1
The Economic and Revenue Trends and Outlooks for New Hampshire
Presentation to The Committee on Ways and MeansJanuary 8, 2013
Brian GottlobPolEcon Research
2
Topics for Discussion
• Some Disclosures, Caveats, and Advice
• NH’s Economic Conditions
• The Revenue Outlook for the Biennium.
• Some Factors That Affect Key Sources of NH Revenue
• “Unknowns” - Hospital Lawsuits, Medicaid etc. Will Have a Large Impact But I Will Not Address Those Issues
3
Year-Over-Year Revenue Growth From Eight Largest "Own Source" General Revenue (2 Qtr. Moving Average)
-15%
-10%
-5%
0%
5%
10%
15%
20%
01 02 03 04 05 06 07 08 09 10 11 12 13
The Past Four Years Have Been Among the State’s Worst on Record for Revenue Growth
Shaded Areas = Recession
4
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
U.S. Emp. Growth Rate
MA Emp. Growth Rate
NH Emp. Growth Rate
NH
NH
Growth is Slower Everywhere but New Hampshire No Longer Leads the Pack in New England
5
During the 1990’s NH’s Private Sector Job Growth Looked More Like a Fast Growing State in the South or West than that of a
Northeastern State
% Change in Private Sector Jobs 1992-2002
0%
10%
20%
30%
40%
50%
60%
70%
80%
Haw
aii
Co
nn
ecti
cut
New
Yo
rkD
CP
enn
sylv
ania
Illi
no
isO
hio
Rh
od
e Is
lan
dA
lab
ama
Ind
ian
aM
isso
uri
Mic
hig
anW
est
Vir
gin
iaIo
wa
New
Jer
sey
Mas
sach
use
tts
Mis
siss
ipp
iW
isco
nsi
nL
ou
isia
na
Was
hin
gto
nT
enn
esse
eK
entu
cky
Cal
ifo
rnia
Ark
ansa
sV
erm
on
tS
ou
th C
aro
lin
aM
ain
eM
ary
lan
dN
ort
h C
aro
lin
aK
ansa
sD
elaw
are
Min
nes
ota
No
rth
Dak
ota
Ala
ska
Neb
rask
aW
yo
min
gO
kla
ho
ma
Ore
go
nS
ou
th D
ako
taV
irg
inia
New
Ham
psh
ire
Mo
nta
na
New
Mex
ico
Tex
asG
eorg
iaF
lori
da
Idah
oC
olo
rad
oU
tah
Ari
zon
aN
evad
a
Source: U.S. Bureau of Labor Statistics, PolEcon calculations
NH
VT ME
6
But Since the Recession of the Early 2000s, NH and Almost Half the States Have Seen Little or No “Net” Private Sector Job Growth
% Change in Private Sector Jobs 2003-2011
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Mic
hig
anO
hio
Rh
od
e Is
lan
dN
ew J
erse
yM
issi
ssip
pi
Ind
ian
aIl
lin
ois
Cal
ifo
rnia
Mai
ne
Ala
bam
aM
isso
uri
Del
awar
eW
isco
nsi
nT
enn
esse
eC
on
nec
ticu
tK
entu
cky
Ark
ansa
sF
lori
da
Ver
mo
nt
Geo
rgia
Mas
sach
use
tts
So
uth
Car
oli
na
Mar
yla
nd
Min
nes
ota
New
Ham
psh
ire
Lo
uis
ian
aK
ansa
sP
enn
sylv
ania
No
rth
Car
oli
na
Ore
go
nN
evad
aIo
wa
Wes
t V
irg
inia
Neb
rask
aC
olo
rad
oV
irg
inia
New
Yo
rkH
awai
iA
rizo
na
New
Mex
ico
Ok
lah
om
aW
ash
ing
ton
Idah
oM
on
tan
aS
ou
th D
ako
taA
lask
aU
tah
Tex
asW
yo
min
gN
ort
h D
ako
ta
Source: U.S. Bureau of Labor Statistics, PolEcon calculations
NH
7
NH is Near the Bottom of All States in Job Growth Over the Past 12 Months
% Job Growth November 2011 to 2012
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
No
rth
Dak
ota
Uta
hH
awai
iT
exas
Ari
zon
aO
kla
ho
ma
Co
lora
do
Mo
nta
na
Idah
oK
entu
cky
Lo
uis
ian
aIn
dia
na
Oh
ioM
inn
eso
taC
alif
orn
iaS
ou
th C
aro
lin
aW
ash
ing
ton
Geo
rgia
No
rth
Car
oli
na
Mas
sach
use
tts
Vir
gin
iaN
evad
aO
reg
on
Flo
rid
aA
rkan
sas
New
Yo
rkT
enn
esse
eIl
lin
ois
Ver
mo
nt
Iow
aP
enn
sylv
ania
Mic
hig
anA
lab
ama
So
uth
Dak
ota
Neb
rask
aM
isso
