that group of individuals, about 1,500 individuals now. That law change in 2011 was something that the governor had included in her budget proposal and the House had included in its budget proposal. The Senate included a version of it. Reversing the effects of that change for that particular group became a key point of discussion. And it wasn't until the second to last day or the last day before the deadline, if you will, that there was a final agreement on exactly how that would be funded and how the benefits, the retirement benefits for those individuals would be funded. So that was another key point. And that's the equivalent of about $27.5 million a year once that's ramped in. Right now in statute, that's $27.5 million a year from fiscal year 2027 all the way to fiscal year, I think it's 2034. So it's a long run of appropriations, which, of course, future policymakers can change if they choose to. That's part of what happened in 2011 is that future policymakers then changed what would have been the retirement benefits at the time.

Liz Canada 17:34

And now policymakers change the 2011 policy. things come back. We got rid of a 1922 tax that has been part of our revenues for 102 years. But yeah, okay, things could change before all of that takes effect.

Phil Sletten 17:48

Yes. The House also proposed a series of reductions in services that would have had substantial effects on relatively small agencies and programs, but those agencies and programs can have big impacts. So, for example, the House proposed eliminating family planning dollars, and that is something that the Senate brought back And that partial return is what ended up in the final version of the state budget. Same with the State Commission on Aging, right? That was brought back after the House proposed eliminating it. It was brought back by the Senate, but not fully funded in the end product.

Liz Canada 18:46

The House made so many changes to cut things entirely, just huge, significant changes that they had proposed. And then the Senate is bringing back things partially. And I'm not talking to you, Phil. I'm talking through you. That's how we say it in our house. I'm talking through you. But it's like, you still took some of it away. Like... Yes, you put it back, but that's because it was all gone, and now only part of it is back. So it's still a reduction overall. All right, that was my timeout. I'm timing back in. Just want folks to understand, the House gutting it entirely, and then the Senate putting in part of it, it's not an overall win in the grand scheme of things compared to the past cycles.

Phil Sletten 19:33

And when a new budget cycle starts, or a new set of budget discussions start in a odd-numbered year, then the governor's budget proposal is often used as the baseline for measurement, right? Because there's the current budget, right, or the budget that was passed two years before, but state agencies have more information about what their costs are. The governor may have certain initiatives, but the state agency budgets are often used as the baseline at that point. And then when I say the line-by-line state agency appropriations that the governor proposed are often used as a baseline for comparison. So the governor's budget proposal was about the billion over two years. The House was about $15.5 billion over two years. The House had much lower revenues that they projected. And the Senate had more favorable revenues. There was actually a $382 million gap in the revenues between what the House built its budget on and what the Senate built their budget on.

Liz Canada 20:24

That's huge. That's a

Phil Sletten 20:25

lot. It's a lot of money. And the Senate brought their budget total back up to about $15.9 billion. So not all the way back to what the governor had proposed appropriating. And we see that in some of the services Now, the governor in her proposal did try to really hold the line on services and fund services, even if, you know, it's a modestly adequate level. There were not large reductions in services in the governor's budget proposal. There were some significant swings. There was a reduction at the university system, for example, and reductions in some budget lines, like the Choices for Independence Medicaid waiver program for older adults and adults with physical disabilities to receive care in their homes like that. That did happen in the governor's proposal, but mostly it held the line on services. So we're seeing that And then that after the legislative process, it's a lower amount than that amount by, again, on the order of about $100 million. I've

Liz Canada 21:18

had a few folks reach out to ask about the Youth Development Center and like what is happening? What is the funding? I think there are lawsuits, right? Like what does the state budget... show us in terms of how the state is proceeding with the Youth Development Center?

Phil Sletten 21:34

So when we talk about the Youth Development Center or YDC, we're generally referring to allegedly terrible things that happened to children who are nominally in the state's care over decades. This is a big, sprawling topic in terms of both its implications and how people are approaching it and how people are trying to address this. So on the fiscal side, on what is the impact on the state's in terms of its fiscal liability, which is a very dry way of talking about what is a really difficult subject to talk about.

Liz Canada 22:06

Absolutely.

Phil Sletten 22:07

When we're talking about the state budget, this is where budgeters have to have their heads. What is the state's liability here? There are two primary ways that people have been effectively suing the state or approaching the state with legal action for compensation for the, again, allegedly terrible things that had happened to them when they were nominally in the state's care. The first is going to court and suing the state. And that is a big variable. We don't know what the cost to the state will be from those lawsuits. We just don't have a good idea as to what they will be. Because

Liz Canada 22:40

there are quite a few folks who are potentially in lawsuits.

