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N H B R.C O M
Should state business tax triggers be repealed? BIA President Jim Roche and Executive Councilor Andru Volinsky debate the merits of shortfall-activated hikes in BPT, BET rates BY MICHAEL KITCH
After the 2008 financial crisis shrank state revenues, the budget shortfall was offset in part by withholding funds and transferring hundreds of millions of dollars in costs to municipalities, which defrayed them by increasing property taxes. Although the economy recovered, these measures have become permanent features of the fiscal landscape, where property taxes represent nearly two-thirds of all state and local tax receipts. The economic dislocation stemming from efforts to quell Covid-19 threatens to have an even more severe impact on state and municipal revenues. The budget for fiscal years 2020-21 calls for increasing the rates of both business taxes — the business profits tax from 7.7% to 7.9% and the business enterprise tax from 0.60% to 0.675% — if revenues fall more than 6% short of projections. Together, the two business taxes represent the largest source of general fund and education trust fund revenue. On April 23, after being urged to do so by the Business and Industry Association of New Hampshire, Gov. Chris Sununu said he will ask the Legislature to repeal the trigger and forestall the increase. “It’s the wrong approach and the wrong thing to do,” he said. In his letter to the Legislative Advisory Board of the Governor’s Office for Emergency Relief and Recovery (GOFERR), BIA President Jim Roche said it would be “extremely insensitive to the struggles of employers of all sizes and will adversely impact their ability to rehire employees at the very time rehiring is desperately needed.” Meanwhile, Executive Councilor Andru Volinsky, one of two candidates vying for the Democratic gubernatorial nomination, said that the trigger for increasing the tax rates was expressly intended to address a challenge like that posed by Covid-19. Many large businesses have continued to operate, he said, some of them, like Amazon and FedEx, very profitably and would not be significantly affected by a marginal tax increase. Above all, he said, steps to deplete state revenues would lead to shifting a greater share of the tax burden to property taxpayers.
n Q. Will forgoing revenue from business taxes increase the likelihood that the state will again balance its budget by reducing aid and shifting obligations to cities and towns? Roche: That is one option, although it may be less likely with the current composition of the Legislature. Other options include a state hiring freeze, delaying capital investments and delaying new programs or program expansions. Just as businesses of all sizes are being forced to make difficult decisions, so too will all levels of government. The fallback option should not be raising business taxes. Businesses are the very group that policymakers hope will dig our economy out of its hole. Burdening them with higher expenses will not help them recover, including bringing their employees back to work. It will hurt businesses and their employees across the board. Volinsky: Yes. This has been a well-documented pattern with state governors and lawmakers in prior years that the state has reneged on funding promises and failed to fund what should be state services. Jim The shifting of pension costs, Roche decreases in revenue-sharing and defunding of school building aid are all examples of funding promised to local communities and later withdrawn in order to meet state budget concerns without any apparent regard for local property taxpayers. The Manchester and Nashua Safe Stations substance abuse referral programs should have been state-funded from the start. That’s an example of an unfunded service. n Q. The biennial budget provides for distributing almost $62.5 million to the most hard-pressed school districts and another $20 million in unrestricted funds to municipalities in the 2021 fiscal year. With the school funding issue again before the Supreme Court, should the state be doing what it can to fulfill these commitments? Roche: Legislators will need to prioritize “wants” versus “needs.” BIA has long advocated for a constitutional amendment to give the Legislature the ability to send state education dollars where they are most needed. Distributing state education money on a per-pupil basis without regard to local fiscal capacity is not an efficient or wise use of scarce resources. A constitutional amendment will go a long way toward fairly addressing this challenge.