uri
Mar
yla
nd
New
Jer
sey
Wy
om
ing
Wis
con
sin
Kan
sas
Del
awar
eM
ain
eM
issi
ssip
pi
Co
nn
ecti
cut
NH
Ala
ska
Rh
od
e Is
lan
dN
ew M
exic
oW
est
Vir
gin
ia
NH
MA
VT
8
-0.3%
0.0%
0.3%
0.5%
0.8%
1.0%
1.3%
1.5%
1.8%
2011 2012 2013
U.S. Emp. Growth
NH Emp. Growth
MA Emp. Growth
NH’s Job Growth Trend Has Moved in the Wrong Direction in 2012
Year-Over-Year % Total Non-Farm Job Growth (3 Mos. Moving Average)
NH
MA
U.S.
9The Long-Term: Current Demographic Path Shows the Number of Working Age
NH Residents Will Peak Late This Decade –Potentially Slowing Economic
Growth, Wealth Creation & Revenue Growth
NH Working Age Population (Age 20-64)
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
'80 '85 '90 '95 '00 '05 '10 '15 '20 '25 '30
Projections
Source: U.S. Census Bureau, PolEcon
10Much of the Focus of the Fiscal Implications of Demographics Deals
With Spending – The Impacts are Likely to be as Strong on Revenues.
“Back-of-the-Envelope” Estimates of How Slow Growth in Working Age and Higher Growth in Older Population Will Affect Some Key Sources of State Revenues
• Income Tax (Negatively)
• Interest & Dividends (Somewhat Positively)
• General Sales Tax ( Mostly Negative)
• BET (Negatively)
• BPT (Mostly Neutral to Somewhat Negatively)
• Selective Sales (Mixed)
• Property Tax (Mostly Neutral)
11
The NH Leading Index Dipped Further Into Negative Territory
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
07 08 09 10 11 12
ME Private Emp.
NH Private Emp.
MA Private Emp.
VT Private Emp.
Despite “Holding the Line” on Revenues, NH’s Private Sector Job Growth Rate is Well Below MA and VT. This Doesn’t Mean Raising Revenue Will Increase Emp. But Neither Does it Mean More Revenue Always Slows Employment
Growth
MA
VT
NH
ME
12
Growth in Annualized State General Revenue (Index Jan. 2008 = 100)
80
90
100
110
120
2008 2009 2010 2011 2002 2013
NH ME MA VT
Whether Because of Stronger Economic Growth or Adjustments to Revenue Sources and Rates, Other NE States Have Recovered to
Pre-Recession Levels of Revenue While NH Has Not
NH
MA
VT
ME
13
Year-Over-Year Quarterly NH Emp. Growth & Revenue Growth From Eight Largest "Own Source" General Revenue (2 Qtr. Moving Average)
-15%
-10%
-5%
0%
5%
10%
15%
20%
03 04 05 06 07 08 09 10 11 12 13
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
Yr-to-Yr Revenue Growth
Yr-to-Yr NH Emp. Growth
Absent Policy Changes (Rate and Other Changes to Sources), Emp. Growth (Not the Unemp. Rate) is the Best Indicator of Likely
Revenue Growth
14
The NH Leading Index Dipped Further Into Negative Territory
-40
-30
-20
-10
0
10
20
30
40
86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
NH
Ind
ex V
alue
-6%
-4%
-2%
0%
2%
4%
6%
% C
hang
e in
Em
p. O
ver
12 M
os. P
rior
NH Leading Index
NH Emp. Growth Rate
PolEcon’s NH Leading Index is Signaling Stronger Employment Growth Ahead
15
Year-Over-Year Revenue Growth From Eight Largest "Own Source" General Revenue & PolEcon Leading Index )
-15%
-10%
-5%
0%
5%
10%
15%
20%
01 02 03 04 05 06 07 08 09 10 11 12 13
-35
-25
-15
-5
5
15
25
Yr-to-Yr Revenue Growth
NH Leading Index Value
The NH Leading Index is Also a Reasonable Predictor of Revenue Growth. The Index Suggests Revenue Growth Should Have Been Higher Over Much of the Past