Phil Sletten 22:44

Yes. And the dollar figures so far resulting from those have been very large. In the new state budget, there's $10 million that is appropriated for just the settlement, the out-of-court settlement from an individual who had sued the state and was pursuing the case in court. That out-of-court settlement was $10 million. that was appropriated in the current state budget. For one person. For one person.

Liz Canada 23:11

Yep.

Phil Sletten 23:12

The state also set up a settlement process so that people, individuals, could instead of going to court, because court can be painful for a lot of reasons, instead of going to court, apply to the YDC Settlement Fund. I'll shorten the name to that. The Youth Development Center Claims Administration Settlement Fund.

Unknown 23:32

Yep.

Phil Sletten 23:33

That was under the judicial branch. The new state budget actually moves it to the executive branch, but under the judicial branch, that was a process where there was a framework, a legal framework for negotiating how much an individual would be compensated depending on the claim that they make, depending on the allegation that they have, depending on what happened to them, right? And that is a way that the state could reduce its liability relative to what could have happened in court, and also in what could be perceived as a less painful process, get compensation to an individual. And there are sort of statutory brackets for if you're alleging this, and there's evidence of it, then here's the compensation band. That process has, and we're recording at the end of the state fiscal year, and this is actually the end of the period through which people can make new claims, As of the end of March, there were about $1.4 billion worth of claims that had been made through the claims settlement process. Wow. And so that's a lot of potential harm done and a lot of potential dollars, right? That then the state has to spend on that and can't spend on other things. The state's process is the state set up a framework so that it would pay out at maximum $75 million a year. So that's the maximum amount that through the settlement process the state would pay. That $75 million a year needs funding. And in the state budget, the governor's budget didn't include any funding for it. The House added in $20 million. And the Senate said the proceeds from the sale of what is the old Youth Development Center, but the Sununu Youth Services Center building in Manchester, the proceeds from that sale will also go to the settlement fund. And the estimate that they had, which isn't formally appropriate in the state budget, but the estimate they had was that that would generate $80 million in state fiscal year 2027. Whether it will or not, we don't know. This is in that category of projections, right? We don't know. But whatever that sale generates will go to that fund as well. Even if it were $80 million, then we're talking about $100 million over two years, which, Liz, with your pencil and paper, you know that that's not $150 million over two years, which would be $75 million a year.

Liz Canada 25:58

I didn't even need my pencil, Phil, for

Phil Sletten 26:00

that one. Right, there we go, right? Well, I can see for those of you, I know you're all listening and not watching, but I see it in Liz's ear. There it is, yeah, there it is. So there's then a question of, does this state budget appropriate enough to cover... the claims that could be coming in from the Youth Development Center and the amount that it needs to pay out. And if it doesn't, where does the additional money come from? And does that liability that the state has evolve in some other way through the court systems or through law changes that means that the fiscal liability to the state grows even more or we get some certainty around what the number is. Those are things we don't know. We didn't know going into this budget cycle. This budget cycle did set aside $20 million for the Youth Development Center Settlement Fund and $10 million for a single case. But we don't know what that fiscal pressure on the state looks like as we move forward into this next biennium and policymakers with the amount of funding that they've devoted to it. are certainly, certainly people are pointing out to them that this has not resolved the amount of money that's needed, that's likely needed under state law given the $75 million a year appropriation and whatever then happens through court cases.

Liz Canada 27:19

That is a huge deal and potentially a huge amount of money that they have not, I don't know, earmarked, set aside, considered, factored in. Like, that's wild. Yeah. I'm like speechless. There's so much to take in about the state budget because the process is long. There are a lot of people involved. There's a lot of sort of guesstimating, estimating, projecting, knowing the future, gambling, literally and figuratively. And then there are all these really important programs that exist that and folks in the departments who make sure these programs happen. And some of them might be losing their jobs, right, in the different departments. Like if there are cuts to certain departments, like staff who have had jobs for a while might be losing them because of the cuts.

Phil Sletten 28:17

This budget will eliminate positions at the Department of Corrections, for example. About 60 positions at the Department of Corrections will be eliminated in this state budget.

