The impact of cuts to hospitals and cuts to the tobacco tax rate have resulted in lower-than-anticipated revenues for the month of November, according to the latest revenue report.
Despite the reduced revenue from the tobacco tax and drop in Medicaid taxes from hospitals, revenues from business taxes and the meals and rentals tax, which are indicators of the state's economic condition, were strong.
In fact, state revenues other than the Medicaid Enhancement Tax (MET) and the tobacco tax, are more than $10 million ahead of projections, with business taxes performing about 10 percent ahead of projections.
"We are now experiencing the very real consequences of the legislature's severe cuts to hospitals. Hospitals are holding back on their tax payments, bringing a legal challenge to the MET, cutting off care for thousands of Medicaid patients and laying off thousands of people," Governor John Lynch said.
November revenues were $56 million below projections primarily because of lower-than-expected MET payments from hospitals. To date, hospitals have paid about $50 million less in MET than was projected in the legislature's budget.
The reduction in payments can be directly linked to actions taken by the legislature. In the current biennial budget, the legislature cut about $150 million in payments to the hospitals that are funded by the Medicaid tax. When matching federal funds are added to those payments, the legislature's cut to hospitals equates to $300 million. In response to those changes, hospitals made clear that they intended to try to lower their tax payments.
The New Hampshire departments of Revenue Administration and Health and Human Services will continue to review the hospitals' payments to ensure the provisions of New Hampshire's MET are being followed. In addition, some hospitals have received permission from DRA to make late payments in December.
In addition to cuts to hospitals and the tobacco tax, the legislature's budget also includes a built-in $14 million deficit at the end of this fiscal year.
The legislature cut the rate of the tobacco tax without adjusting revenue estimates. Also, the tobacco tax continues to produce less revenue than the previous fiscal year. For the month of November, tobacco revenues were $3.5 million below projections, and $4.3 million below the prior year. So far this fiscal year, the state has taken in $11 million less in tobacco tax revenues compared to the prior fiscal year.
On the positive side, in addition to strong revenues from sources other than the MET and tobacco tax, strong fiscal management by Governor Lynch and state agency heads has resulted in an unaudited FY 11 surplus estimated at $26 million. That surplus will be carried over to the current budget in accordance with state law.
"The legislature's budget presents a number of challenges. I expect the legislature will be willing to work with me as we continue to manage the challenges and consequences created by its budget," Governor Lynch said.