Few Years – The Effects of Policy Changes (Fixable) are One Reason But Structural NH Economic Issues (Not So Fixable) are Another
16
NH Businesss Tax Revenue (BPT+BET) Seasonally Adj. at Annual Rates
$200
$250
$300
$350
$400
$450
$500
$550
$600
$650
$700
02 03 04 05 06 07 08 09 10 11 12 13 14
Actual
Current Path
Moderately StrongerEconomic Growth
PolEcon Forecast
With Current Levels of Economic Growth, Business Taxes Would Increase About 3% Annually and With Even Modest Improvement in NH’s Economy–That Rate of Revenue Growth Would Double
Shaded Area = Recession
17
Annualized Revenue From NH's Eight Largest "Own Source" General Revenues
$800
$900
$1,000
$1,100
$1,200
$1,300
$1,400
$1,500
$1,600
$1,700
$1,800
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Actual Revenues
Current Path
Improved EconomicConditions
The Current Path of Revenue Growth Calls for Minimal Revenue Growth (Just Over 2% Annually) From the 8 Largest Sources of General Revenue. A
Moderately More Optimistic Scenario Calls For Growth of About 4-5% Annually
Forecast
18
The End of the Payroll Tax Reduction Will Cost NH Residents an Estimated $650 Million, Reducing
Consumer Expenditures and Taking an Estimated $12 Million From General Fund Revenues
19
FHFA Prurchase Only Home Price Index (Each Area's Peak = 100)
60
65
70
75
80
85
90
95
100
105
02 03 04 05 06 07 08 09 10 11 12 13
U.S. NH MA
Through QIII 2012, the Federal Housing Finance Agency Repeat Sales Index Shows NH Prices Haven’t Yet Begun to Rebound
MA
NH
U.S.
20
According to the Federal Housing Finance Agency, Only Two States Had Lower Year-Over-Year Price Appreciation in 2012 Than Did NH
QIII 2011 to QIII 2012 Yr. Over Yr. Home Price Appreciation
-5%
0%
5%
10%
15%
20%
25%
Mai
ne
Rh
od
e Is
lan
dN
ew H
amp
shir
eN
ew J
erse
yN
ew Y
ork
Illi
no
isC
on
nec
ticu
tW
isco
nsi
nP
enn
sylv
ania
Ala
ska
Mas
sach
use
tts
Ind
ian
aN
ew M
exic
oN
ort
h C
aro
lin
aW
est
Vir
gin
iaT
enn
esse
eM
ary
lan
dM
isso
uri
Ken
tuck
yIo
wa
Vir
gin
iaA
lab
ama
Ver
mo
nt
Neb
rask
aK
ansa
sO
hio
So
uth
Car
oli
na
Lo
uis
ian
aW
ash
ing
ton
Mis
siss
ipp
iW
yo
min
gO
kla
ho
ma
Ark
ansa
sM
inn
eso
taS
ou
th D
ako
taM
on
tan
aH
awai
iT
exas
Ore
go
nG
eorg
iaD
elaw
are
Co
lora
do
Mic
hig
anC
alif
orn
iaF
lori
da
Uta
hN
evad
aN
ort
h D
ako
taId
aho
Ari
zon
a
Source: Federal Housing Finance Agency Home Price Appreciation Index, Issued November 27, 2012
NH
21
Job Growth (Along With Pop. Growth) Affects Home Sales and Home Price Appreciation – NH’s Slow Job Growth Hampers
Housing Recovery, Home Prices, and thus the Real Estate Transfer Tax
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
-3% -2% -1% 0% 1% 2% 3% 4% 5% 6%
2012 Job Growth
QII
I 20
11 t
o Q
III
2012
Hom
e P
rice
A
pp
reci
atio
n
NH
22
When Households & Business Spend More on Energy (Because of High Oil, Gasoline or Electricity Prices, Discretionary Income is
Lowered, Affecting the Many NH Revenues That Depend on Them
$252
$410
$567
$721
$874
$1,025
$1,174
$1,321
$1,466
$1,610
$1,752
$1,892
$2,030
$206
$336
$464
$591
$716
$840
$962
$1,082
$1,201
$1,319
$1,435
$1,550$1,663
$111$180
$249$317
$384$450
$516$580
$644$707
$770$831
$892
$0
$500
$1,000
$1,500