Liz Canada 28:28

Yeah. So... I think about state budget. It seems so wonky. There's numbers. There's math problems. It feels like you're taking the SAT or ACT or whichever one you took. But it's also people and humans, and it involves all of us. So even if I'm not covered by Medicaid, that may not directly impact me. But there are so many parts of the state budget that will impact impact my day to day life and impact people I care about as well. I imagine it touches all the folks in the state, not just ones who maybe are part of a specific program.

Phil Sletten 29:07

It is the single most consequential piece of legislation that any legislator in a two-year term votes on unless there is something wild that happens with some other piece of legislation. And, you know, something like a pandemic, right? That might lead to some other piece of legislation that would be more consequential.

Liz Canada 29:26

Never heard of one, Phil. I have no idea what you could be talking about.

Phil Sletten 29:29

You know, these things fade into our memories, right? Yes. But... You know, that part of the reason for that is because the state budget is structured in a way that allows it not just to be all of the funding for most state operations for the next two fiscal years. But also a lot of policies get attached to the state budget. There are certain people and governments, including the governments of Syria, Iran, North Korea, China, and Russia within the borders of the state. There's the elimination of car inspections, right? That starts in 2026. That's all wrapped into the state budget. And there's a lot more wrapped into the state budget because it has also become a policy vehicle as well as a funding vehicle. And that is something that makes it even that much more more consequential.

Liz Canada 30:47

The DEI initiatives, that prohibition, that feels very unwieldy to me. I can't quite figure out What is not going to be impacted by that? Because I think of if a school has services for students with disabilities, isn't that diversity, equity, and inclusion? Isn't that an initiative?

Phil Sletten 31:10

These are questions that we'll have to have probably attorneys and courts figure out.

Liz Canada 31:15

Still? What do you mean? You don't know this answer?

Phil Sletten 31:18

I don't know the answer to how this would shake out.

Liz Canada 31:21

I don't think anyone does at this point, really. I think there's a lot of gray area in that. You know, what counts

Phil Sletten 31:29

as a DEI initiative? Phil, you have

Liz Canada 32:03

given me so much information. We are so lucky to have you in New Hampshire working on this day to day, every single day. I assume you work on a daily basis. both years of the biennium. You don't get a long nap now that the budget has passed.

Phil Sletten 32:18

I mean, I will sleep more, but I don't just get a long nap now. I don't go into hibernation for a year

Liz Canada 32:25

and then wake up with the next state budget. Off he goes until next year. No, he's still around. Phil, so many times in our discussion today, I am rendered speechless by what has happened. And I was paying attention all year to the state budget process. I can't even imagine for folks who are hearing all of this for the first time.

Phil Sletten 32:46

This is part of why we at the New Hampshire Fiscal Policy Institute dedicate our time. six months of every odd-numbered year to learning as much as we can about it and explaining as much as we can about it because there are so many moving pieces, so many things move in and out of the budget through the process. It is really several full-time jobs to keep track of it all. And thank you for having me on the show to ask about it.

Liz Canada 33:11

Yeah, thank you, Phil. I'm so appreciative of your time of talking through this. In the show notes, I'm going to have a ton of your reports and blogs and so forth.

Phil Sletten 33:20

We have our webinar series as well. as well that we did on the state budget. So if people want to have information about the state budget spoken to them, as opposed to reading graphs and charts and text, we have the recordings from those webinars online too.

Liz Canada 33:33

They're all excellent. I know I gave you an impossible task of talking about the state budget with no charts. I gave you no opportunity for charts, but I will link the charts and webinars in the show notes for people. It's

Phil Sletten 33:45

a fun challenge, Liz.

Liz Canada 33:47

You did great. A++. I did a math problem over here. I am thriving. I'm right in my element of having the pencil ready to go. Phil, thank you so much. I really appreciate it.

Phil Sletten 34:00

Thank you, Liz. It was great to be here. It was a lot of fun. We covered a lot of ground. There's even more to cover. There's

Liz Canada 34:05

more to cover. I know it. I might have you come back on in like a year. We'll see how you're doing after a year of Budget World.

Phil Sletten 34:12

We'll see where we are in a year because there may be a lot of federal changes at that point that affect the state budget again.

Liz Canada 34:17

Oh, it's like a movie trailer for a sequel. We'll see what happens in the Empire Strikes Back Federal Edition. If you find the information in these episodes informative, funny, entertaining, helpful, please share them with others. Send the episode links to other folks who you think might appreciate them or enjoy them or maybe even, dare I say, learn something from them. Thank you for listening.