Annual audit shows COVID's impact on N.H. finances

More than two thousand demonstrators rally on the plaza and lawn in front of New Hampshire's Statehouse Thursday, March 31, 2011 to protest proposed spending cuts and a provision that would strip public employees of their union protection when their contracts expire, in Concord, N.H.

The year 2020 will never be forgotten by the people who were alive and old enough to remember.

A worldwide pandemic disrupted the daily activity of everyone and upended the world’s economy, including New Hampshire’s.

The financial disruption is evident in the state’s Comprehensive Annual Financial Report or audit of state government’s finances.

The report is usually released sometime before the end of the calendar year, but not always.

The report was released last week, which cynics might say is intended to bury the state’s $81.5 million deficit for fiscal 2020, by releasing it Christmas week when people’s attention is elsewhere.

However, the 2020 deficit is much less than originally anticipated during the early days of the pandemic when deficit predictions were as high as $200 million, and $400 million for the current 2021 fiscal year, which is also not going to happen.

The CAFR contains information beyond just the financial standing of state government.

For example, state exports continue to expand even in the pandemic setting a new record for the third straight year topping $5.8 billion in 2019.

The state’s biggest export? Aircraft parts for civilian aircraft.

Neighboring Canada has traditionally been the state’s largest trading partner, but no more.

Germany for several years is our leading trade partner, followed by Canada, Ireland, Mexico and Japan.

Aircraft and spacecraft parts account for $1.3 billion in exports, overtaking industrial machinery as the state’s leading export, followed by electric machinery, pharmaceutical products and optics.

Also the state population increased by 43,241 — they must have all voted Republican last month — to 1.36 million residents, the second-highest increase in the region.

State officials present a rosy picture of the state’s future noting the pandemic may have a beneficial impact in several ways, increasing the number of residents fleeing urban areas for rural environments with more space to avoid the coronavirus, and remote working which will allow residents to work from home although their jobs may be hundreds of miles away.

And according to the financial statement from Department of Administrative Services Commissioner Charlie Arlinghaus, the greater expenses of urban settings may also entice businesses to locate to the state.

The report also touts the state’s — or more accurately — the governor’s ability to procure personal protective equipment as the first three pages feature pictures of Sununu and a few others welcoming and unloading planes full of PPE along with a short narrative about how the state was able to secure millions of PPE and the work of the Governor’s Advisory Office for Emergency Relief and Recovery.

No mention of the controversy over his unilateral assumption of control over the $1.25 billion federal CARES Act money without legislative intervention through the Joint Fiscal Committee that resulted in an unsuccessful suit against the governor.

The governor’s letter notes he had to act quickly when COVID-19 hit and touts the work he and his administration have done to respond to the pandemic.

The finances

That said, the state did take a significant financial hit, softened a great deal by the federal CARES Act money, most of which has been distributed this fiscal year — 2021 — and $2 billion to $3 billion in other federal pandemic relief.

Some of the money was used to offset state spending for such things as emergency help for health-care providers, personal protective equipment and testing. The state expended $493.3 million in equipment related to the pandemic.

According to the annual report, the state had a $271 million surplus which combined general funds and the education trust fund at the end of the 2019 fiscal year, and a $54.4 million deficit at the end of the 2020 fiscal year. That is a $325.4 million negative change.

The $81.5 million deficit going into the current fiscal year includes what budget writers had projected to be a $27.1 million surplus at the end of the 2020 fiscal year, resulting in budget officials needing to find $81.5 million in savings or budget cuts in order to balance the current fiscal year budget.

The 2020 budget included a great deal of one-time spending from the surplus like $40 million in municipal revenue sharing over two years, $9 million for a new secure psychiatric unit at New Hampshire Hospital and $9 million for a nursing program at the University of New Hampshire.

It also included $22.2 million for increases in Medicaid reimbursement rates, and a number of other things that did not happen once the pandemic hit as Sununu halted spending on new programs or capital projects and instituted a hiring freeze and prohibition on out-of-state travel.

The halt in spending helped state agencies more than meet their goals for lapses for the fiscal year, which is money appropriated to agencies but reduced to save money.

Agencies were expected to save $56.7 million in lapses, but instead saved $102.7 million, for an increase of $46 million, which helped reduce the deficit.

The deficit is also impacted by money owed to New Hampshire by the Federal Emergency Management Agency of $14.8 million.

Revenue shortfall

The biggest contributors to the revenue deficit are the two largest sources of state money, business taxes and the rooms and meals tax.

For fiscal year 2020, business taxes were about $100 million below the 2019 fiscal year and about $80 million less than the revenue plan developed to produce a balanced budget, an estimated $795.1 million.

Business taxes have rebounded in the current fiscal year, but rooms and meals taxes have not.

For the 2020 fiscal year, rooms and meals taxes totaled $315.4 million, down about $53 million from the revenue plan, and $35 million from the 2019 fiscal year.

Higher spending

Overall spending for the 2020 fiscal year was more than budgeted, mostly due to the pandemic as health and human services costs were nearly $260 million more than budgeted.

Almost every aspect of state government had higher than anticipated spending due to the pandemic, although most of that was offset by CARES Act money.

Total expenditures for fiscal 2020 was $8.845 billion as opposed to $6.923 billion in total state spending.

Some of those expenditures included over $60 million carried into the current fiscal year for education aid to public schools that was earmarked to help property-poor communities.

Another area of large increase in state spending was for unemployment benefits.

In fiscal 2019, the state spent $45 million for benefits for the unemployed, but for the 2020 fiscal year the total was $1.1 billion, with the state paying $262 million and federal funds covering the remainder. Remember the $600 weekly stipend for the unemployed.

Lawmaker review

The Joint Legislative Fiscal Committee is expected to review the CAFR at its January meeting along with other audits and letters about the state’s 2020 fiscal year financials.

Garry Rayno may be reached at garry.rayno@yahoo.com.

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