$2,000
$2,500
$90 $95 $100 $105 $110 $115 $120 $125 $130 $135 $140 $145 $150
Mil
lion
s
Oil Price
ME NH VT
How Much Moe State Residents Spend on Energy by Price of Oil
23
A Large Portion of NH Revenues Depend on “Discretionary Spending.” Anything that Affects Discretionary Spending Will Affect NH Revenues. The Only Way to Measure the Impact of
High Oil and Gasoline Prices on Different Revenue Sources is to “Seasonally Adjust” Revenues to Account for the Patterns of
Higher and Lower Revenue That Normally Occur Throughout the Year for Many Revenues (Example: Some Revenues Always Spike in the Summer When Visits to NH are Higher etc. – That is the Same Time When Gasoline Prices Typically Spike – Does
That Mean Higher Gasoline Prices Lead to Higher Revenues?
No!!!
24
Example: When Gas Price Spikes Monthly Cigarette Sales (on a Seasonally Adjusted Basis) are Reduced
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
2004 2005 2006 2007 2008
-50%
-30%
-10%
10%
30%
50%
70%% Change in Cigarette Sales over Same Month Prior Year (3 mos. Moving Average)
% Change in NH Gasoline Prices Over Same Month Prior Year (3 mos. MovingAverage)
25
Example: Higher Gasoline Prices Lower Real (Inflation Adjusted) Restaurant Sales
NH Gasoline Prices & Growth in Real (Infl. Adjusted) Meals Receipts
105
110
115
120
125
130
135
140
145
2002 2003 2004 2005 2006 2007 2008 2009
Mil
lion
s
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
Real (Inf. Adj.) Seasonally Adj Meals Receipts(3 mos. Moving Avg.)
NH Gasoline Prices
26
The Cigarette Tax is an Example of the Pitfalls and Misinformation (i.e. “NH Loses Money When it Raises the Cigarette Tax Rate”) The Ways and Means Committee Must Confront and Which Hampers Reasoned Policy Debates
Cigarette Tax Revenue and Changes in Tax Rates
$0
$50
$100
$150
$200
$250
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
$.62 Fed Tax Hike& $.45 NH Hike
$.25 NH Tax Hike
$.28 NH Tax Hikes
$.28 NH Tax Hike
$.08 NH Tax Hike$.05 NH Tax Hike
$.10 Fed Tax Hike& $.15 NH Hike
$.10 NH Tax Cut
27
The Tobacco Tax, Because of Rate Adjustments, Helped Keep NH’s Major “Own Source” General Revenues From Falling Even
More Dramatically
NH Revenue Growth 2008 to 2011
($200.6)
$66.4
($134.2)
($250.00)
($200.00)
($150.00)
($100.00)
($50.00)
$0.00
$50.00
$100.00
NH "Own Source"Revenue Growth (8
Largest GeneralRev. Sources)
Growth of TobaccoTax
NH "Own Source"Revenue Growth
(Less Tobacco Tax)
28
Conclusion and Some Editorializing:
• Expect modest revenue growth 2-4%
• Demand sound empirical evidence from advocates and be wary of ideological claims
• Try to keep a record of accurate and inaccurate policy advocates – expect accountability
• NH can weather the storm, if we don’t hamstring ourselves
• Historically NH has avoided fiscal meltdowns because of balance and compromise (even with large political majorities)
• The “Left” had to accept that NH state government would provided “needed” services but few “wanted” services and the “right” had to accept that the tax price (via rates and sources) would sometimes have to be adjusted to fund services
• Today we have less balance and willingness to compromise and thus there is a potential for a larger crisis